In almost every microfinance institution there is a client spoken of only in half-sentences. They are long-standing, they pay, they grew up with the house, and they now represent a share of outstandings that nobody decided.
Declining them is commercially unthinkable. Keeping them tips the risk-division ratio. And that dilemma, contrary to what is assumed, is not settled in the credit committee — it is settled much earlier, in how the institution identifies what constitutes one and the same risk.
The norm does not say what people think
Risk division ranks among the four breaches that recur most often in the sector's files, alongside the solidarity fund, fixed-asset coverage and the liquidity ratio.
Those four share one property: none deteriorates because of poor commercial activity. They deteriorate through failure to steer the balance-sheet structure or failure of arrangement. Risk division belongs squarely to the second family.
Because the question asked is not "what is my exposure to this client?". It is: "which exposures together constitute a single risk?"
That is not the same thing, and it is where real compliance is decided.
The four links that make a single risk
A set of beneficiaries forms a single risk when the failure of one mechanically entails the failure of the others. In practice, four links produce that effect, and they are rarely all monitored.
The ownership link. Two companies held by the same person or the same family group. The most obvious case, and yet it regularly escapes, because ownership is not always declared and registers are not systematically reconciled.
The management link. Distinct companies run by the same person, with no apparent ownership link. The risk is identical: the same treasury arbitrates, the same signature commits.
The security link. Two unrelated borrowers backed by the same asset — land, a building, equipment. If the security must be enforced, it can satisfy only once. This link is the most insidious because it appears nowhere in client files: it appears only in the security register.
The economic link. A supplier and its three distributors, a principal and its subcontractors. They have separate balance sheets and a single source of revenue. A rupture at the first brings the others down in the same quarter.
An institution that groups only the first link believes it complies. It complies on paper, and it carries a real concentration it does not measure.
Why this is an arrangement problem, not a decision problem
Since the 2015 prudential reform, which extended supervision beyond ratios alone towards operational control, compliance, risk management and internal audit — with a transition to 2020 and inspections intensified from 2021 — the question asked in an inspection has changed in nature.
It is no longer "does your exposure exceed the limit?" but a chain:
- how do you identify that a set of beneficiaries constitutes a single risk?
- is that grouping automatic in your system, or does it rest on a relationship manager's memory?
- who controls it, how often, and where is the evidence?
- when the limit is approached, does the system block, or alert someone who can override?
- if someone can override: who, under what written delegation, and is that override logged?
An institution can be perfectly within the limit on the ratio and perfectly deficient on the chain. That is in fact the most common situation, because the ratio is a by-product of the information system while the chain is an organisational choice nobody formally made.
The client you cannot decline
There remains the concrete case, and it deserves frank rather than moral treatment.
A client who weighs too much is not a compliance problem to be corrected by a refusal. It is a structural signal: outstandings grew faster than own funds. Three routes exist, and none requires losing the client.
Share the risk. Co-financing with another institution, or a portfolio guarantee, reduces net exposure without reducing the relationship. Development institution guarantees cover a substantial share of the risk — up to 75 % for microfinance institutions on certain instruments — and they are widely under-used in the zone.
Strengthen the denominator. Retention of results, capital increase: the limit is a ratio, and both terms can be acted on. It is slower, and it is more durable.
Restructure the exposure. Outstandings concentrated on a single maturity are handled differently from spread, amortising outstandings. Converting a permanent overdraft into an amortising loan reduces exposure over time without reducing the service provided.
What is not a route: observing the breach at the moment an inspection finds it.
Three checks to run this month
- Reconcile the security register against the portfolio. Two borrowers backed by the same asset constitute a single risk. That reconciliation is document-based, internal, and it almost always reveals something.
- Write the grouping rule. Which links trigger a grouping, who identifies them, who controls it. An unwritten rule is not an arrangement.
- Chart the trajectory, not only the level. The ratio of your largest exposure to own funds, over eight quarters. A slope can be corrected; a breach is endured.
A client who is too large is not a commercial failing. It is a commercial success that has outgrown the structure carrying it — and it is the structure that must be adjusted, not the relationship that must be sacrificed.
Published 14 August 2026. The regulatory facts cited are verified as at that date. This article describes a general framework and does not substitute for examination of a specific situation.
