Risk management is crucial in microfinance because it helps mitigate potential financial losses and protects both microfinance institutions and borrowers. Microfinance involves providing financial services to low-income individuals and small businesses, who may have limited access to traditional banking services. By identifying and managing risks such as credit risk, operational risk, and market risk, microfinance institutions can ensure the sustainability of their operations and continue providing much-needed financial support to vulnerable communities without compromising their own financial stability.