Development in Microfinance System

Advisory, Management and Capacity Building Solutions

Baz Consulting Services provides innovative and highly practical microfinance consulting services that are underscored by a detailed understanding of our clients’ operating environment and organizational capacities. These services are founded upon proven microfinance consulting tools developed internally and through reputable international development agencies.

We provide many microfinance consulting services for Microfinance Banks (MFB), Microfinance Institutions (MFI), Rural Support Programs (RSP). These include MFI institutional appraisals, program evaluations and business planning for MFIs, market research and new product development, marketing etc. We also are active in the field of microfinance and financial inclusion policy development and provision of support to the development and implementation of appropriate microfinance regulation and supervision. Through the course of time, over the period, these institutions are finding it difficult to fulfill their social and financial sustainability missions.

The challenges being faced by the institutions are predicated on

  • Dearth of skill in product development

  • Poor risk management

  • Inappropriate client selection

  • Poor account management

  • Inexperienced staff

  • Poor lending methodology

  • Governance issue

  • Poor marketing strategies

  • Bad organizational structure inadequate accounting and management information system, to mention a few.

It is in the light of the above that BAZ Consulting offers services ranging from Organizational Restructuring, Business Process Re-engineering, Standard Operating Procedures Development, Product Development, Delinquency Prevention and Management, Loan Portfolio Management, Risk Management Etc.

MFI Appraisal and Business Planning

This process provides a comprehensive structure for analyzing institutional structure, management and financial performance of MFIs. It is used for retrospective assessment of MFI performance. This business planning process is a carefully structured strategic planning process that is designed to be used in highly participatory manner with MFI staff. It leads the MFI from the initial steps of identifying or clarifying goals and objectives, analysis of the market for microfinance and other environmental factors, through to the development of detailed financial products, and operational management and financial management systems.

Market research and product development

As the microfinance market has become competitive in developing nations, service providers need to pay much more attention to consumer’s preferences and priorities in defining what and how Financial Services should be delivered to them.

Service quality is now considered a key success factor for the MFIs and MFBs in the current competitive environment. This requires

  1. Learning how to listen to clients
  2. Gathering data about demand
  3. Learning how to analyze the data in ways that will inform decision making and
  4. Implementing new process for product design, development and delivery; however, a gap has been observed in the capacity of our Microfinance Lending Partners in the use of Market Research tool for designing product and serving clients more effectively. At the same time, new and innovative tools have been developed to support market research capacity in Microfinance Lending Institutions. Traditionally, MFIs and MFBs use quantitative market research methods to estimate demand. Little was known about qualitative methods which are more appropriate for looking at consumer’s preferences and determines the product attributes that correspond to such preference.

In view of the above, we guide our clients to

  1. Improve the quality of the products and services offered to customer
  2. Increase the competitiveness of their Institutions
  3. Conduct efficient and effective market research

With the help of our nationwideexperience, we assure our clients that we have a proven track record of delivering high quality products that are designed to cater the needs of the prospective customers

  1. Ability to understand the process of data collection
  2. Differentiate different types of market research
  3. Advantage to carrying out market research
  4. Product development process
  5. Methodology of re-designing exiting financial product and
  6. Carrying out successful pilot testing

Microfinance Product Marketing

The marketing methodology covers both product promotion and client service. Product promotion is designed to ensure that product attributes and benefits are understood amongst the target market. The development of improved client services focuses on service delivery rather than product structure. Key concerns are the improvement of products in terms of their ease-of-use and accessibility.

Credit risk management

In this regard we have a number of ways to deal with managing credit risk. Our experts check for various factors which leads you to being confident over your transaction. We optimize the processes of loan optimization, underwriting, pricing, and delinquency management. Rest assured our services will be there for you from the sales of your products to better market or in case of a creditor defaulting or delinquency, resolution in the best possible manner.

Regulators continue to expect more from the credit risk management function. “Strong,” not “Satisfactory” is the new expected performance measure for credit risk and counter party credit risk management policies, processes, personnel and control systems. As a leading independent consulting firm, BAZ Consulting is often the preferred provider of critical credit risk services to financial institutions globally – helping financial services clients of all sizes and specialties navigate a constantly changing environment of financial service regulations, enforcement actions, litigation, and economic and competitive challenges.

Our services include

  • Credit Risk Strategy and Execution

  • Credit Related Enforcement Action and Management Reviews

  • Counterparty Credit Risk and Third-Party / Vender Relationship Management

  • Independent Loan Reviews

  • Credit/Loan Loss Reserve (Allowance for Loan and Lease Losses)

  • Loan Portfolio Management Diagnostics

  • Credit Scorecard

  • Leveraged Lending Reviews

  • Credit Training Services

Our Take

Our take on the matter is fairly simple. Credit risk is involved in every transaction and it is impossible in the modern volatile market if you do not have the umbrella of a sound credit risk management program. Baz Consulting is one of the premier service providers in this sector as well, and our performance and satisfied clients over the years are a testament to that very fact.

Loan portfolio management

Loan portfolio management is the process by which risks that are inherent in the credit process are managed and controlled. Lending is the principal business activity of any Microfinance institution. The loan portfolio is typically the largest asset and the predominant source of revenue. As such, it is one of the greatest sources of risks to aninstitution’s safety and soundness. Whether due to lax credit standards, poor portfolio risk management or a generally weak economy, loan portfolio problems have historically been the major cause of bank failures.Effective management of the loan portfolio and the credit function is fundamental to a MFI/ MFB’s safety and soundness.

We guide partners in undertaking the following procedures.

  • Assessment of the credit culture;

  • Portfolio objective and risk tolerance limits;

  • Management Information Systems;

  • Portfolio segmentation and risk diversification objective;

  • Stress testing portfolios;

  • Independent and effective control function; and

  • Analysis of portfolio risk/reward trade off.

  • Independent and effective control function; and

  • Assessment of the credit culture;

  • Portfolio objective and risk tolerance limits;

  • Management Information Systems;

  • Portfolio segmentation and risk diversification objective;

  • Stress testing portfolios;

  • Independent and effective control function; and

  • Analysis of portfolio risk/reward trade off.

  • Independent and effective control function; and

Client selection and management

The success or failure of any MFI/ MFB is principally dependent on the quality of its clientele. This is due to the nature of its target customers who are majorly self-employed low income entrepreneurs in both urban and rural areas with little or no collateral for Commercial Banks and other conventional financial institutions. It therefore becomes imperative for microfinance operators to learn the art of good Client selection. Our research has shown that poor client selection contributes largely to poor portfolio quality that is endangering our microfinance lending partners. Our services shall avail our clients the skill to identify typical microfinance client. We will guide them to know

  • Client entrepreneurial skills

  • Client repayment capacity

  • Effective loan structuring keeping in mind the repayment behavior

  • Client stability and responsibility

  • Client reputation in the community

The benefits at the end of our services includes

  • Client entrepreneurial skills

  • Client repayment capacity

Delinquency prevention & management

Loan portfolio is the most important and largest asset of a typical Microfinance Lending institution, as it generates income (interest and fees). The motivation for a client’s prompt repayment is the expectation to get a bigger loan with advancing cycles. Any outbreak of loan delinquency can quickly spin out of control and can cause havoc for the institution.

Hence, the assurance that this asset (loan portfolio) is safely guarded (from delinquency) is very crucial for any Microfinance Lending Institution. However, many Institutions lack proper delinquency management, policies and procedures. We attempt to help them work towards building/strengthening their delinquency management policies and procedures and adopt best practice.

We guide our clients to understand

  1. Delinquency prevention techniques
  2. Techniques for measuring delinquency
  3. Portfolio at risk (PAR)
  4. Means of reducing Portfolio at risk
  5. Past due amount

Furthermore, we will guide them in the application of Basic Principles of Lending such as

  1. Character-based lending
  2. Cash flow-based lending
  3. Project-based lending with emphasis on
    • Method of estimating client Net Cash Flow
    • Method of client character investigation
    • Method of client business investigation

Risk management & internal control measures

For any lending institution, the risk of income loss due to processing errors, inadequate Information, noncompliance with loan policy, excessive concentration of credit Risk, counterfeit collateral and employee fraud are major risk exposures.

A typical Microfinance lending institution provides small loans to a large number of clients and consequently handles a large number of transactions. The sheer volume of Transactions requires that risk be reduced both before disbursement through Client appraisal as well as post disbursement, through a regular and comprehensive Portfolio tracking system.

Adopting effective control mechanisms relative to loan administration and Management is beneficial to MFIs and MFBs in terms of cost reduction, control of lapses and weaknesses in loan administration, as well as increasing financial income and preventing future losses. Portfolio control performs preventive feedback function in the larger internal control system, making it a critical aspect in the operations.

  • Developing strategies that will enable lending institution manage risks and prevent further losses

  • Institutionalizing of internal audit procedures and risk management systems; and

We will help you in the

1. Enforcement of control process through the installation of incentives: and

2. Incentive at the branch level using Risk Adjusted Return on Capital (RAROC) to prevent losses.

3. Enforcement of control process through the installation of incentives: and

4. Incentive at the branch level using Risk Adjusted Return on Capital (RAROC) to prevent losses.

Let’s Get Started

If you have any query, feel free to contact us on the given phone number or simply fill out our online form.