NBS Bank Malawi “What are we Learning and How are we Putting it Into Practice”

1. The Africa MSME Finance Program NBS Bank Malawi “What are we Learning and How are we Putting it Into Practice” Impact of Monitoring and Evaluation Efforts on Design, Implementation & Resource Allocation Berlin, Germany; December 3, 2008

2. Introductions • Mr. John Biziwick, Chief Executive Officer, NBS Bank Malawi – Client Bank • Mr. Dan Balke, Managing Director, LFS Financial Systems – Implementing Partner • Mr. Terry Wyer, Program Manager, IFC Africa MSME Finance Program

3. The Program The Program is an initiative to help banks across sub-Saharan Africa to increase business with micro, small and medium sized businesses. • The AMSME Program has 3 main components: • Financing:IFC provides financing to institutions in various forms depending on client needs and IFC product offerings. • Advisory Services:The Program provides long term (2 years) advisory services to a bank to help implement a strategy in the MSME sector. • Performance Based Incentives:An incentive structure for both the bank and the implementing consulting firm encourage reaching targets and with overall goal achievement. A vigorous M&E system is in place to monitor the results on a monthly, quarterly and annual basis.

4. Discussion Points: • NBS Overview and lessons learned by participating in the AMSME Finance Program • LFS’ Methodology and implementation features and results • IFC’s Monitoring and Evaluating of the program • How it’s done – online reporting system experiences • Indicators used to monitor program • Development Impact and Managing Results

5. NBS Bank MalawiOverview of the Bank and participation and lessons in MSME Sector Development Impact of Monitoring and Evaluation Efforts on Design, Implementation & Resource Allocation Berlin, Germany; December 3, 2008

6. Overview of NBS Malawi Ownership Shareholding • NICO 60% • Public 30% • NITL 10% • Offers a diversity of commercial banking products to the Malawian market • Is a leader in mortgage business in Malawi • Biggest bank in terms of branches • 26 branches (including agencies) • Two mobile vans covering other commercial rural areas • Profitability continues to grow year on year • Vision - To be the bank of choice in Malawi

7. NBS Introduction • Malawi has nine commercial Banks • NBS Bank is the fourth largest • Previously a Building Society until 01/07/04 • Listed on MSE 15 June 2007 • MWK18.8 billion worth of assets • Largest savings market share • Corporate deposit mobilisation remains a challenge

8. Current Scenario • Lack of structured finance for bottom of the pyramid MSME’s • Target individuals and groups: • Low-income sole proprietors, small and medium entrepreneurs, woman owned businesses • Engaged in all economic activities • Nature of financial products demanded: • Input loans for farming • Working Capital for general trading • Asset financing for equipment & vehicles • Construction of commercial properties • Basic housing & home improvement finance • Import finance & Letters of Credit.

9. Motivation - the Retail and MSME Sector Retail Banking Most customers are from the lower to middle class and are currently un-bankable and unable to qualify under conventional requirements. MSME Banking There is growth potential in the MSME Sector by targeting this potential base in the region and countrywide.

10. MSME Sector Challenges Need for Training Appropriate collateral issues Risky target sector CHALLENGES Existence of Government Sponsored Micro/SME financial institution No micro lending legislation in place Unstable exchange rates

11. IFC’s Intervention……. • IFC fundingconsulting, training and related technical services rendered by LFS for about 24 months by way of a grant with the bank contributing in both cash contribution as well as in-kind support. • IFC provided a $3m medium-term loan to the Bank to support the financing of MSMEs • LFS is now implementing audit structures to ensure that internal control systems effectively support the cash flow-based SME lending methodology used under the program.

12. Terms of Reference for Program Why are we doing it? • Late entry into the corporate market • Diversify lending portfolio • Growth Objective How did we get buy in? • Was in line with our Growth Strategy • IFC’s professional intervention for SMEs was timely What are the some of the sector challenges? • High Pricing: Risk-based & Source-based • Short repayment cycle culture • Usually small sums accessed; oftentimes not enough • Poor internal communication – slowing down uptake • Poor staff orientation on program objectives • Expectations too high in some prospective borrowers

13. AMSME Program Challenges • Getting the program in alignment with NBS Strategic goals and objectives for the sector. • Reaching profitability targets to create sustainability of the program. (Now Profitable). • Moving into more deposit generation • Aligning with Central Bank requirements on collateral and provision requirements. • Incorporating all the initiatives effectively (i.e., Gender Program, HIV/AIDS and SME support). • Reporting requirements.

14. How to overcome the challenges……. Appropriate business analysis and soft collateral for smaller amounts Monitoring and prompt follow up In-house training program Group Security Model Separate Business Unit

15. Program Successes to date….. • Replaced less efficient service models with simplicity & personal service • Creating efficiencies to help make loan decisions quickly • Reduced amount of paperwork • Made application process fast & friendly • Made banking easier - not as much emphasis on collateral (for SME’s only)‏ but rather cash flow analysis and repayment capacity • Will help, borrowers build financial security, develop their businesses & thereby grow the economy

16. Performance Targets

17. Branch network and focus • 26 Branches spread across Malawi • MSME business sector • Trade Finance • Woman Owned businesses • More Liability generation for the bank moving forward • Future Strategic focus in the Agribusiness sector

18. LFS‘ approach with NBS Malawi LFS Financial Systems GmbH Dan Balke/Managing Director Berlin, 03 December 2008

19. Topics for discussion • LFS‘ approach with NBS • Critical Issues in Project Implementation • Key Results • Outlook/Next Steps

20. What is the LFS Approach? Additionality • Attracting new clients to NBS => Small Businesses => later their owners, employees and families. • Characteristics of Small Businesses: • Owner and manager, Lack of collateral, No banking/ credit history, Opaque accounting, Access to capital restricted. • LFS’ Services => New methodology: • loan cycle management, organisational structures, IT support, Internal Control and Quality Assurance, HR/ LD • New loan officers formed a new department.

21. Critical Issues during the Project Issues Agreement and Commitments with regards to: • Client types and segments. • Staff build up and investments • Time frame for achieving profitability similar to existing NBS operations.

22. Key Results Key Results • Average Loan Size: USD 2,610. • PaR 1 day: 0.51% • PaR 30 days: 0.00% • New Clients: app. 95%

23. Outlook/ Next Steps Outlook • Continue with separate unit to enhance efficiencies created under the program. • Review of procedures and systems. • Developing Business Targets/ Business Plan.

24. Monitoring & Evaluation of the Program • The AMSME Program M&E Strategy • Has Performance indicators linked directly to incentives put in place. • Collects data online through an easily assessable and secure website. • Has a long term Impact Assessment process in place to look at: • - How do partner FIs compare with a non-partner (comparator) FIs after 3 years? • - What aspects of change might be attributed to the IFC program rather than background and other factors? • M&E system is in place to monitor the results on a monthly, quarterly and annual basis. Both qualitative and qualitative.

25. Program Reporting and Incentives • Performance Based Incentives • Base line information to be collected early in the process. • Growth targets to be specified before the advisory work begins • IFC would expect minimum targets suggested in the below table. Example Reporting under the AMSME Program There is a straightforward on-line system in place for the program to assist the participating banks with reporting under the AMSME Finance Program. The reports required are: • Monthly Data Reports • Quarterly Data and Qualitative Reports • Annual Written Update Reports

26. AMSME Internet Reporting System Reports Generated by The System The Financial institution will report on ten different indicators. Four of which are collected on monthly basis and the remainder quarterly and/or annually There are two predefined reports available on the internet, which the bank can download: • Monthly Reports Indicators • Disbursed Loans • Outstanding Loans • Non-performing Loans • Deposits • Quarterly Reports Indicators • Disburse Loans – Women owned Businesses • Outstanding Loans – Women owned Businesses • Non-performing Loans – Women owned Businesses • Institutional characteristic • Profitability • Bank Contribution The user is allowed (based on his/her rights in the system) to see individual institutions or the program over all. All reports are accompanied by charts for visualization. 26

27. AMSME Impact Assessment At the level of the MSME: Improvements in MSME Performance • The extent to which the Program executed by IFC and its implementing agencies/TA firms has met the its stated objectives and achieved targets, in terms of impacts in improving access to finance and overall profitability and growth of MSMEs, taking into consideration the external environment • The value added of IFC’s interventions in assisting the MSME sector (to be addressed through a control group design). Assessment tasks include the following: 1. Outcomes 2. Impacts 3. Cost-effectiveness 4. Client Contribution 5. Design and delivery

28. AMSME Impact Assessment Level of the Financial Partner: Improvements in Performance • Program executed by IFC and its implementing agencies/TA firms has met its stated objectives and achieved targets, in terms of the performance of the financial institutions (such as changes in methods and practices, MSME portfolio size and quality, new clients reached, credit processes and systems, governance, market segmentation, risk management, etc.), taking into consideration the external environment; • The cost-effectiveness of the Program as a means to support access to finance in IFC’s client countries; • The appropriateness of the TA pricing policy and structure (client bank contribution vs. subsidy) and of the TA delivery mechanisms; • Sustainability of impacts; and • The lessons learned for IFC from the Program at mid-term and end-term.

29. Monitoring and Evaluation Conclusions Learning's from the M&E and Impact Assessment process: Are we spending ours and the Donors money wisely? • With vigorous reporting tools in place, monitoring and evaluation becomes a standard for each project allowing us to better evaluate success vs. failure. • Putting the appropriate indicators in place up front helps with the process. • Establishing baselines and targets and putting incentives in place encourage success and motivates partner institutions. • Need to be flexible and adapt based on lessons learned helping partners implement the monitoring and evaluation process will lead to better data collection.

30. Monitoring and Evaluation Conclusions Thank You