SME Risk Management Volunteer Expert

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Objectives of the Assignment: This assignment aims to build the capacity of Tanzania financial institution staff to be able to identify, assess and manage risks associated with lending to SMEs. Assignment will address identified gaps at credit granting processes and present international best practices for identifying, measuring, controlling and monitoring credit risk. Also address internal controls and operations related to credit, market and operational risk, and how to coordinate credit risk management practices between central management and field/branch staff.

The workshop will include group exercises to apply concepts learned and participating FIs will come away with:

• The necessary analytical skills to evaluate SME loans.
• A practical analysis format for these loans to minimize credit risk and maximize the potential for repayment.

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

SMEs play an important role as the backbone of economies in most regions of the world. However, in Tanzania, the sector has been hampered by a lack of access to finance, partly because of restrictive collateral requirements, but also because of a lack of capacity among local banks to assess and manage operational and credit risks for smaller businesses.

Many lenders still struggle to come up with an efficient model to assess the creditworthiness of SMEs and banks tend to use corporate policies and procedures in the analysis of SME loans, which are not appropriate for the maturity-level of growing SMEs. This is an issue because the success of these small but vital enterprises depends on them being adequately funded. Lack of adequate credit methodologies makes it difficult for SMEs to meet bank requirements, and as a result they are unable to obtain financing.

Therefore, with sound risk management, financial institutions will be able to promote access to financial services by SMEs, which is crucial for promoting sustainable and inclusive growth 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 loan portfolios, loan products,SME credit risk policies and procedures.
3. Volunteer to analyze the collected information for each individual FI and provide recommendations on changes to risk management policies and procedures and present findings to the FI’s senior leadership.
4. Conduct a one-day workshop on SME credit risk fundamentals for each of the selected financial institution. Volunteer should plan to cover the following topics:

• Overview of SME lending in Tanzania
• Challenges & opportunities in SME financing
• Key functions/tasks of risk personnel
• Early warnings in risks identification process
• Risk management framework for SME banking
• Risk mitigation
• Considerations in scrutinizing and analyzing credit proposals
• Credit risk analysis, credit reference and approval techniques
• Understanding/Ensuring Compliance Policies/Guidelines
• Customer service and ethical conduct by credit staff (Delinquency management)
• Operating within risk appetite
• (Volunteer expert is expected to use sample business plans, financial statements, financial projections, case studies to demonstrate)

• Loan structuring
• Loan appraisal process
• Elements of a good loan proposal from bank customers
• Financial statements and ratio analysis to uncover key credit issues
• Cashflow analysis
• The role of non-financial analysis in credit assessment
• Documentation and security analysis in lending
• Calculation of sustainable growth
• Preparation of financial projection based on borrower’s information
• Factors that may impact the ability to repay debt
• Grading loan after analysis
• Credit memorandum

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.

Volunteer Qualifications

• At least 10+ years of practical knowledge and experience in credit origination, credit risk assessment and credit risk management role, business experience in MSME lending is desired;
• University level of education in banking/finance/accounting/economics or related field;
• Extensive knowledge of product development, MSMEs lending and loan structuring particularly for banking products and services;
• Strong background knowledge and understanding of standard operating procedure on credit risk assessment;
• Advanced knowledge of credit systems/processes and core banking systems/processes and applicable disaster recovery requirements and methodologies
• Formal credit training or related certification is preferred.
• 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.