Best Practices
With a budget of 5 million euros, and in partnership with the Social Fund for Development (SFD), this program aimed to finance the facilities provided to nongovernmental organization.
The KfW-funded project “Egyptian-German Project for the Best Methods of Microfinance” is focusing on the provision of technical assistance to the partner institutions (or clients) of MFS, through developing the capacity of two types of financial intermediaries: NGOs and banks. The NGOs will benefit by becoming more professional and transparent and the upgrading will allow them not only to access more SFD funds but also funds from commercial banks or international microfinance wholesalers.
The Consortium (FACET/NSCE) has designed a specific approach to the implementation of the project corresponding to the real need, based on the large accumulated conceptual and practical experience in the delivery of micro-finance, capacity building and institutional development in the Near and Middle East.
The implementation of good practices will mean that institutional and operational weaknesses are identified in a participatory way with the financial intermediary. The technical assistance team will develop solutions and maintain continuous consultation to support a sense of ownership among the selected to the financial intermediary.
As a complement to this capacity building and maximization, the program also provides an access for the banks to a Guarantee Facility to cover a certain percentage of the risk incurred by banks while developing their microfinance portfolio.
The Guarantee Facility (GF) is different from other forms of loan guarantees that are currently used in Egypt in that the funds guarantee a branch portfolio rather than individual loans. This reduces the amount of work required of MFS in managing and administering the GF. The banks will pay a 1% fee (in Egyptian Pounds) for the securing of micro credit loans. The indicator used to assess the performance of a branch portfolio is the Portfolio at Risk1.
In the context of the KfW Best Practice Microfinance Project, a PAR of up to 5% is regarded as the bank’s concern. If the PAR goes beyond 5% then the guarantee will be triggered, but lending from that branch will be suspended until the PAR remains below 5% for two consecutive months (in other words once the guarantee is triggered no new loans will be guaranteed. If the PAR increases to 8% then lending at the branch will be terminated.
The program also provides an access for the banks to a Guarantee Facility to cover a certain percentage of the risk incurred by banks while developing their microfinance portfolio.
Services
- Technical assistance component: Implementation of the capacity building for the NGOs, the banks and the MFS team.
- Financial instruments component: A refinancing credit line for NGO’s and A guarantee fund for participating banks.
Services related to the Banks
- Individual analysis of the need of selected banks
- Training programmes and on-the-job training of the Bank’s personnel for cash flow oriented lending practices, customer acquisition (marketing) and customer service and monitoring.
- Assistance for organizing and administering the microfinance profit centres within the participating banks.
- Adjustment and adaptation of the existing, or assistance in the creation of new management information systems (MIS).
Services related to the NGOs
- Analysis of needs of selected NGOs
- Training programmes and on-the-job training of the NGO’s personnel for cash flow oriented lending practices, customer acquisition and customer service and monitoring.
- Assistance in the optimisation of the organisational structure of the NGOs.
- Assistance for the creation of MIS.