This paper gives an introduction to Microfinance Institutions (MFIs) informal financial service delivery mechanism which are not under any regulatory framework like the formal sector. So, there is a necessity to internalize a built-in internal control system through self-regulation to mitigate exposure to risk in MFI. In 2.0 sound and reliable management system for MFIs through self-regulation are discussed. Section 3.0 discussed under internal control its basic criteria: appropriateness, consistency and cost effectiveness. In section 4.0 an overview of risk management of MFIs are discussed under different dimensions: governance risk, management risk which are split into operating risk and financial risk. Financial risk is again sub-divided under portfolio risk, liquidity risk and interest risk. Under section 5.0 tools for effective internal control in MFI are discussed. Section 6.0 portrays steps for designing internal controls for MFI. In section 7.0 conclusion has been drawn that the internal control can be expected to provide only reasonable assurance.
Microfinance Institutions (MFIs) are informal financial service providers and are not under any regulatory framework like the formal sector. On the demand side the MFIs offer collateral-free loans. Social collateral replaces material collateral through an intangible micro-network of mutual accountabilities. Again, from the supply side, distinct characteristics of MFIs in Bangladesh are not- for profit organizations. Board members are not shareholders, they do not have financial stakes. MFIs through microcredit programs (MCPs) mobilize poor and distressed target people and extend collateral- free small loans to them with the objective of creating self-employment for poverty alleviation. The most important asset in MFIs is the portfolio, and the