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Assessing Investment Risk and Key Risk Triggers & Indicators Of Beneficiaries/Borrowers.

Managing Risk when Investing in Emerging Markets


Profitability and sustainable growth are extremely critical for financial institutions doing business in developing economies and India is no exception. India being the most industrially developed country in South Asia has unique investment opportunities across different sectors including real estate, renewable energy, agri sectors etc. While India is one of the most preferred investment destinations, risk assessment is very important to ensure investors interests are secured.


Need for Robust Risk Management Processes


Positive policy stance of inviting FDIs in the Real Estate sector in India has necessitated the adoption of globally accepted standards of valuation & risk management

The objective of this document is to highlight the importance of robust risk assessment and management for investments in growing sectors such as real estate, renewable energy, agri sectors and manufacturing taking into consideration surging demand in real estate and housing. Evaluating this risk is extremely critical as these investments or lending operate in the highly combustible B2B business space.

The two key pillars towards ensuring risk mitigation on aforementioned are assessing credit worthiness & sustainability of the beneficiary and constantly tracking these recipient businesses to ensure their relevance in the current situation. It is critical for investing companies to partner with Risk Consulting and Automation Firms, to ensure that these two pillars continuously monitor the performance of underlined entities. This should be a mandate for businesses investing in emerging markets.

CARE Risk Solutions

Your partner in setting up a powerful Risk Management Framework

Established in 2005, CARE Risk Solutions is a wholly owned subsidiary of CARE Ratings ltd. With a proven track record of providing Risk & Compliance solutions for financial Institutions, CARE Risk Solutions has implemented over 80+ projects across Asia, Middle East and Africa,. We consistently focus on client expectations and helping financial institutions in governance and control of Financial and Operational risks.

Our State of Art Risk Management Consulting & solutions, backed by cognitive technology has helped banks detect early warnings, and,provide them with a holistic view risk framework for effective controls and governance.

Our expert team of risk practitioners are continuously leveraging the learnings and helping organizations in adapting our modern risk frameworks, overcoming the traditional monolith methods with simplicity and ease.

Credit Rating/Risk Modelling to Assess New and Existing Investments


Our credit risk scoring cosulting and software platform ensures learning 360 degree view of borrower/beneficiary information specially from business, financial and sector specific angles.


There are two unique scenarios when investors should assess the businesses/projects towards investments.

1. Credit Risk or Risk Modelling Assessment prior taking decision of investments in new businesses/projects. Our credit or risk modelling allows you to assess the entities from various risk angles e.g. Financial, Business, Management, Industry risks & risks via Transactional Assessment. With the mixed approach of expert judgements or/and statastical methods, we will ensure that the entities are assessed from all crucial angles and rate them on risk based scale to support your critical decisions. Below is brief schematic representation how we look into entities in which you would want to make investments.

This will be diligently done with the help of historical and current informaiton from these entities/ businesses as a set estabilished framework. Another key benefit is that the sector specific information and other key informaiton regarding industry outlook will be available via our group company which is one of the largest credit rating agency in India with vast experience on real estate and infrastructure domain.


Risk/ Credit Modelling Approach


2. Monitoring risk involved with businesses you have already invested in

The assessment mentioned in above point 1 also applies towards the businesses where the investments have already been made. Across various risk areas, our Credit or Risk Models will ensure scoring the entities/businesses on periodical and on-demand basis to ensure risk assessment on constant basis.

Risk assessments from above two points will constantly be available for investors for their review and also will build the base for historical risk data-mart which will be used in near or long term future decision making.


Early Warning Signals & Triggers to secure investments

Our credit risk scoring cosulting and software platform ensures learning 360 degree view of borrower/beneficiary information specially from business, financial and sector specific angles.

Our another critical proposition with the help of our Early Warning Platform - ConstaCheck is that it will enable investors to select key risk indicators (financial and non-financial) and set specific rules to monitor the entities in which investments are made. Early warning signals (EWS) is a set of guided processes for identifying risks at a nascent stage.


Early Warning Signals Process Flow - Proactive Risk Monitoring


Some of the key indicators which can be covered are:

  • Financial Indicators -Monitoring of financial books and triggering anomolies there-in.

  • Industry Indicators – Periodic checks on performance of industry along with any risks.

  • Account Conduct Indicators –Based on the accounting statements or details, running checks on anomalies which are risk indicators.

  • Behavioural Indicators – Key triggers such as auditor changed, related party transactions, sudden management changes, sentiment analysis.

  • Audit report indicators – Key triggers such as changes in drawing power, piling of inventory etc.

  • Mitigation action plan – System will facilitate relevant user/person with notification which will enable investors to take corrective action.

Above mentioned triggers are automated system-driven and investors can be given access for online review and POA (plan of action). At the same time, proactive alerts along with risk assessment reports can be sent to relevant autorities as per business rules. This not only ensures that risk is located but at the same time makes sure that relevant party is communicated well in advance or on trigger occurance.


Industry Outlook, Economy Outlook Reports & Articles

In addition, well curated articles from our Economists will be part of the service towards outlook on industry, economy etc.

Conclusion

The above risk assessment methods and indicators of investment, as a rule, are used when analysing beneficiary entity’s efficiency and enable making the right decisions when choosing right investment opportunities and avoiding risky ones. At the same time, these criterions reflect the process of making investment decision in the presence of risk and uncertainty, which are prevalent in emerging markets. CARE Risk’s Credit Rating Platform and Early Warning Signals Platform coupled with expert risk modelling consulting will be part of the aforementioned engagement.


Blog Author: Vishwanath Gurav

Vishwanath.gurav@carerisksolutions.com

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