Kafalat 2 Capacity Building

Edition 3:

May 13, 2008 (latest)

Edition 2:

May 8, 2008

Edition 1:

Apr 24, 2008 (shown)

Country:

International

City/Locality:

Beirut

Notice/Contract Number:

561638

Publication Date:

Apr 24, 2008

Deadline:

May 13, 2008

Buyer:

International Finance Corporation (IFC)
Global Financial Markets

Eligibility of Bidders:

IFC is seeking consultants with substantial experience in credit guarantee funds and SME banking. The consultants should also have longstanding experience in organizational audit and business planning, including evaluation and improvement of MIS, procedure manuals, HR processes, and recognized experience in credit rating system. Finally, the consultants should have experience in impact monitoring system, including control group designs.

The chosen consultant team will possess:
- Knowledge of financial institutions management systems and business operations
- Awareness of best practice in SME banking and SME partial credit guarantee systems
- Experience in the implementation of impact monitoring system
- Experience in the implementation of credit rating system
- Familiarity with Lebanese environmental would be appreciated
- Language skills in English and possibly French,
- Experience in providing training to financial institutions

Original Language:

English

Address:

Raiomand Billimoria
International Finance Corporation
2005C Corniche el Nil; North Tower 24th Floor
North Tower, 24th Floor
Cairo
Egypt

Telephone:

+2022-461-9150

Email:

Click here

Web Site:

http://www.ifc.org

66100000 - Financial intermediation services, except investment banking, insurance services and pension services

Solicitation: RFP and TOR (315 KB; Apr 24, 2008)

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The International Finance Corporation is requesting proposals for the capacity building of an SME guarantee fund, Kafalat, in Lebanon.

A. Objectives/Purpose of Assignment

The ultimate objective of this Project is to develop Kafalat’s outreach. By assisting Kalafat, it is expected that IFC will facilitate access to finance for entrepreneurs in Lebanon, a critical step in the reconstruction of the country.

The first phase of the current project has already been carried out. A diagnostic study was conducted in July 2007. The final report, submitted in September 2007, concluded the following: (i) there is a market for Kafalat (provided that the structure of the Lebanese economy does not change/deteriorate significantly in the near future), (ii) Kafalat has an impact on access to finance for SMEs and therefore on the Lebanese economy, (iii) Kafalat should focus on increasing its internal capacity to better serve this market in the next year, before (iv) launching new products and expanding to new types of end clients in 2 or 3 years from now.

The second phase will aim at implementing the capacity building program. Given the current political and economic situation in Lebanon, and given its extremely limited current capacity, Kafalat and IFC decided to focus on internal process upgrade. Therefore, this assignment aims to improve Kafalat’s internal capacity, so that the company will be able to face the growing demand for its services.

B. Scope of Work and Deliverables

In the context of the assignment, the Consultant will work closely with IFC Project Officer and Kafalat management. Kafalat staff will be actively involved in all project components, and support the Consultants.

In line with the objectives of the Project, the Consultant will be expected to carry out the following tasks:

Action 1: Delegate certain decisions to the Banks

Background:
At present, all guarantee applications submitted to Kafalat are subject to internal review before the guarantee is granted. This is time consuming and occasionally takes up to two months, as opposed to a targeted turn-around time of less than 3 weeks. Delegating certain decisions to the banks could reduce processing times to a large extent: Kafalat would not review the SME application before the guarantee is granted; files would still be sent by banks to Kafalat immediately after a guaranteed loan has been issued; and Kafalat would be able to conduct ex-post reviews of outstanding guarantees at any time, and would systematically check all defaulting operations. The logic of delegation is based on the fact that the bank operates under its own responsibility, and so would not be able to call on the guarantee if the defaulting loan did not comply with Kafalat rules and conditions. This delegation should initially be granted only to banks that have shown a loyal and fair relationship with Kafalat in the past.

Objective:
To improve efficiency in the guarantee review and approval process by delegating certain approval limits to participating banks.

The consultants will:
• Create a working group within Kafalat to (i) identify possible operations to delegate (identify SMEs/guarantees that bear less risks and whose authorization could be delegated to banks, according to size, sectors, project type, etc.) and (ii) define the bank selection process (analyze banks’ performance and recommend criteria to select banks who could be delegated decision authority); and finally (iii) develop the new approach (bank selection criteria, delegation process and limits, portfolio monitoring process, guarantee execution process and ex-post reviews);
• Organize round tables with banks and other stakeholders (such as the Bankers Association) to discuss the proposed approach;
• Formalize the new approach and deliver the new procedure manual;
• Write relevant documentation for internal approval of the new approach;
• Assist Kafalat in updating the MIS to integrate, keep track and control guarantees granted with this new approach;
• Write relevant documentation/contracts with banks to implement the new approach;
• Develop a training for Kafalat and banks staff on the new procedures;
• Launch a pilot; organise periodical meetings with participating banks; and after a few months, assist Kafalat staff in reviewing the portfolio built under this new approach and adjust the approach if necessary.

Deliverables:
• Recommendations on changes that should be made to legal documentation, such as contracts with banks, to increase the delegation to banks;
• Procedure manual and forms to manage these specific operations (bank selection procedure, delegation process, description of banks responsibilities vs. Kafalat responsibilities, internal monitoring process, forms, etc.);
• Training content for Kafalat and banks staff.

Action 2: Create internal delegations

Background:
Kafalat staff has suitable technical capabilities to make independent credit decisions within given risk parameters; experience has shown that management accepts the credit team’s recommendations in over 90% of cases. However decisions remain 100% centralized. Increasing internal delegation will help reduce administrative bottlenecks. An Appointed Person could be authorized to approve transactions up to certain limits without reference to the Credit Committee. Larger or more complex operations would continue to be referred to the Credit Committee or to the Managing Director.

Objective:
To reduce administrative bottlenecks, by increasing internal decision-making delegation.

The consultants will:
• Define the operations that would be suitable for internal delegation;
• Define reporting requirements and quality control parameters for delegated decisions;
• Prepare document summarizing items above for Board decision;
• Adapt internal procedure manual.

Deliverables:
• New procedure, including reporting templates.

Action 3: Improve internal efficiency and capacity

Background:
Recently, transaction volumes have been increased substantially. Kafalat’s internal procedures and systems need to be reviewed and upgraded in order to ensure optimum efficiency while maintaining prudent operating standards.

Objective:
To ensure that Kafalat’s internal organization and technical capacities are set at the best possible level, so as to provide highest possible service quality.

The consultants will:
• Conduct a detailed review of all internal processes and organizational structure and compare to best practice procedures in the SME partial guarantee industry. A technical review of documents, procedures and organizational set-up should help find productivity gains. The study should consider Kafalat’s needs not only for the present situation, but should also make proposals for the structure it should have in five years;
• Propose a new organizational chart;
• Elaborate a user friendly credit manual, explaining the process from credit decision to recoveries, and that could also be used to train new staff;
• Conduct a detailed review of the management information system, including an audit of the database structure, quality control of data entry and the integration of simulation instruments related to existing and future data; Propose amendments to the software to facilitate queries and data comparison; Design reporting process (template reports and analysis to be provided to management on a regular basis);
• Write the functional request for proposal (RFP) to acquire relevant tools/systems/equipments, if necessary, and assist Kafalat in selecting vendors, while maintaining the decision process fully objective;
• Propose a staffing plan; help recruit, if necessary, junior and support staff to enable more senior staff to concentrate on higher value added activities.

Deliverables:
• Review of internal processes and organizational structure, including review of MIS;
• New organizational chart, with job descriptions and staff profile; staffing plan;
• Credit manual
• Description of reporting process
• RFP for MIS development, if needed;

Action 4: Improve communication with banks & Promote competition among banks

Background:
Kafalat faces a population of over 800 bank branches, plus special SME teams in bank headquarters. Kafalat credit staff currently spends a lot of time dealing with telephone enquiries that originate both from the banks and directly from SMEs. To improve the quality and access to relevant information about Kafalat products will help.

Objective:
To reduce bottlenecks by improving the quality and access to relevant information about Kafalat products and services. Simultaneously, efforts could be made to encourage the counterpart banks to improve their own internal processes in order to reach higher volumes than their competitors.

The consultants will:
• Make proposal to improve quality and frequency of technical contacts with counterpart banks, including regular meetings and training sessions;
• Develop and help distribute product data sheets;
• Assist in appointing and training a Customer Representative Officer within Kafalat with responsibility for developing and maintaining contacts with banks and for ensuring that information about Kafalat’s products and services is disseminated throughout the banking network;
• Update and streamline the content and features of the Kafalat website, to include product information, technical guidelines and templates for application forms;
• Propose preferential terms and conditions to be introduced for banks with high volume usage and good quality portfolios;
• Propose a plan to make greater use of newspaper articles with data about SME borrowing and availability of support for SME finance through guarantee programs.

Deliverables:
• Product data sheets;
• New website;
• Marketing and communication strategy.

Action 5: Improve and finalize the risk rating system currently being developed by Kafalat

Background:
Kafalat does not have a risk rating system. Such a tool could be useful at several levels of the organization. Rating is based on the financial and economic analysis of the borrower and his project. It makes it possible to segment the portfolio in homogeneous classes of risks, with SMEs that bear a similar probability of default. Kafalat could precisely establish probability of default for each class of risks, based on historical rates. It would help increase efficiency in the decision making process, better adapt equity multipliers (i.e. equity to portfolio ratio), communicate solid information to third parties such as donors and the banking system, to illustrate and justify Kafalat’s activity.

Objective:
To improve the quality of Kafalat decision-making and portfolio monitoring, by developing a risk rating system.

Kafalat recently recruited an additional resource to develop a rating system from scratch. The consultants will review the work done by this staff/consultant and will:
• Clarify principles and operational elements of a risk rating system including risk factors and weighting rules for each type of SME (i.e. start ups, existing enterprises, exporters, etc.);
• Assess and improve the system currently being developed: test proposed scale of risks on a sample of past files; assess its integration into Kafalat MIS and management decisions; improve the system to fit Kafalat’s needs;
• List adaptation to be made to the information system to compute and store the ratings;
• Integrate risk rating into management decisioning process, and planning (as an instrument for loss prediction and definition of risk multipliers).

Deliverables:
• Risk rating system, integrated into procedures, with recommendations as to changes to be made to the MIS to compute and store the ratings.

Action 6: Set up a structured impact measurement system

Background:
Kafalat has no structured methodology to measure its impact on SME access to finance and no system to track impact on SMEs. Assessing its impact will help Kafalat not only justify the use of public funds but will also, if needed, provide new elements to better design its product offer.

Objective:
The goal is to include impact measurement tools in Kafalat day to day operations in order to (i) to track the evolution of Kafalat SME clients during the guarantee maturity and (ii) to compare this evolution with SMEs who did not receive a Kafalat guarantee (SMEs in similar sectors, of similar sizes, with similar ambitions). This impact measurement system should not slow down Kafalat appraisal process nor should it require too much staff time.

The consultants will:
• Propose indicators and a methodology, including the creation of control groups and the design of a process to update information on clients regularly, to measure Kafalat’s impact on the SME segment in Lebanon. This process should be completely integrated in Kafalat day to day operations so as to create minimum additional work.
• Once this proposal is accepted by Kafalat, make necessary changes to application forms and database; propose an internal organization to support impact monitoring (such as nominating and training a staff in charge); launch a pilot test and afterwards make necessary adjustments to the methodology.

Deliverables:
• Impact measurement strategy;
• Impact measurement system and pilot survey.

A detailed Request for Proposal, including a TOR, is attached to this notice.

Please contact Alice Negre, anegre@ifc.org , if you have any questions.

With best regards,

Alice Negre
Raiomand Billimoria
IFC/PEP MENA
Nile City Towers, North Tower
2005C, Corniche El Nil, Ramlet Boulac
Cairo
Egypt
Email: anegre@ifc.org
rbillimoria@ifc.org

Kafalat 2 Capacity Building

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