Credit risk results from a client’s unwillingness or inability to repay its loans. Because a MFI’s most important asset om the loan portfolio, one of the MFI’s key concerns is the amount of credit risk it has in the portfolio. Product pricing must reflect credit risk and the MFI must build and maintain the institutional capacity to manage that risk. Risk should not be necessarily be seen as negative. Lending is the business of making money from taking risks for which borrowers will pay. Thus, measuring and managing risk in the portfolio are crucial to managing future earnings.