SME Lending (Trade Finance) Volunteer Expert

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Objectives of the Assignment: This assignment aims to build the capacity of financial institution staff on the practical skills required to address the unique challenges of lending to SMEs and present international best practices for managing SME loans so that they may change their behavior in ways that lead to an increase in SME lending in Tanzania. Also build the capacity of local banks to introduce sophisticated products and grow their trade finance business, with a focus on Small- and Medium-sized Enterprises (SMEs).

Participants will be provided with concrete case studies, examples and tools to address the need of enhancing/building a solid SME lending process. Participating FIs will come away with:

• Understanding of SME needs as potential borrowers of a financial institution

• Understanding of the role of SME loan officer in the context of SME lending operations;
• Understanding of the credit process steps to ensure the participants performance in terms of portfolio volume and quality required by the bank;
• Understanding of SME business models in developed and emerging markets trends in the financing of SMEs;
• Ways to build a successful SME banking strategy and how to raise the performance of their financial institution;
• Practical analytical skills to SME lending process, procedures, monitoring and collection to minimize credit risk and maximize the potential for repayment;
• Improve on the collection skills of loan officers in SME "problem" loans: slow repayment; delinquencies; defaults;
• Understanding of the key risks in trade financing and measures to mitigate risks;
• Skills in structuring working capital lines to meet SME clients’ trade finance requirements.

Background

The Tanzania Enabling Growth through Investment and Enterprise Program (ENGINE) is a four-year, USAID-funded Feed the Future activity awarded through the Volunteers for Economic Growth Alliance (VEGA), that aims to streamline and enhance many of the regulatory, informational and financial channels that encourage domestic and foreign investment in the southern mainland agricultural regions of Mbeya, Morogoro, and Iringa, and in Zanzibar.

ENGINE works at the district level, using a broad-based approach to engage with district Local Government Authorities (LGAs), private sector associations, business development service providers, financial institutions and small and medium enterprises. The program’s activities are divided into three main components:

1. Implement policies for growth. Build the capacity of the private sector to effectively dialogue with the government to set the policy agenda and improve the capacity of the public sector to implement policies.

1. Equip businesses for growth. Strengthen SME capacity and foster the growth and capacity of a sustainable market for business development services (BDS) in Tanzania.

1. Access to finance for growth. Broaden access to finance for small and medium-sized enterprises (SMEs), especially women and youth entrepreneurs and those working within agricultural value chains, to facilitate increased investment and growth.

Problem Statement

The "Tanzania Development Vision (TDV) 2025" highlighted small and medium-sized enterprises (SME) sector as one important contributor to the country’s long-term development. It is estimated that Tanzania’s SME sector consists of more than 3 million enterprises which contribute to 27% of overall GDP and employing more than 5.2 million people. However, the inability of SMEs to access financing remains one of the most frequently cited constraints to business growth in the country.

On the other hand, Financial Institutions find managing SME lending portfolio challenging since majority of SMEs in Tanzania are micro-enterprises. There are several constraints to SME lending in Tanzania such as: lack of expertise and mindset to SME lending, most FIs lack the systems, delivery network and skills to appraise and manage credit to SMEs especially as the latter lacks credit history and reliable financial statements required. Also, high Transaction Costs, limited delivery mechanisms, culture of non-repayment and lack of effective credit reference systems in the country are some of the core constraints facing lenders in Tanzania.

Lending to SME customers presents one of the greatest opportunities for commercial banks to pursue growth and profitability; at the same time, it ties up a large amount of economic capital and represents substantial credit risk. Therefore, better understanding of MSME characteristics, adjusting lending methodology as well as automating the lending process and promoting trade finance can significantly reduce overheads while managing risk, hence increase SME lending in Tanzania.

Anticipated Tasks

The Expert Volunteer will complete the following tasks:

Prior to departure:

1. After receiving confirmation to work with ENGINE, the volunteer will coordinate closely with the IESC office in Tanzania, review available secondary information and identify any country or institution-specific information needed to tailor the materials to the local context.
2. Develop effective workshop materials and finalize details of the assignment. The volunteer is encouraged to incorporate case studies and practical examples in the materials.

Upon arrival in Tanzania:

1. Attend an orientation meeting with ENGINE Program staff in Dar es Salaam .
2. Meet with financial institutions: Spend 2 days with each financial institution to review their SME lending portfolio, SME loan products, trade finance, SME lending policies and procedures, and application forms if available.
3. Volunteer to analyze the collected information for each individual FI, suggest new SME loan products and provide recommendations on best SME lending policies and procedures then present findings to each of the FI’s senior leadership.
4. Conduct a one-day workshop on SME lending fundamentals for each of the selected FIs to include the Overview of SME lending in Tanzania, Business Lending Fundamentals, SMEs lending techniques and principles, Commercial Loans to Small Business and Effective Credit Write-Ups. Volunteer should plan to focus on the following topics according to FIs requirements:

1. Bank 1: General concept of SME lending, managing micro credits, Identification of MSME credit risk and its management to minimize exposure before issuing loans. Credit marketing and sales.
2. Bank 2: General concept of MSME lending, lending in financial crises. MSME lending techniques and principles. SME lending marketing strategies and delinquency management.
3. Bank 3: SME Lending requirements, methodologies and procedures. Knowledge in serving different SME groups (entrepreneurs, small & medium holder farmers, livestock keepers, agro-processors, fisheries, etc). Ways to increase loan officers’ productivity, increase efficiency and good customer service.
4. Bank 4: Trade finance (Increase lending in SME products such as Fx purchases, short term loans, LCs and guarantees). Improvement of Turn Around Time (TAT) in loan processing, credit granting training to reduce NPLs and improve portfolio quality, improvement of sales skills to staff to increase number of MSME clients. General concept of MSME lending, factors to be considered before lending to MSMEs, eligibility for lending.

1. Provide recommendations to the ENGINE program staff on potential follow-up assignment with the hosts.
2. Write a final report summarizing observations and recommendations, as well as follow-up plans. The final report is discussed in the section on deliverables below.
3. Attend a debriefing session with ENGINE COP and host organization staff members to provide feedback and discuss the recommended future to follow up on volunteer recommendations and capture impact.

Deliverables

The Expert Volunteer will submit the following deliverables:

i) To be submitted prior to delivering the workshop:

1. Training materials that include practical examples, case studies and group exercises.

ii) To be submitted after concluding the workshop:

1. Final Report: Volunteer must submit a Final Report and tools to the ENGINE Program, which is to include the following sections:

1. A summary of tasks and observations from FIs visits
2. A list of 5-7 specific and actionable recommendations for the host organization(s). These recommendations will be reviewed during the debriefing session with ENGINE staff at the end of the assignment and the volunteer may revise them in their Final Report.
3. A section listing the assignment objectives above and how they were met or why they were not met.

Additionally, the Expert Volunteer will provide exit debriefings to the ENGINE staff.

Proposed Volunteer Requirements

• At least 15 years of professional banking experience;
• University level of education in banking, finance, accounting, economics or related field;
• Extensive knowledge of SME lending, SME product development and loan structuring particularly for banking products and services;
• Extensive knowledge of credit, spread analysis, finance and lending procedures, and legal and audit regulations;
• Excellent interpersonal, communication and training skills, including training in group settings;
• Ability to address issues, challenges, questions and concerns in a professional, respectful, logical and timely manner;
• Flexibility and adaptability to cross-cultural environments;
• Good writing and computer skills;
• Experience working in developing countries is preferred.