TERMS OF REFERENCE - European Bank for Reconstruction …



TERMS OF REFERENCEKyrgyz Republic: Bai Tushum Bank - SME and Corporate Lending and Risk Management Capacity Building 1. BackgroundBai Tushum Bank (“BTB”, the “Company” or the “Client”) is the leading microfinance provider in Kyrgyz Republic with the largest MSME portfolio in the country. As of January 2016, BTB is the 7th largest bank by gross loan portfolio and 9th largest bank by total assets in Kyrgyz Republic. BTB was the first microfinance institution in Central Asia to have successfully transformed into a full-fledged small business bank at the end of 2012. Historically, BTB specialised in lending to micro, small and medium enterprises as well as individuals primarily in the rural areas of the country, with a focus on agricultural finance. However, with the transformation into a bank BTB has diversified its portfolio and expanded the range of financial services offered to its retails as well as corporate clients: deposits, remittances and currency conversions. BTB has a large customer base of about 31,000 borrowers and ca. 115,000 deposit accounts serviced through an extensive network of eight branches and 46 outlets across the country. With transformation into a fully pledge bank and continue to serve targeted clientele group in rural remote area , Bai Tushum needs to improve operational efficiency and productivity through effective of assessment and delivery mechanism. The European Bank for Reconstruction and Development (“EBRD” or the “Bank”) recently signed a MSME Loan with the Company which will be supported by technical assistance in the area of SME/Corporate underwriting processes on loans over USD 100,000.00, upgrade of the SME credit scoring and Corporates’ rating system, credit risk management, as well as training of BTB’s SME/Corporate loan officers. The technical assistance will not only improve BTB's capacity to on-lend to SMEs and Corporates, but will also the support its broader SMEs financing procedures as a whole.The Company now seeks to engage a consultant (the “Consultant”) to help BTB to build internal capacity and strengthen its SME/Corporates lending capacity by implementing updated, internationally recognised best practices and procedures, rather than existing approach which may be more suitable to MSEs (the “Assignment”). This in turn will enable BTB to grow it SME and Corporates lending in a sustainable and profitable manner going forward. 2. Objectives of the AssignmentThe objectives of the Assignment are two-fold:SME and Corporate lending and risk management functions: assessment of current lending policies and procedures (including credit scoring on MSMEs and Rating systems on Corporates loans; enhancing respective SME/Corporates’ credit policies to reflect from SME/Corporate deal origination and underwriting process and criteria, to SME/Corporate loans approval process and administration/back office functions; developing new risk mitigation techniques and stronger monitoring mechanism, and upgrading restructuring techniques; Training: Delivering training to BTB’s SME loan officers, for enhancing their skills with regards to the entire transaction cycle for SME/Corporates, as well as the areas listed under SME/Corporates lending and risk management functions.Knowledge transfer and skills development in these areas will build internal capacity and enable the Client to continue to grow its SME and Corporate lending in a sustainable and profitable manner, as well as adapt to international standards.3. Scope of ServicesThe Consultant will be required to undertake the below listed tasks, all with detailed reference to addressing the objectives of the Assignment.A. SME/Corporate lending and risk management functions: Conduct an overall assessment of BTB's existing SME/Corporate business functions and processes, SME/Corporate products specifications and exposure limits, SME/Corporates loan underwriting process and criteria, policies and procedures of respective credit risk management, and related IT systems. The Consultant shall then identify potential areas of improvement in each procedure, recommend changes, and provide support in their implementation. This would include reviewing, and suggesting improvement to the template for assessing historical financial performance, cash flow appraisal and future capital expenditure, future financial performance and financial ratios for SME/corporate customers. The improvements and new methodologies should take into consideration any lessons learned from BTB’s existent MSME business. Conduct interviews of key members of management and staff involved in the product development and management process (Deputy CEO, Risk Manager, Head of SME, Head of Sales, IT Manager, Marketing Manager, and other members of staff as necessary).Review existing, and introduce new policies and procedures for risk mitigation techniques for SME/Corporate loans.Currency devaluation stress-tests: Support BTB in introducing and complying with best-practice requirements of (i) performing stress tests assuming various currency devaluation scenarios, to test the debt service capacity of unhedged Sub-borrowers, if a loan provided by BTB is denominated in a currency other than Kyrgyz Som and (ii) preparing a standard numerical example of a devaluation scenario shown on a generic sub-loan case, to be provided to borrowers, in order to ensure that borrowers are informed in writing of the risks involved in such foreign currency borrowing.Review existing, and introduce new policies and procedures for:stronger monitoring mechanisms for SME/Corporate loans on both an individual basis (including review of the SME borrowers’ reporting requirement), as well as an on a portfolio basis; and credit portfolio stress-testing methodology for SME/Corporate loans. This may include, but not be limited to:Assessment of existing data base and recommendations for improvement;Definition of stress scenarios and underlying assumptions, if possible based on BTB’s historic data and, if applicable, in line with Central Bank requirements.Review existing, and introduce new policies and procedures for restructuring, bad-debt collection, work-out procedures and recovery techniques for SME/Corporate loans.Review existing, and introduce strengthened SME/Corporate loan sales, marketing, and product development process.Assessment and upgrading of the existing SME/Corporates rating:Review and assess volume & quality of current data available and lending methodology; Review adequacy of management information system (MIS) with BTB credit scoring/rating system implementation and assess opportunities for further improvements; Develop and automated application processing system (APS) within existing MIS.Provide support with the implementation.Develop manuals and training material related to the topics identified above, to be used in the training workshops and in the on-job coaching;Reporting: the Consultant shall assist BTB to improve, or introduce an internal system for reporting on the overall SME loan portfolio of BTB, including number and volume of SME loans, and their geographic breakdown by main regions, and shall advise BTB on the content and quality of the bank’s reporting to EBRD.B. Training: The Consultant will assist in enhancing the skills of BTB's SME/ Corporate staff, and will provide training as follows: Undergoing a “training needs” assessment with management and staff to identify the training needs for strengthening the entire transaction cycle for SME/Corporate lending and associated risk & control functions. Coordinate and agree with BTB the detailed outlines, and the schedule of all training and coaching programmes. Delivering on-the-job coaching to a selected number of SME and Corporate loan officers of BTB, on for all those areas where training needs have been identified. This shall include training on the areas listed under SME/Corporate lending and risk management functions. This may also include training with regards to the entire transaction cycle for SME and Corporate lending, i.e. understanding of business and risk profiles and operating environments of SMEs/Corporates; assessing commercial viability; development of income statement and cash flow forecast based on the borrower’s past performance and assumptions for future performance; ratio analysis; evaluation and mitigation of risks; preparing a proposal for the Credit Committee.Designing and implementing a ‘training-of-trainers’ (ToT) programme for the items listed under (2), to insure the sustainability of the TC project through internal capacity anising a training workshop for credit risk officers which are involved in SME and corporate lending, on the improvements and changes to the policies and procedures listed under SME /Corporate lending and risk management anising a training workshop for selected key senior management, including those located at Head office as well as branch managers, which are involved in SME/Corporate lending, on the improvements and changes to the policies and procedures listed under SME /Corporate lending and risk management functions. A module specifically relating to EBRD’s E&S Risk Management procedures for Corporate and SME lending should be incorporated into the training workshops for credit risk officers and/or middle or senior managers, especially those who have overall responsibility for environmental risk management and implementation of the EBRD’s environmental and social procedures. The module should also be integrated into the design of the train-of-trainers programme. EBRD’s E&S Department will provide the respective training materials in English language to the Consultant. All training courses shall be conducted in Russian. The Consultant will provided comprehensive training materials (handouts) used during the training, in Russian, in the number of copies corresponding to the number of trainees.Implementation Arrangements and DeliverablesThe Consultant is expected to work closely with the Client who will be the main co-ordinator of the assignment and will closely monitor its progress together with the selected EBRD project team. The Consultant will work with BTB’s management and staff. BTB will designate a senior manager to co-ordinate the day-to-day activities under this Assignment. The senior manager will be involved in the structuring of trainings and monitoring to ensure buy-in and effective transfer of skills during the Assignment. BTB will provide the Consultant with access to all relevant documentation/information to successfully complete the Assignment.The Consultant’s performance will be monitored pursuant to overall objectives of the Assignment. At a minimum, the following results will be obtained by the end of the assignment:The deliverables for this Assignment will include:Conduct an overall assessment of BTB's existing SME/corporate business function, products specifications, SME/Corporate loan underwriting process and criteria, policies and respective procedures of credit risk management, and related IT systems; identify potential areas of improvement in each procedure, recommend changes, and provide support in the implementation of the recommendations.2 months after the signature of the contract.Development of revised enhanced internal manual and tools for SME/Corporate lending from organisation structure and risk functions on SME/Corporate business, including marketing and deal origination, appraisal and assessment of potential SME/Corporate clients, revised underwriting process and criteria, upgraded rating and credit scoring, risk mitigation, and monitoring, which are introduced or updated, and adopted by client.4 months after the signature of the contract.Number of SME and corporate loan officers trained and retained Total 4 SME/Corporate loan officers by 5 months after the signature of the contract; Total 10 SME/Corporate loan officers by 9 months after the signature of the contract Workshops for training “Training of Trainers” delivered. All future trainers should attend at least two workshops, and training manual and training materials should be developed. 1 workshop conducted by 4 5 months after the signature of the contract.Additional 2 workshop conducted by 9 months after the signature of the contract. Additionally, the Consultant shall report to BTB’s management on all aspects of the assignment including the following reports:A work plan that must be agreed upon with BTB within 15 days of starting the Assignment. The plan must include data on resources necessary for the implementation of the same, separate deadlines for every activity, names of persons/departments that will participate in these activities, manner and format of communicating and reporting;An inception report within four weeks following the start of the assignment which will also propose to the extent appropriate amendments, if any, to the tasks under Section 3 and the work plan;Short monthly performance updates of no more than four pages, within one week after the end of each month;Quarterly summary progress reports, no later than 30 days at the end of each month, related to the tasks carried under the Assignment, including: The activities undertaken under the Assignment during the relevant reporting period, including progress made in achieving the objectives of the Assignment findings, conclusions and recommendations, as well as any issues faced;The action plan/ next steps for the next month. A draft final report within twenty calendar days after the end of the Assignment, summarising all activities and deliverables/results in detail and commenting on key areas for BTB’s focus in the near- to medium-term. The final report should include ‘Executive Summary’ of the major findings and conclusions that will contain no commercially confidential information. The report should also include a description of any issues/problems that have arisen that require resolution and any other points the Consultant would like to bring to the attention of the EBRD and BTB. Any comments provided by EBRD and BTB on the draft report should be addressed in the final report to be submitted within two week from the time when such comments are released. All reports shall be presented in electronic formats without password- and copy-protection. Standard formats include Microsoft Word, Microsoft Excel and Adobe PDF. Written policies and procedures, and training materials and reports produced by the Consultant shall be provided in English and Russian. A copy of each document shall be sent to the EBRD Operation Leader. Additional ad-hoc reports may be requested by the EBRD.BTB will be responsible for the provision of training venues and hire. The Consultant will be responsible for all costs related to training (training materials, presentations during training events).BTB will be responsible for all local arrangements including provision of sufficient office space, office equipment and IT connections. Where necessary, BTB will provide for additional expenses related to local transportation, and accommodation to training events. Regional travel will be required for implementation of the assignment, and to visit the 2 large and 2 medium-sized branches (including at least 2 cash outlets within respective branches) of BTB. Key experts will be required to be available for implementation of respective tasks throughout the assignment duration.Consultant ProfileThe Consultant will be a firm or a group of firms preferably with previous project experience related to:assisting commercial banks or similar financial institutions with the development of SME and Corporate business including the strengthening of their credit and risk management, particularely in Central Asia;building internal capacity in Banks or similar financial institutions on SME/Corporates lending and the implementation of train-the-trainer programmes.The Consultant’s expert team is expected to include the following experience: experience and expertise in assisting banks with development of SME and Corporate business;experience in strengthening credit and risk management of Banks, proven ability to help banks with devising and implementing SME/Corporates lending policies; understand, recommend and implement appropriate training programmes for staff and preferably experience in or exposure to emerging markets and specifically of their banking sectors; capability to operate and provide training in Russian, as most of the bank’s target personnel do not have good command/knowledge of English.It is expected to have at least one senior expert per each section outlined in Section 3 of this assignment. The Consultant may engage local experts for particular tasks. All experts, including local project staff will have to be approved by EBRD. The Consultant must demonstrate internal capacity to oversee the assignment and provide a strategic input as and when needed.6.Donor VisibilityThe donor funding for the project requires adequate visibility for its contribution. The Consultant shall properly illustrate donor support during the assignment and collect evidence of donor visibility, such as proper presentation of donor support at workshops, in media coverage, official notices and press releases, reports and publications referring to the project. The final report shall detail the ways in which the donor's visibility requirements were adhered to. ................
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