# Risk Management

A key aspect of the operation of a payment scheme that is built around a Mojaloop hub is the management of risk between transacting parties, who will themselves have different appetites for risk. The principles applied are:

1. All Participants (FSPs) are required to deposit an agreed form of liquidity with the Scheme settlement partner. This liquidity can only be withdrawn, in whole or in part, from the Scheme with the agreement of the Scheme Operator.  
2. A transaction will only be cleared (during the Transfer phase) if there is sufficient liquidity available to cover it, as measured against the liquidity balance, the DFSP's current Position (the net total of previously-cleared transactions since the last settlement activity, as either payer or payee), and any reserved funds.  
3. The value of a cleared transaction will be added to the payer DFSP's Position, and debited from the payee DFSP's Position.  
4. During settlement, for each DFSP, a negative Position will be debited from the Liquidity balance and transferred to the settlement partner for distribution to the creditors; a positive Position will be credited to the Liquidity balance by the settlement partner, using funds from the debtors.  
5. Successful settlement clears the value represented by the transactions in the associated settlement window/batch from each DFSP's Position.  
6. A DFSP is expected to manage their liquidity, adding to it if it drops to a level where anticipated transaction values will result in failed transactions, or withdrawing some (on application to the scheme operator) if the value is too high. This activity takes place outside of Mojaloop, but it is a requirement that it is declared within the Mojaloop scheme, by either the DFSP or the settlement partner.  
7. Where the settlement partner is not available 24/7, a DFSP can deposit extra balance to their liquidity account, for example to cover anticipated transactions over a holiday period. A DFSP can manage this extra balance using a Net Debit Cap (NDC), which might be used for example to limit the use of liquidity to the levels that are expected on a particular day, in order to ensure that the DFSP can continue to trade throughout the whole of the holiday period. The NDC is used in tandem with the liquidity balance in the authorisation of transactions during the Quotation phase.