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TRANSFORMING FROM NGO TO
      REGULATED MFI WHILE YOUR
   COMMITMENTS TO EMPOWERING THE
               POOR

FOR PRESENTATION AT GLOBAL MICROCREDIT
               SUMMIT

 BY DR. JENNIFER NKUENE RIRIA, PHD, MBS,
                ICON/HP

                           NOVEMBER 14-16 2011
Introduction
Why did we decided to
transform?
• Ownership risk in
    A members based
Organization

                        1
• Funding base – Access to
commercial funds in a
commercial entity

• Improved profitability to pay
back commercial funding

. Efficiency, cost-effectiveness
                                   2
• Product diversification

• Losing momentum with
customers – they want a one-
stop shop

• Meet their needs, by providing
products currently restricted

                                   3
SO
Transformation of KWFT had to consider its
target group as it conceptualized around the
following issues:

1.Competitive repositioning (products, and

 delivery)


                                               4
2. Commercialization (profitability

 and efficiencies)

3. Legal structure for profit

4. Regulatory framework /

 Licensing
                                      5
Transformation



Different perspectives:
     • Storm clouds (trouble)
    • Rainstorm (opportunity)

Form follows function, decide who & what to be and
let the lawyers worry about form


                                                     6
Motivation
The Board kept constantly reminded:
Every truly great company achieves two
things:
     It achieves a Vision
     It makes Profit

Achieving a vision and making a profit
requires a winning business model that:


                                          7
• Meets customer demands
while staying true to the
  vision

• Distinguishes between
customer demand and
effective demand.

                            8
IN DOING SO
Various Consensus was built into policy by the Board
and Management:

i) Every truly great company achieves two things:
     It achieves a vision
     It makes profits
Achieving a vision and making a profit for KWFT
   meant:
    • Building a business model that meet the
      customer demand while staying true to the
      vision.
    • A business model that makes a clear distinction
      between customer demand and effective demand

                                                        9
ii)KWFT needs to define its revised value
   proposition to its customers.
iii) Must look at legal structures that support
   the institutional vision and mission.
iv) what the transformed KWFT would engage
   in.
v) what challenges are likely to be addressed.
vi) Stakeholder and target group expectations
   of the transformed institution.


                                                  10
STEP BY STEP APPROACH
Background to Transformation
     2006: Board and Senior Management went on a
     study tour to Bolivia to enhance the
     conceptualization of the transformation. The
     study tour achieved:
    • Gained exposure to a transformed MFI
    • To have clarity on the vision of transformation
    • To have discussions with Bolivian regulators on
       regulatory issues with regard to performance
       and indicators.



                                                        11
 After the trip, it was agreed that the process of
   transformation be intensified. The Board therefore,
 • Discussed and agreed to transform into a regulated MFI
   as opposed to a Bank due to various factors including
   major costs involved, reporting requirements and in-
   house capacity – agreed on legal structures.
 • Agreed on resource requirements
• Agreed on commitment of time by both Staff and Board
 • Agreed on sources of resources required for
   transformation
• Resolved to achieve aggressive annual growth targets
   and continue focus on target our clients i.e. low income
   women entrepreneurs.


                                                              12
Background to transformation
 End of 2006: MFI Bill was enacted as the MFI Act
 (2006)
 The Board then allocated in-house funds for
 transformation and sourced donor funding to finance
 the transformation process to enable achievement to
 the MFI Act. As a result, FSD came on board early
 2007 to partner KWFT in the transformation process.


                                                     13
 During the same period, KWFT begun working
 on the legal framework of the transformed
 company (i.e. memorandum of association,
 articles of association)

 In partnership with FSD, the detailed
 transformation planning commenced and a
 decision to contract a lead consultant, to
 support the process was made.


                                              14
 October 2007: Deloitte Consulting
Limited was contracted following a
competitive process to assist with the
transformation.
 The process culminated in a licensing
by Central bank in April 2010

                                          15
Phase 1 Conceptualization 1-2 years

 Activities
• To transform or not transform

• Creating senior Management and Board buy in
•Agreeing on options on legal frame word.




                                                16
Phase 2   Project Mobilization
 Activities
•Project Kick-off
• Establish Project Management Office, Transformation
Staff Committee and project team
• Collect and review background documentation
• Conduct leadership alignment workshop
• Define project and change management approach
• Develop Inception Report (including change and
communication management approach

                                                        17
Phase 3   Baseline Assessment
 Activities
• Legal & Governance Review
• Financial & Tax Due Diligence
• Asset & Business Valuation
•Product Assessment
• Process, IT and Controls review
• HR Assessment
• Risk Management &Internal Audit Assessment
• Corporate & Product Brand Audit
• Business Plan Review                         18
Phase 4     Transformation Planning

 Activities

• Detailed    Transformation Planning
• Update Communication Plan
•Develop Business Plan including Functional
/Branch Business Plans




                                              19
Change & Project Management and Capacity Transfer

         Phase 5 Implement Transformation


 Activities
• Develop / Revise Policy & Procedures Manuals
•Training /Development Plan
• Branch Outlet Model
• License Application


                                                    20
Change & Project Management and Capacity Transfer
                  Phase 6 Training


     Activities
•   Change Management Training
• Brand Internalization Sensitization
• Governance Training for New Board


                                                    21
Change & Project Management and Capacity Transfer

                    Project Closeout


  Activities

 • Project Closeout Workshop
 • Project Closeout Report



                                                    22
WHAT WE HAVE LEARNT


 A range of institutions – large and small, traditional and
  untraditional, existing and new- should be encouraged
  to enter and expand sound, responsive financial
  services to the poor majority. Care should be taken to
  build umbrella legislation and registration policies that
  encourage a range of legal structures.

 Microfinancing institutions that meet performance
  standards should be allowed to operate as recognized
  financial intermediaries. Legislation is needed to
  encourage

                                                               23
 those lending institutions that meet prudential
  standards to mobilize savings and other
  domestic resources.

 Entry thresholds , such as minimum capital
  requirements, should be kept low enough so that
  specialized institutions can become part of the
  formal financial system.

 Supervisory and reporting requirements should
  be kept simple, with a focus on key performance
  indicators.


                                                    24
 Separate supervisory and regulatory arrangements
  may be appropriate, to reflect the special
  characteristics of microfinancing intermediaries,
  and to enable the mix of encouragement and
  adherence to performance standards needed to
  build institutional capacity and client reach. Such
  arrangements could encompass NGOs, specialized
  microfinancing institutions, credit unions and
  cooperatives.



                                                    25
 Institutions lending to micro and small
  enterprises should be free to set their on
  lending interest rates, with competition
  among intermediaries rather than interest
  rate ceilings used as the means to create
  pressure to reduce costs and interest rates.

 Attractive incentives, including tax
  advantages, should be provided to these
  intermediaries.


                                                 26
NEW INSTITUTIONAL STRUCTURE AFTER TRANSFORMATION


                        TRANSFORM INTO TWO
                            INSTITUTIONS


                  KENYA WOMEN
                    HOLDING            KWFT DTM
          ROLES
                                                  ROLES

         Protecting the                      Lending
          vision and                          Mobilizing, managing
          mission of Kenya                     and mediating savings
          Women Group.                        Innovating and
         Empowering                           implementing new
         Positioning                          products and services
         Advocating                          Investing with and for
         Research and                         Women and the NGO
          innovating.                         Reporting to central
                                               bank, other stakeholder
                  WOMEN ENTERPRENUERS AND
                       THEIR FAMILIES
                     SAME TARGET GROUP

                                                                         27
CONCLUSION
BEFORE TRANSFORMATION                     9 MONTHS AFTER
DECEMBER 2009 (12 MONTHS)                 TRANSFORMATION (SEPTEMBER
                                          2011)
1. Vision: To grow into a sustainable and To be the Women Financial
         viable institution with capacity Solutions Provider with a Difference
         to address financial and non-
         financial needs of women in
         the economy.

2. Mission: To advance and promote        To Partner with Women in their
         the direct participation of      Creation of Wealth
         economically active women in
         viable businesses to improve
         their economic and social
         status, by providing
         sustainable financial and non-
         financial needs to women in
         the economy.

                                                                                 28
3. Target Group


     Low Income Women                   Low Income Women
     Entrepreneurs


4.    Institutional Set Up
        Microfinance Institution Not   A Regulated Microfinance
         For Profit (NGO)               Institution For Profit




                                                                   29
2009                                   2011
5. GEOGRAPHICAL COVERAGE
   (Largest network in Kenya.)


  National                       National coverage
  167 field offices             215 field offices
   Branch (banking) 0            14 deposit taking branches
   Active clients 326,488        433,730
   Total Clients 334,188         470,683




                                                           30
6. Programme performance
 Are Prepayment rate 97%    98%

Overall disbursements by    June 2011 Kshs.
 December 31st 2009          11.6 billion (6 months)
 (1year) Ksh. 13.6 billion




                                                  31
7. Savings Compulsory   Ksh. 6.3billion (Sept 9
   334.3million         months)

Savings voluntary 0     Ksh. 779 million (9
                        months)
Outstanding portfolio
 Ksh. 12.5 billion      Ksh. 10.5 billion (9
(12 Months)             months)



                                               32
8. Sustainability 132%       102%


9. Operating profit before   Profit 137 million
  tax ksh. 790 million       (by Sept 2011)

10. Average Loan size Ksh.    Kshs. 40,952
   38,000
11. Delivery channels        National office
   National office           network,
   Networks.                 Mpesa, M-Banking ,
                             ATMS, Card
                                                  33
12.     Staff 1341        Staff 1891
       52 % Female        52% Female
       48 % Male          48% Male
13. ICT
  T24 under updating      Fully functional.
  and implementation       T24

14. Reporting             Reporting
  To the Board            To the Board
  Development partners    To the Central Bank of
  Stakeholders           Kenya
                          Stakeholders

                                                     34
11.PRODUCTS             PRODUCTS

Approach                 Approach
  Individual              Individual
 Groups                  Groups
  Compulsory savings      Compulsory savings
  Links with private      Links with private sector
 sector




                                                   35
 Product Offering:       Product Offerings
   Business Loans          Business Loans
  Consumer Loans           Consumer Loans
     -Education               -Education
     - Clean Energy           - Clean energy
     - Solar                  - Solar
     -Health Insurance        - Clean water
     - Clean water
   Agricultural Loans    Agricultural Loans




                                                36

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Jennifer Riria, Transforming from NGO to Regulated MFI

  • 1. TRANSFORMING FROM NGO TO REGULATED MFI WHILE YOUR COMMITMENTS TO EMPOWERING THE POOR FOR PRESENTATION AT GLOBAL MICROCREDIT SUMMIT BY DR. JENNIFER NKUENE RIRIA, PHD, MBS, ICON/HP NOVEMBER 14-16 2011
  • 2. Introduction Why did we decided to transform? • Ownership risk in A members based Organization 1
  • 3. • Funding base – Access to commercial funds in a commercial entity • Improved profitability to pay back commercial funding . Efficiency, cost-effectiveness 2
  • 4. • Product diversification • Losing momentum with customers – they want a one- stop shop • Meet their needs, by providing products currently restricted 3
  • 5. SO Transformation of KWFT had to consider its target group as it conceptualized around the following issues: 1.Competitive repositioning (products, and delivery) 4
  • 6. 2. Commercialization (profitability and efficiencies) 3. Legal structure for profit 4. Regulatory framework / Licensing 5
  • 7. Transformation Different perspectives: • Storm clouds (trouble) • Rainstorm (opportunity) Form follows function, decide who & what to be and let the lawyers worry about form 6
  • 8. Motivation The Board kept constantly reminded: Every truly great company achieves two things: It achieves a Vision It makes Profit Achieving a vision and making a profit requires a winning business model that: 7
  • 9. • Meets customer demands while staying true to the vision • Distinguishes between customer demand and effective demand. 8
  • 10. IN DOING SO Various Consensus was built into policy by the Board and Management: i) Every truly great company achieves two things:  It achieves a vision  It makes profits Achieving a vision and making a profit for KWFT meant: • Building a business model that meet the customer demand while staying true to the vision. • A business model that makes a clear distinction between customer demand and effective demand 9
  • 11. ii)KWFT needs to define its revised value proposition to its customers. iii) Must look at legal structures that support the institutional vision and mission. iv) what the transformed KWFT would engage in. v) what challenges are likely to be addressed. vi) Stakeholder and target group expectations of the transformed institution. 10
  • 12. STEP BY STEP APPROACH Background to Transformation  2006: Board and Senior Management went on a study tour to Bolivia to enhance the conceptualization of the transformation. The study tour achieved: • Gained exposure to a transformed MFI • To have clarity on the vision of transformation • To have discussions with Bolivian regulators on regulatory issues with regard to performance and indicators. 11
  • 13.  After the trip, it was agreed that the process of transformation be intensified. The Board therefore, • Discussed and agreed to transform into a regulated MFI as opposed to a Bank due to various factors including major costs involved, reporting requirements and in- house capacity – agreed on legal structures. • Agreed on resource requirements • Agreed on commitment of time by both Staff and Board • Agreed on sources of resources required for transformation • Resolved to achieve aggressive annual growth targets and continue focus on target our clients i.e. low income women entrepreneurs. 12
  • 14. Background to transformation  End of 2006: MFI Bill was enacted as the MFI Act (2006)  The Board then allocated in-house funds for transformation and sourced donor funding to finance the transformation process to enable achievement to the MFI Act. As a result, FSD came on board early 2007 to partner KWFT in the transformation process. 13
  • 15.  During the same period, KWFT begun working on the legal framework of the transformed company (i.e. memorandum of association, articles of association)  In partnership with FSD, the detailed transformation planning commenced and a decision to contract a lead consultant, to support the process was made. 14
  • 16.  October 2007: Deloitte Consulting Limited was contracted following a competitive process to assist with the transformation.  The process culminated in a licensing by Central bank in April 2010 15
  • 17. Phase 1 Conceptualization 1-2 years Activities • To transform or not transform • Creating senior Management and Board buy in •Agreeing on options on legal frame word. 16
  • 18. Phase 2 Project Mobilization Activities •Project Kick-off • Establish Project Management Office, Transformation Staff Committee and project team • Collect and review background documentation • Conduct leadership alignment workshop • Define project and change management approach • Develop Inception Report (including change and communication management approach 17
  • 19. Phase 3 Baseline Assessment Activities • Legal & Governance Review • Financial & Tax Due Diligence • Asset & Business Valuation •Product Assessment • Process, IT and Controls review • HR Assessment • Risk Management &Internal Audit Assessment • Corporate & Product Brand Audit • Business Plan Review 18
  • 20. Phase 4 Transformation Planning Activities • Detailed Transformation Planning • Update Communication Plan •Develop Business Plan including Functional /Branch Business Plans 19
  • 21. Change & Project Management and Capacity Transfer Phase 5 Implement Transformation Activities • Develop / Revise Policy & Procedures Manuals •Training /Development Plan • Branch Outlet Model • License Application 20
  • 22. Change & Project Management and Capacity Transfer Phase 6 Training Activities • Change Management Training • Brand Internalization Sensitization • Governance Training for New Board 21
  • 23. Change & Project Management and Capacity Transfer Project Closeout Activities • Project Closeout Workshop • Project Closeout Report 22
  • 24. WHAT WE HAVE LEARNT  A range of institutions – large and small, traditional and untraditional, existing and new- should be encouraged to enter and expand sound, responsive financial services to the poor majority. Care should be taken to build umbrella legislation and registration policies that encourage a range of legal structures.  Microfinancing institutions that meet performance standards should be allowed to operate as recognized financial intermediaries. Legislation is needed to encourage 23
  • 25.  those lending institutions that meet prudential standards to mobilize savings and other domestic resources.  Entry thresholds , such as minimum capital requirements, should be kept low enough so that specialized institutions can become part of the formal financial system.  Supervisory and reporting requirements should be kept simple, with a focus on key performance indicators. 24
  • 26.  Separate supervisory and regulatory arrangements may be appropriate, to reflect the special characteristics of microfinancing intermediaries, and to enable the mix of encouragement and adherence to performance standards needed to build institutional capacity and client reach. Such arrangements could encompass NGOs, specialized microfinancing institutions, credit unions and cooperatives. 25
  • 27.  Institutions lending to micro and small enterprises should be free to set their on lending interest rates, with competition among intermediaries rather than interest rate ceilings used as the means to create pressure to reduce costs and interest rates.  Attractive incentives, including tax advantages, should be provided to these intermediaries. 26
  • 28. NEW INSTITUTIONAL STRUCTURE AFTER TRANSFORMATION TRANSFORM INTO TWO INSTITUTIONS KENYA WOMEN HOLDING KWFT DTM ROLES ROLES Protecting the Lending vision and Mobilizing, managing mission of Kenya and mediating savings Women Group. Innovating and Empowering implementing new Positioning products and services Advocating Investing with and for Research and Women and the NGO innovating. Reporting to central bank, other stakeholder WOMEN ENTERPRENUERS AND THEIR FAMILIES SAME TARGET GROUP 27
  • 29. CONCLUSION BEFORE TRANSFORMATION 9 MONTHS AFTER DECEMBER 2009 (12 MONTHS) TRANSFORMATION (SEPTEMBER 2011) 1. Vision: To grow into a sustainable and To be the Women Financial viable institution with capacity Solutions Provider with a Difference to address financial and non- financial needs of women in the economy. 2. Mission: To advance and promote To Partner with Women in their the direct participation of Creation of Wealth economically active women in viable businesses to improve their economic and social status, by providing sustainable financial and non- financial needs to women in the economy. 28
  • 30. 3. Target Group Low Income Women Low Income Women Entrepreneurs 4. Institutional Set Up Microfinance Institution Not A Regulated Microfinance For Profit (NGO) Institution For Profit 29
  • 31. 2009 2011 5. GEOGRAPHICAL COVERAGE (Largest network in Kenya.) National National coverage 167 field offices 215 field offices  Branch (banking) 0 14 deposit taking branches  Active clients 326,488 433,730  Total Clients 334,188 470,683 30
  • 32. 6. Programme performance  Are Prepayment rate 97% 98% Overall disbursements by June 2011 Kshs. December 31st 2009 11.6 billion (6 months) (1year) Ksh. 13.6 billion 31
  • 33. 7. Savings Compulsory Ksh. 6.3billion (Sept 9 334.3million months) Savings voluntary 0 Ksh. 779 million (9 months) Outstanding portfolio Ksh. 12.5 billion Ksh. 10.5 billion (9 (12 Months) months) 32
  • 34. 8. Sustainability 132% 102% 9. Operating profit before Profit 137 million tax ksh. 790 million (by Sept 2011) 10. Average Loan size Ksh. Kshs. 40,952 38,000 11. Delivery channels National office National office network, Networks. Mpesa, M-Banking , ATMS, Card 33
  • 35. 12. Staff 1341 Staff 1891  52 % Female  52% Female  48 % Male  48% Male 13. ICT T24 under updating Fully functional. and implementation T24 14. Reporting Reporting  To the Board  To the Board  Development partners  To the Central Bank of  Stakeholders Kenya Stakeholders 34
  • 36. 11.PRODUCTS PRODUCTS Approach  Approach  Individual  Individual Groups Groups  Compulsory savings  Compulsory savings  Links with private  Links with private sector sector 35
  • 37.  Product Offering:  Product Offerings  Business Loans  Business Loans Consumer Loans  Consumer Loans -Education -Education - Clean Energy - Clean energy - Solar - Solar -Health Insurance - Clean water - Clean water  Agricultural Loans Agricultural Loans 36