Research Report

Transcription

1 Lessons learned from the delivery of Technical Assistance to microfinance entities Research Report

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3 The ideas and opinions expressed herein are those of the authors and do not necessarily reflect the views of the IDB/MIF BIO, NORFUND and FMO. This research study was conducted in coordination with the LOCFUND team headquartered in Bolivia, and the collection of data was made possible thanks to the goodwill and cooperation of the executives and staff of 24 microfinance entities in Argentina, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Peru and the Dominican Republic. The research process and its publication were made possible thanks to the financial support of the Multilateral Investment Fund, a member of the Inter-Development Bank (IDB/MIF), the Norwegian Investment Fund for Developing Countries (NORFUND), the Belgian Investment Company for Developing Countries (BIO), the Netherlands Development Finance Company (FMO) and the Bolivian Investment Management Limited (BIM Ltd.). The contents and results presented have been developed to serve as experience parameters and guidance for future technical assistance programs. It is also hoped that the information provided serve to encourage the strengthening of inter-institutional relations between players in this industry, as well as the replication of identified good practices. 3

4 TSF LOCFUND Donor BIM BIM is a fund management company with over fourteen years experience in investment funds. It has designed, created and managed various funds and investment instruments for almost 70 million dollars. BIM has a team that specializes in microfinance and capital markets and total assets under its administration today are worth 60 million dollars, principally targeting microfinancing in the Latin America and Caribbean region. BIO BIO is the Belgian Investment Company for Developing Countries ("Société belge d Investissement pour les Pays en Développement"), whose mission is to support the development of a strong private sector in the emerging and developing countries, to enable them to grow and achieve a sustainable development, within the framework of the Millennium Development Goals. BIO invests directly in private sector projects and as such makes a structural contribution to the socio-economic growth of countries where it operates. FMO FMO is the Dutch development bank that supports sustainable private sector growth in developing and emerging markets by investing in companies that seek to grow. They believe that a strong private sector leads to economic and social development, empowering people to use their skills and improve their quality of life. MIF The Multilateral Investment Fund creates economic growth opportunities and reduces poverty in Latin America and the Caribbean through innovative business models that benefit entrepreneurs and poor and lowincome households. It achieves this through the development, financing and execution of projects, while working with a broad variety of partners from the private, public and non-profit sectors, whilst evaluating results and sharing lessons learned. NORFUND The Norwegian Investment Fund for Developing Countries is an investment company dedicated to the creation and development of profitable and sustainable enterprises in poor countries. Its aim is to contribute to economic growth and poverty alleviation. NORFUND invests capital in enterprises, directly and indirectly, through funds as well as the granting of loans to individual enterprises. 4

5 CONTENTS Page FOREWORD... 7 EXECUTIVE SUMMARY BACKGROUND CORPORATE GOVERNANCE APPROACH TO THE TECHNICAL ASSISTANCE OPERATIONS DEVELOPMENT OF THE TECHNICAL ASSISTANCE OPERATIONS THE RESEARCH PROCESS Data collection The Formulation of Indicators RESULTS Valuation of Indicators Data obtained from the questionnaire The experiences of the different entities LESSONS LEARNED Concerning the methodology Concerning the training FINAL ANALYSIS Conclusions Recommendations ACKNOWLEDGEMENTS 34 Annex 1 - Technical assistances operations performed between may 2007 and march 2012 Annex 2 - Topics treated during the first rounds of the TA Annex 3 - Lessons learned survey Annex 4 - Microfinance institutions that responded to the survey Annex 5 - Request for funding 5

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7 FOREWORD The investors of LOCFUND, the first local currency loan fund for microfinance entities of Latin America and the Caribbean, have very wisely included non-reimbursable funds for technical assistance to entities in the subject of asset and liability management. This technical assistance was to be implemented through the usual practice of technical cooperation agencies for hiring consultants, occasionally recommended by the agencies themselves and/ or by following contracting procedures that involve evaluation of curricula vitae and other requirements, which would turn it into a slow process dependent on the availability of professionals at times that may be inconvenient for the institutions that were to receive such support from LOCFUND. Considering that LOCFUND would be the first lending experience in local currency to microfinance institutions of the region, the work of placing the loans as well as that of the technical assistance had to be properly coordinated to achieve the results expected, which include: excellent institution credit portfolio quality and optimal management of their assets and liabilities. Therefore, the credit operations generated with the funds received from LOCFUND should benefit from the knowledge produced by these results in the financial area. Having had previous experience in traditional methods of providing technical assistance sessions, these did not seem most appropriate for what we were starting through LOCFUND or for what its proponents wanted to accomplish. This is why I proposed and managed to convince LOCFUND investors to introduce a different format for the technical assistance component: the availability of the same professional offering technical assistance through coaching or on-site training with a one-on-one approach delivered to professionals of the microfinance institutions who are responsible for the management and follow up of the loans received, the microcredits granted and their recovery. The Lessons Learned presented below clearly highlight the commitment and consequent coordination within LOCFUND between the executives, loan officers and the consultant/ coach, Pedro Fardella, to develop a personalized technical assistance methodology oriented towards the diversity of countries as well as that of microcredit practices of microfinance institutions supported by this fund. Pilar Ramírez LOCFUND General Manager June 2006 to June

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9 EXECUTIVE SUMMARY LOCFUND has been conducting Technical Assistance rounds since 2007 thanks to IDB/MIF, NORFUND, BIO and FMO grants. This TA aims at strengthening the capacity building of its recipients (microfinance institutions of Latin America and the Caribbean) through support in the following areas: (i) the development of products for diverse financing and hedging instruments; (ii) the training of staff of microfinance institutions (MFIs) in asset and liability management techniques; and (iii) the development of new financial instruments and products to stimulate financing in local currency. The TA also allows complementing organization, management, financial and operational services, whenever necessary, and the provision of loans or other financing instruments. Since its inception all the way through to March 2011, the TSF has granted resources for 73 technical assistance operations, which include training, workshops and other activities. Considering the results achieved during that period, the preparation of this document was launched with the idea of capturing the experiences- both negative and positive- which would serve as target parameters for future technical assistance programs, thus generating greater added value as much for the beneficiary institutions as well as end clients. Among this experience s major findings is the evident satisfaction of institutions with the TA service, whose results have generally surpassed the expectations of MFIs and whose impact levels have substantially benefited the recipients institutional development. The coaching methodology and the practical experience of consultants allow for the achievement of effective results and their immediate implementation. Also noteworthy is the realization that practically all of the institutions in all of the countries visited share similar problems and concerns, while proposed solutions and alternatives are implemented almost immediately, which rapidly reveals positive changes in operability and indicators. The employees trained have assumed the certainty that risk is the responsibility of all areas within the institution and they have been endowed with instruments for identifying risk ex ante. The detection of certain aspects that exhibit levels of weakness in some of the TA processes lead to the conclusion that it is important to place greater emphasis on the earlier stages of diagnosis as well as on subsequent follow-up. In this way the effectiveness of coaching can be enhanced. Also worth highlighting is the expertise of the consultants hired, whose profiles include a broad and practical background in the microfinance sector. These factors proved to be critical when combined with onsite training. From the viewpoint of the donors and TSF-LOCFUND co-financing of the TA is positive, since greater commitment, involvement, interest, drive and higher levels of efficiency in the microfinance institution are observed. This research study has revealed that while there are still aspects that require strengthening, the type of technical assistance developed by TSF-LOCFUND is an achievement in the field of local currency funding for the microfinance industry, which gives the service an added value since it has allowed to optimize results and provide additional benefits to clients. 9

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11 1. BACKGROUND Since 2007 LOCFUND has been performing Technical Assistance (TA) activities that are implemented within the framework of the Technical Support Agreement (TSF Agreement) entered into with the IDB/MIF, NORFUND, BIO and FMO. This TA aims at strengthening the capacity building of its recipients through support in the following areas: (i) the development of products for diverse financing and hedging instruments; (ii) the training of staff at microfinance institutions (MFIs) in asset and liability management techniques; and (iii) the development of new financial instruments and products to stimulate financing in local currency. The TA allows complementing organization, management, financial and operational services, whenever necessary, and the provision of loans or other financing instruments. The funds allocated to the TA primarily focus on two major components: Component I: The development and dissemination of a local-currency funding model, understood as the preparation of legal and operational documents, and manuals for the funding, hedging and financial instruments services offered by LOCFUND. The purpose of this component is to develop hedging tools and instruments for improved exchange risk management in debt operations, as well as to promote funding in local currencies through the development-on the part of LOCFUND- of new tools and financial products. Component II: Capacity building at LOCFUND client microfinance institutions (MFIs) so as to strengthen their capacity to manage assets and liabilities. The purpose of this component is to strengthen the capacities of MFIs through technical assistance to increase the skills of managers in the aforementioned management practices. With reference to Component I, the following summary of activities is available: In 2007, TSF LOCFUND financed the development of a local currency model and a guide for local currency loans. During 2008, TSF LOCFUND financed the creation of a model for improving exchange rate risk management in loan operations. In 2009, TSF LOCFUND financed a consulting operation for the review and analysis of the local currency loan model, the review of hedge instruments and the different hedging strategies available. Finally, TSF LOCFUND financed 20 legal services to obtain legal opinion on loan disbursements and the preparation of debt contracts and hedging operations contracts. The present report is based on the development of activities carried forth in agreement with Component II of the TSF Agreement. 11

12 2. CORPORATE GOVERNANCE In relation to the corporate governance of TSF LOCFUND, the Donor Committee is comprised of one representative for each Donor organization. The procedure for the allocation of TSF- LOCFUND resources is as follows: Definition of TA Topic 1. TSF Donors 2. Investors and Advisory Committee 3. Investment Officer 4. Portfolio Monitoring Officer 5. TA Coordinator 6. MFI The definition of the topic may be suggested by the recipient microfinance institution as well as by the TSF Donors, the LOCFUND investors (through the Credit Committee or the Advisory Committee), the investment officer, the portfolio monitoring officer during follow-up activities or by the TA coordinator during any visit. Finally, the Donor Committee approves TA requests on a case-by-case basis and based on a request for funds (Annex 5). TA requests are submitted for each project and, based on this requirement, the Donors may decide to approve, suggest changes to original proposal, or reject the TA. Nonetheless, it is important to mention that this last option has never taken place. Approvals, doubts and/or comments are shared and answered by electronic mail and, if necessary, a telephone meeting or audiovisual conference is convened via the Internet. An in-person meeting with Donors is carried out twice a year, where the following reports are presented: TSF general balance and income statement. Activities carried out since the beginning of TSF. Topic Approval and TA Design TSF Donor Committee Detail of activities developed during the last six months. Expenditures incurred for each activity since the beginning of TSF. Comparison between the budget requested for each project and the actual expenditures made. Budget estimate of TSF activities for the next 6 months. TA Execution and Monitoring TA Consultant / Coordinator 12

13 3. APPROACH TO THE TECHNICAL ASSIS- TANCE OPERATIONS This research study has identified the learning outcomes of 5 years of work between May 2007 and March 2012, period in which a total of 50 TA operations were granted: 37 technical rounds on the management of assets/liabilities and risk control (see Annex Nº 1) 8 technical rounds on the mitigation of specific risks identified by each MFI (see Annex Nº 1) 2 corporate governance seminars 1 audit and risk control seminar 2 workshops conducted within the framework of the Inter-American Forum on Microenterprise (FOROMIC) The vision outlined from an onset was to provide TA with a differential value, with the characteristics that give it more value and better results. They were to be provided by professionals with experience in microfinance, with a 100% practical approach, and in accordance with the real situation of each MFI. Consequently, it was defined that the technical assistance operations would be implemented: In a simple, comprehensible way and applicable to everyday work. With daily technical and operational assistance and working directly with the MFIs staff. With tools created for better decision-making, based on the interpretation of results and analysis of information. With simple tools that do not require technological support. With final reports that do not require major theoretical support but are of a practical nature and easy application instead. Under these premises, the activities of Component II of the TSF LOCFUND entitled Coaching on assets and liabilities management were initiated and it was decided that they would be fully funded by the TSF. It was decided that the coaching methodology would be utilized because it allows for the attainment of practical results that can be immediately applied with its in-situ transfer of know-how, the use of practical experiences, and the development of methods suitable to the realities of each MFI and the person responsible for each task. 13

14 4. DEVELOPMENT OF THE TECHNICAL ASSISTANCE OPERATIONS First Rounds The TSF started with the Donors mandate to guide and strengthen management, as well as to minimize financial and market risks in areas such as: Market risks Risks and interest rate matching Exchange risk Liquidity risk Financing and lines of credit Cash management Operational risks That is why, upon receiving the first Locfund s financing, the TA consultant visits the MFIs with the mission of working with them on the management of assets and liabilities so that upon completion they may end up with a methodology and a full understanding of the financial risks and their control. The core areas of work are matching of term limits, liquidity, interest rates and exchange risk (Annex No. 2). Through his/her direct participation, the consultant responsible over the TA gets involved in the everyday work processes of each entity and interacts with all its areas and hierarchical levels, including middle management and operational personnel. At the end of his/her visit a presentation is made in the format of a PowerPoint presentation, with recommendations and suggestions that were identified during the visit. Likewise, the persons that were trained deliver a presentation to upper management explaining the skills acquired and types of analysis that were applied. At some entities, this presentation was made before the MFI s Board of Directors. Initially these visits were financed 100% by TSF, but since 2012 the MFIs co-finance these TA operations. Second rounds Due to the success achieved during the first rounds, the entities have requested new visits, which have been called second rounds, in which more specific topics are developed and that are co-financed by the entities themselves. The topics developed in these second rounds include: Deposit product development Strengthening and improvement of deposit mobilization Strengthening of individual credit technology Improvement of portfolio quality by incorporating credit products for small enterprises Diagnostic for the identification of institutional TA needs 14

15 Strengthening of the institution s credit technology and support in the decision making of corporate governance Development of TA manuals for the management of assets and liabilities and risk control Workshops and Seminars There have also been other lines of work and training such as seminars and workshops that were offered to MFI representatives in different scenarios. The work topics in the training areas included: Seminars Corporate governance Risk control and audit Workshops Based on the developed TA experience, TSF-LOCFUND was invited by the IDB/MIF to conduct workshops at the FOROMIC, which were carried out on the following subjects: International crisis: risks and opportunities for MFIs Portfolio profitability of credit products During all of these occasions, the TA operations have had the purpose of strengthening institutional management and the professional growth of persons, thus contributing towards institutional maturity, the sharing of experiences and promoting the participation of attendees. 15

16 5. THE RESEARCH PROCESS 5.1 Data collection This research study is, in principle, made up of the evaluation (1) performed by the consultant Aristoteles Esperanza (February 2010). In addition, a questionnaire has been designed (Annex 3) which was sent to 37 MFIs that are TA recipients, of which 23 responded (Annex 4). It should be noted that of the total number of questionnaires that were sent and returned, three were partially completed. The questionnaire consists of three sections: the first concerns information on the institution and the TA received; the second refers to quantitative indicators; and the third collects information of a qualitative nature. A series of interviews were also conducted within the framework of a seminar on over-indebtedness held in Lima, Peru in March Seminar participants provided direct information about their perceptions concerning the quality, opportunity, contents and development of the technical assistance operations, thus serving the objective of highlighting positive and negative aspects, as well as opinions on the different issues concerning the TA. One of the MFIs that participated in the interview did not submit a completed questionnaire for considering them both redundant. Interviews were carried out by a person external to LOCFUND and the TSF with the purpose of guaranteeing the veracity of the information received. All of the tools that have been mentioned were used at various stages of this research study with the intention of obtaining common data, better information exchange and greater reliability of the valuation of the technical assistances received. 5.2 The Formulation of Indicators The survey includes quantitative and qualitative indicators for greater complementarity of data, which also facilitates the study s monitoring and analysis. Their interpretation is simple and may be translated into concrete measures Quantitative Indicators These indicators seek to measure the functionality of diverse variables included within a technical assistance operation that identify the degrees of perception of results achieved on the basis of work carried out during the TA visits. They also intend to measure the positive and negative effects derived from the TA operations and that can be directly attributed to the actions implemented. (1) In 2010, in fulfillment of the TSF Agreement mandate, an independent assessment of the Technical Assistance granted by LOCFUND was conducted. 16

17 5.2.2 Qualitative Indicators These indicators are based on the information gathered from section No. 2 of the questionnaire, as well as on the data attained from personal interviews and the review of previous information. They seek to reveal the results and lessons learned from the TA operations, in such a way that their dissemination allows capturing data that could be applied in the future Questionnaire The questionnaire that was sent to the MFIs that received TA compiles specific information, through a table with ordinal variable categories and a set of questions aimed at obtaining precise data, which allow relevant results and main conclusions to be found Personal Interviews Eleven (11) interviews were conducted, in order to obtain oral information, through targeted questions and the free expression on issues pertaining to the LOCFUND Technical Assistance Program. Interviewees included the MFI s principal executive officers, who have been in permanent and direct contact with the TA visits, occasionally through their direct participation and at other times, receiving reports and information from the personnel assigned to the operations. In every case, the interview respondents were fully informed about the visits and the topics addressed. 17

18 6. RESULTS The data and perceptions collected have been organized so as to display results, in the following sections: A first section quantifies the greater or lesser agreement of entities with respect to specific issues, as per the overall score given to the 26 variables of the questionnaire. The answers provided for each variable are scaled in percentage values. The second section reflects those criteria most repeated by interviewees (as of section 3 of the survey), which are used as common denominators for general perception on issues raised. The third section shows a summary of experiences shared by each interviewed MFI. 6.1 Valuation of Indicators The following table of integrated results shows a measurement scale of perceptions, whose results in percentages allow pinpointing those factors that interviewees rated, according to the following scale: NR= unanswered 1= Bad (deficiency factors) 2= Average 3= Good 4= Very Good (success factors) It should be noted that most answers were under options 3 and 4, that is, Good and Very Good. The following table reflects results obtained in percentages, measuring the degree of satisfaction of MFI with respect to the technical assistance: 18

19 Indicators Results en % 1. Corresponds to the goals and targets of the proposal Contributes to the strengthening of capacities Promotes initiatives in the area of organizational management Facilitates improvements in organizational procedures Identifies and strengthens efficiency factors Identifies and strengthens effectiveness factors Identifies deficiencies within the MFI Proposes a solution to processes Proposes best operational practices Suggests concrete actions fostering change Benefits are identified that are directly perceived by clients Staff members were involved Concrete indications of success Improves decision-making Implementation difficulties Training methodology and materials Subsequent follow up Fulfills the implementation of agreed activities Promotes learning and self-improvement Promotes positive changes in policies and standards Results are systematized and documented Promotes new ways of inclusion among work teams Proposes innovative solutions Proposes improved procedures Introduces the use of other resources Shares common experiences of the microfinance sector The table shows percentages of acceptance for every indicator proposed in the survey (2). Said percentages are explained in detail as follows, broken down into two groups: a. Indicators with a score of over 85% are those that express the highest level of acceptance on the part of the interviewed group. They represent those aspects that were best achieved during the TA, that is, what was well and very well done, according to the rating scale. (2). A numerical value was given to each response obtained from the surveyed MFIs (Annex 3) (0=NR; 1=Bad; 2=Average; 3=Good; 4=Very Good), to later obtain an average and turn it into a percentage indicating the perception that MFIs have of the technical assistance.. 19

20 Proposes operational best practices Proposes improved procedures Improves decision-making Contributes to the strengthening of capacities Promotes learning and self-improvement Promotes initiatives in the area of organizational management Identifies and strengthens efficiency factors Shares common experiences of the microfinance sector b. For their part, the following indicators rank between 66% and 85% of the scale, that is, they express everything that was performed as Good or Average. Staff members were involved Corresponds to the goals and targets of the proposal Suggests concrete actions fostering change Identifies and strengthens effectiveness factors Facilitates improvements in organizational procedures Identifies deficiencies within the MFI Proposes a solution to processes Promotes new ways of inclusion among work teams Fulfills the implementation of agreed activities Concrete indications of success Introduces the use of other resources Results are systematized and documented Benefits are identified that are directly perceived by clients Proposes innovative solutions Implementation difficulties Training methodology and materials Promotes new ways of inclusion among work teams c. The following indicator is below a 66% score of the scale, which reflects a deficiency factor in the technical assistance process: Subsequent follow-up Data obtained from the questionnaire A series of repeated statements on the part of interviewees have been drawn from the responses provided in the third section of the survey, allowing for the identification of lessons learned. 1. Did the technical assistance achieve the time, cost and goal targets? We are very satisfied. Expectations were exceeded. 20

21 2. Which main lessons did the team learn? Technical capacity was strengthened. We learned techniques for the direct promotion of products. We improved our sales team. Improvement in operational processes. More risk assessment and control. Use of control tools. Utilization of better operating practices. 3. Describe those situations in the project that had successful outcomes. A functional sales team was built. We improved rules and regulations. The consultants ease of communication favored team learning. 4. Describe those situations in the project that had negative outcomes. There were none. Manuals prepared with managers were not reviewed by senior executives. Trained executives hired by the competition. Follow-up. 5. Another piece of information that you consider important and enriches your experience. Training was extended to other areas of the institution. We commend the favorable disposition and knowledge transferred by the consultant. I would like this to take place on a continual basis. 6.3 The experiences of the different entities The following paragraphs provide a compilation of experiences obtained from 11 personal interviews. The structure of these conversations allowed interviewees to express themselves freely, which included an introduction about their institution followed by the discussion of topics regarding the technical assistance. The statements literally provide a detailed account of the impressions recorded. Finally, an interview was conducted with TSF Coordinator Pedro Fardella NUEVA VISIÓN Peru TA received:. 1st round We had a professional with extensive experience who went straight to the point, emphasized clarity and provided practical examples. We learned to manage the assets and liabilities worksheet very well, and currently we are witnessing the day-to-day maturity of assets and liabilities and how this is advantageous to us. Moreover, we learned that we should extend our average loan period. With respect to our credit lines, we have achieved short-term negotiations because the trend is that they decrease. In general, the technical assistance went well and the Treasury Chief and the Manager were actively involved during the entire process and we were encouraged to clarify any doubts and make as many questions possible. 21