MICROFINANCE CONSULTANCY SERVICES
Microfinance is the provision of financial services to low-income groups and households such as entire families and micro enterprises. Its principal targets are the poor that lack finances and collateral thereby ineligible for commercial loans from the deposit money Banks, and other conventional financial institutions.
It has long been recognized that microfinance has the potential to transform the lives of the poor as it gives them access to capital for micro enterprises, tuition for children education, loan to repair houses or improve their dwelling places
In Nigeria, microfinance in the form of ‘’esusu’’ periodic collection (Ajo), Rotating Savings and Credit Association ( RSACA) etc had existed for ages in informal, uncoordinated, unregistered, expensive and un-patterned manners. These arrangements have limited outreach and constrained by scarcity of loanable funds. This is unlike what operates in developing countries such as Bangladesh, Indonesia, Philippines etc. where microfinance system has transformed their economies.
Having recognized the imperative of Microfinance in poverty alleviation and employment generation, the Federal Government launched Microfinance Policy, Regulatory and Supervisory Framework for Nigeria in 2005.
The objectives of the policy are:
- Make financial services accessible to a large segment of the potentially productive Nigerian population which otherwise would have little on no access to Financial services;
- Promote synergy and mainstream of the informal sub sector into the national financial system;
- Enhance Service delivery by microfinance institutions to micro, small and medium entrepreneurs;
- Contribute to rural transformation; and
- Promote linkage programmes between Universal/Development banks, specialized institutions and Microfinance Banks.
DEVELOPMENT IN MICROFINANCE SYSTEM FROM 2005 TO DATE
Under the Microfinance Policy, Regulatory and Supervisory Framework, about 900 microfinance Banks were licensed and started operations. Within a short period of operation, some of the Microfinance Bank have closed shops while a lot are still finding it difficult to fulfill their social and financial sustainability missions. The challenges being faced by the Microfinance Banks are predicated on:
- Lack of knowledge of the principles and fundamentals of microfinance;
- Dearth of skill in product development;
- Poor risk management
- Inappropriate client selection
- Poor account management
- Inexperienced staff
- Poor lending methodology
- Governance issue
- Poor marketing strategies
- Bad organizational structure Inadequate accounting and management information system, to mention a few. It is in the light of the above that BOAZ Management and Financial Strategies Limited offers services ranging from TOTAL RESTRUCTURING, PRODUCT DEVELOPMENT,DELINQUENCY PREVENTION AND MANAGEMENT, LOAN PORTFOLIO MANAGEMENT, RISK MANAGEMENT AND INTERNAL CONTROL MEASURES etc, in Microfinance Banking
LOAN PORTFOLIO MANAGEMENT
Loan portfolio management is the process by which risks that are inherent in the credit process are managed and controlled.
Lending is the principal business activity of Microfinance Banks. The loan portfolio is typically the largest asset and the predominant source of revenue. As such, it is one of the greatest sources of risks to a bank’s safety and soundness. Whether due to lax credit standards, poor portfolio risk management or weakness in the economy, loan portfolio problems have historically been the major cause of bank failures.
Effective management of the loan portfolio and the credit function is fundamental to a banks safety and soundness.
We guide Microfinance Banks in undertaking the following procedures
- Assessment of the credit culture;
- Portfolio objective and risk tolerance limits;
- Management Information Systems;
- Portfolio segmentation and risk diversification objective;
- Stress testing portfolios;
- Independent and effective control function; and
- Analysis of portfolio risk/reward trade off.
- Understanding and preventing credit risk;
- Understanding and preventing interest rate risk;
- Understanding methods of setting sustainable interest rate;
- Understanding loan loss provisioning; and
- Effective collection strategy.
CLIENTS SELECTION AND MANAGEMENT
The success or failure of any microfinance bank is principally dependent on the quality of its clientele.
This is due to the nature of its target customers who are majorly self employed low income entrepreneurs in both urban and rural areas with little or no collateral for Deposit Money Banks and other conventional financial institutions.
It therefore becomes imperative for microfinance operators to learn the art of good Client selection. Our research has shown that poor client selection contributes largely to poor portfolio quality that is endangering our microfinance banks.
Our services shall avail our clients the skill to identify typical microfinance client. We will guide them to know:
- Client entrepreneurial skills
- Client repayment behaviour
- Client stability and responsibility
- Client reputation in the community
The benefits at the end of our services includes
- Ability to identify and locate good quality clients that results in good Portfolio quality.
- Ability to attract clients that can access loan and repay without delay.
- Ability to identify entrepreneurial customers that lack the needed funds to grow their businesses.
DELINQUENCY PREVENTION & MANAGEMENT
“Credit without strict discipline is nothing but charity. Charity does not help to overcome poverty. Poverty is a disease that has a paralyzing effect on mind and body. A meaningful poverty alleviation program is one that helps people gather well and strength to make cracks in the walls around them”. MOHAMMED YUNUS.
Loan portfolio is the most important and largest asset of a typical Microfinance Bank, as it generates income (interest and fees). The motivation for a client’s prompt repayment is the expectation to get a bigger loan with advancing cycles. Any outbreak of loan delinquency can quickly spin out of control and can cause havoc for the Microfinance Bank.
Hence, the assurance that this asset (loan portfolio) is safely guarded (from delinquency) is very crucial for any Microfinance Institution. However, many Microfinance Banks lack proper delinquency management, policies and procedures. We attempt to help Microfinance Bank work towards building/strengthening their delinquency management policies and procedures and adopt best practice.
We guide our clients to understand:
- Delinquency prevention techniques;
- Techniques for measuring delinquency;
- Portfolio at risk (PAR);
- Means of reducing Portfolio at risk; and
- Past due amount.
Application of Basic Principles of Lending such as:
- Character-based lending
- Cash flow-based lending
- Project-based lending with emphasis on:
- Method of estimating client Net Cash Flow
- Method of client character investigation.
- Method of client business investigation
MARKET REASEARCH AND PRODUCT DEVELOPMENT
As the microfinance market has become competitive in developing nations, service providers need to pay much more attention to consumers preferences and priorities in defining what and how Financial Services should be delivered to them.
Service quality is now considered a key success factor for the Microfinance Banks in the current competitive environment. This requires
- Learning how to listen to clients;
- Gathering data about demand;
- Learning how to analyze the data in ways that will inform decision making; and
- Implementing new process for product design, development and delivery;
However, a gap has been observed in the capacity of our Microfinance Banks in the use of Market Research tool for designing product and serving clients more effectively.
At the same time, new and innovative tools have been developed to support market research capacity in Microfinance Banks. Traditionally, Microfinance Banks use quantitative market research methods to estimate demand. Little was known about qualitative methods which are more appropriate for looking at consumers preferences and determines the product attributes that correspond to such preference.
In view of the above, we guide our clients to:
- Improve the quality of the products and services offered to customer;
- Increase the competitiveness of their banks;
- Conduct efficient and effective market research.
- Ability to understand the process of data collection;
- Differentiate different types of market research;
- Advantage to carrying out market research ;
- Product development process;
- Methodology of re-designing exiting financial product; and
- Carrying out successful pilot testing.
RISK MANAGEMENT& INTERNAL CONTROL MEASURES
For Microfinance Banks, the risk of income loss due to processing errors, inadequate Information, non compliance with loan policy, excessive concentration of credit Risk, counterfeit collateral and employee fraud are major risk exposures.
A typical Microfinance bank provides small loans to a large number of clients and Consequently handles a large number of transactions. The sheer volume of Transactions requires that risk be reduced both before disbursement through Client appraisal as well as post disbursement. Through a regular and comprehensive Portfolio tracking system.
Adopting effective control mechanisms relative to loan administration and Management is beneficial to microfinance bank in terms of cost reduction, Control of lapses and weaknesses in loan administration, as well as increasing Financial income and preventing future losses. Portfolio control performs Preventive feedback function in the larger internal control system, making it a
Critical aspect in the microfinance bank operations.
We assist in:
- Institutionalizing of internal audit procedures and risk management systems; and
- Developing strategies that will enable microfinance bank manage risks and prevent
- Installation of Internal control system through MIS customization:
- Setting up of Banking Offices for a streamlined management of operations:
- Enforcement of control process through the installation of incentives:and
- Incentive at the branch level using Risk Adjusted Return on Capital (RAROC) to prevent losses.
STAFF RECRUITMENT AND TRANINING
Recruitment is not just a number game, the process of finding quality staff starts by recognizing candidates as available human resources.
The task of finding the perfect staff is neither simple nor quick. Finding a relevant candidate to fill a position is one thing, retaining him or her is another. Our duty in this regard is to look for the right candidate and induct our clients in the practice of employee retention.
Our services will enable our clients to:
- Identify core areas of need in their organization;
- Advertise for the vacant positions;
- Interview the candidates;
- Recommend suitable candidates for employment;
- Analyze the training needs of staff; and
- Package and organize training on the core areas of microfinance operations.
- Getting the right employees for our clients;
- Assisting in developing such employees;
- Compensation and benefits plan; and
- Reduction in labour turnover.
Management retreat has become a necessity in top Management. It involves key Officers of a Corporation (public and private) moving from their regular place of work to a different, serene and conducive environment for operational reviews, deep thoughts, plans and strategy crafting.
This is usually carried out with the guidance of a facilitating Consultant.
Such retreats normally take about 2days.
Diagnosis of challenges facing the establishment
Identification of strength and opportunities
Crafting the way forward.