Terms of Reference (ToR) for Loan recovery strategy development and portfolio management Training Manual and training delivery (2 MFI & 1 SACCO in Mekelle) and Interest free financial product development (For Abala SACCO)

Project Title: Economic Recovery for Conflict-Affected Population (ER-CAP)

About First Consult Development

First Consult Development (FCD) is an economic development organization dedicated to empowering vulnerable communities by designing and implementing sustainable projects across various sectors, including agriculture, manufacturing, and services. Our multidisciplinary teams leverage local expertise to drive enterprise growth, improve access to finance, and foster skill development. With a proven track record, we’ve successfully created jobs, generated wealth, and attracted investments, ultimately leading to the formation and growth of thriving businesses.

About the Programme

ER-CAP: The Economic Recovery for Conflict-Affected Population Project (ER-CAP) is a five-year project aiming to improve the economic adaptation, protection, and recovery of populations affected by conflict. The program led by Mercy Corps in collaboration with the Danish Refugee Council (DRC) and First Consult, uses an integrated conflict-sensitive, systems-strengthening, climate-smart, and inclusive approach to enhancing systems that support the economic recovery of communities in three regions: Afar (Abala), Tigray (Mekelle), and Amhara (Woldiya). The programme has finalized its 9-month inception phase, and now entered into implementation phase whereby the first two years will focus on Tigray and Afar regions and starting from year 3, it will expand to the Amhara region (Woldiya). The programme aims to benefit 43,540 individuals, with a specific focus on Internally Displaced Persons (IDP), host community and returnee women, youth, and other marginalized groups. The expected outcomes include resilient livelihoods, improved access to financial products and services, and enhanced capacity to mitigate protection risks through access to justice and psychosocial support.

ER-CAP will support conflict-affected communities and improve their livelihoods by strengthening Micro, Small, and Medium Enterprises (MSMEs) including women and youth-led MSMEs, improving crop and livestock and other potential value chains, and facilitating access to off-farm and non-farm income-generating opportunities. Our plan includes assessing relevant agricultural and non-agricultural market systems, facilitating market-driven short-term technical skills training, and improving inclusive employment opportunities through input-output market linkages and advocacy. The programme will also facilitate access and use of affordable and innovative financial products and technology for conflict-affected communities and MSMEs through strategic partnerships with financial services providers and layering on existing government initiatives.

Currently, First Consult Development is beginning to implement the ER-CAP program in collaboration with the Danish Refugee Council and Mercy Corps, targeting the regions of Tigray (Mekelle), Amhara (Woldiya), and Afar (Aballa). The main goal of this program is to enhance the economic adaptation, protection, and recovery of conflict-affected populations, including men, women, youth, individuals with disabilities, and other vulnerable members of the community. This will be achieved through an inclusive, innovative, conflict-sensitive, and climate-smart systems development approach.

As part of this consortium, First Consult Development primarily focuses on facilitating tailored access to finance to support conflict affected communities, such as internally displaced persons (IDPs), returnees, and host communities. To ensure effective implementation on the ground, it is crucial to establish partnerships with key stakeholders, including microfinance institutions, savings and credit cooperatives (SACCOs), and banks in all our intervention sites. To strengthen the capacity of these financial institutions and providing technical assistance is essential.

1. Component one: Loan recovery strategy design and loan portfolio management guideline manual development

Component one mainly focuses on the development of loan recovery strategy and loan portfolio management guideline tailored to the partner financial service providers (2MFI and 1 SACCO) in Mekelle). With this understanding, the first consult development seeks a consultancy service who has practical experience and knowledge of the subject matter to design loan recovery strategy for the partner financial institutions in Mekelle, develop quality portfolio management guideline manual and provide tailored 3 days training to a total of 30 key staff of partner financial institutions so that they can cascade and scale it up throughout their institution as system. Reviewing existing loan recovery strategies, identifying gaps, and addressing systemic loan recovery challenges of partner financial institutions through designing loan recovery strategy is vital to enhance loan recovery system of the financial institutions. Because the better the loan recovery strategy and procedures, easier the recovery of disbursed loans. Moreover, the consulting firm or individual consultant needs to consider the elements that must be complemented in loan portfolio management training manual development include fundamental credit risk management principles such as sound underwriting, comprehensive financial analysis, adequate appraisal techniques and loan documentation practices, and sound internal controls, the whole loan portfolio management process, loan approval and monitoring and follow-up of the respective financial institution.

1.1. Objectives:

The general objective of the assignment is to design a loan recovery strategy and develop loan portfolio management guideline/manual for partner financial institutions in Mekelle.

1.2. Specific objectives:

• To identify non-performing loans, assess the root causes of defaults, and evaluate borrowers’ financial health will be a key activity.
• Analyze the trends, risk factors, and recovery potential of the non-performing loans to inform the development of loan recovery strategy of the targeted financial institutions.
• Assess the management information systems of the financial institutions with a focus on loan portfolio management,
• Segment the loans based on risk levels, borrower profiles, and recovery potential.
• Prioritizing high-impact loans and borrowers for immediate attention and action, focusing on those with the highest likelihood of successful recovery.
• Develop customized recovery plans for each segment of non-performing loans, considering the specific circumstances of borrowers and the capabilities of financial institutions.
• Develop tailored loan recovery strategies to address individual financial institutions’ needs that enable them to cater, restructure loan terms, offer repayment plans, or provide financial counselling.
• Develop training and capacity-building support delivery plan to financial institution staff involved in the loan recovery process.
• The FIs staff will be equipped with the necessary skills, tools, and resources to effectively manage loan portfolios, negotiate with borrowers, and implement recovery strategies.

Deliverables:

• An Inception Report: the inception report should outline the methodology that will be employed and the work plan for the assignment. Moreover, detailed qualitative and quantitative data collection tools will be part of the inception report.
• Gaps Assessment Report: A detailed report summarizing findings from the gaps assessment, including stakeholder insights from debriefing with financial institutions senior management and data analysis report.
• Generic loan recovery strategy: As per the assessment findings develop generic loan recovery strategy tailored to each partner financial institutions.
• Loan portfolio management guideline/manual: Develop comprehensive loan portfolio guideline/manual and power point presentation tailored to the respective financial institutions.
• Training Workshop Reports: Documentation of training sessions and validation workshops, participant feedback, and recommendations for future capacity building.

Timeframe: The consultancy service is expected to complete this component of the assignment within twenty-five working days from the date of the contract signing. A detailed timeline will be developed during the inception phase.

Note: trainees related cost (such as, training hall, stationery, refreshment, lunch, transport and DSA) will be covered by First Consult Development.

2. Component two: Interest free financial product development (For Abala SACCO)

2.1. Interest – Free banking services:

Sharia product development faces unique challenges in terms of strategy and innovation compared with conventional products. Interest free financial products service providers must adhere to Sharia principles to maintain customer trust and comply with Islamic law. This assessment and interest free product development assignment will use qualitative and quantitative methods, specifically semi-structured interviews, to validate the Sharia product development practices in Afar, Abala.

Establishment of sharia supervision boards (SSBs) and their roles in the product development and implementation process in the SACCO will be examined, propose workable recommendations. The sharia supervision board (SSB) is a religious board in an Interest free banking service and is considered as one of the main characteristics of governance in the Interest free financial banking services made by financial service providers (including SACCOs).

The SSB’s role and function exceed the advisory and fatwa[1] to check actual performance and reporting to the annual meeting of the financial institution (e.g., in the case of Ander Dalul SACCO, general assembly meetings as per the by-law of the SACCO and cooperative proclamation number 985/2016). The FCD, ER-CAP program seeks to hire a consulting firm with practical skill knowledge and expertise in the development of sharia – compliant, interest free financial product development for SACCOs in Abala (Afar region). The consultancy firm will provide technical support to revitalize financial institutions affected by the devastating impacts of the two-year conflict in Northern Ethiopia.

2.2. Objective:

The main objective of the assignment is to design a tailored interest-free financial product and provide capacity building training to partner financial institutions.

2.3. Specific objectives

• Conduct interest free market assessment in the area (demand and supply side),
• Assess business feasibility of sharia compliant interest free financial,
• Design a risk management framework to the designed interest free financial products tailored to the specific market,
• Setup Sharia Advisory Board (SAB) and establish SAB Charter, prepare the SAB job description, and recruitment strategy,
• Develop Interest Free Banking Financing Policy tailored to the specific purpose,
• Develop Interest Free Banking Financing Procedure,
• Develop Interest free Banking Account Operational Policy,
• Develop Accounting Operational Procedure,
• Develop conflict affected Interest Free Banking Products (saving and loan products) suitable to the context,
• Provide three days Capacity Building Training to 25 participants.

2.4. Deliverables for component two

• An Inception Report: the inception report should outline the methodologies that will be employed and the work plan for this specific assignment. Moreover, detailed qualitative and quantitative data collection tools will be part of the inception report.
• Gap assessment Report: A detailed report summarizing findings from the gaps assessment, including stakeholder insights, supply and demand side findings data analysis. This includes the interest free financial product review and primary data findings as well as a list of identified risk prioritized in terms of frequency and severity using risk matrixes.
• Develop appropriate and affordable interest free banking product: As per the assessment findings, the consulting firm will develop an affordable and appropriate interest free financial product to the 1 SACCO in Abala.
• Develop implementation guideline: Develop comprehensive implementation guideline and power point presentation tailored to the intended financial institution.
• Prepare training workshop reports: Documentation of training sessions and validation workshops, participant feedback, and recommendations for future capacity building.
• Timeframe: The consultancy service is expected to complete this component of the assignment within twenty working days from the date of the contract signing. A detailed timeline will be developed during the inception phase.

Note: trainees related cost (such as, training hall, stationery, refreshment, lunch, transport and DSA) will be covered by first consult development.

Methodology: Each component of this assignment employs a mixed-methods approach, combining primary data collection with a desk-based review of documents. Both qualitative and quantitative methods will be used, incorporating descriptive analysis.

Develop Work Plan and Methodology

Develop a work plan and methodology for the assignments based on this document and discussion with first consult development ER-CAP, access to finance team.

Conduct desk review

Review sample financial institutions (MFIs and SACCO) financial and operational reports, credit policies, by-laws, directives and other operational documents, audit reports. In the case of SACCOs, the consultant should review Cooperative Promotion Agency reports and other relevant documents. Whereas in relation to MFIs review of NBE reports, directives and other necessary legal documents.

Key informant interview

Conduct key informant interviews with the board of directors (where appropriate) senior managers, middle level managers, branch managers of the financial institutions.

Focus group discussion:

As focus group discussion (FGD) is a qualitative data collection method that involves a group of people (especially from the demand side) discussing their opinion on the interest free banking services. Therefore, the consulting firm is expected to conduct FGDs with the SACCO members, religious leaders and other relevant stakeholders.

Deep dive field-level data collection and analysis:

Project Location(s): Ethiopia, specifically Afar (Abala) and Tigray (Mekelle) for Internally Displaced People (IDP) and Returnee Women, Youth, other Marginalized Groups and host communities.

Required Qualifications

First Consult Development is seeking a consulting firm or individual consultant with proven experience and capacity to provide the required content and analysis as mentioned above. In particular, the consultant is expected to have the following minimum qualifications:

• A minimum of a master’s degree in MBA, Financial Inclusion, Economics, Rural Development, or International Business Relations,
• At least 12 years of senior-level experience in Ethiopia’s financial sector, preferably in Microfinance Institutions (MFIs), Commercial Banks, business development, consultancy, or strategic planning,
• Extensive experience in designing, enhancing, and implementing financial service products and training manuals,
• Strong understanding of the portfolio management for financial institutions,
• In-depth knowledge of the emerging financial ecosystem in Ethiopia,
• Experience in providing technical assistance or capacity building for financial institutions,
• Strong connections with various financial institutions.
• Experience and knowledge of Microinsurance service.
• Experience and knowledge of Interest free banking.

Application and proposal evaluation procedures

Following the procurement notice, qualified consultants (company or individual) are required to submit both a technical and financial proposal separately in PDF format. If one company applies for two components, specific methodology, experienced staff CV to each component’s specialization, skill and knowledge is required based on their unique nature.

Technical proposal

Instructions for the Technical and Financial Proposal

Interested service providers are required to send a technical and financial proposal detailing the experience and qualifications of your firm to execute the assignment. The potential consultant should prepare a component-based budget detailed on the proposed methodology and resources required for the specific assignment.

The financial proposal should include daily fees for the assigned personnel and the total cost to execute each component. Following the selection of competent applicants, the detailed terms and conditions of agreement will be outlined in the First Consult Development contract agreement with the consulting firm.

• Understanding the scope of work and comprehensiveness of the methodology/approach; and the workplan (30%),
• Previous skills, knowledge, consultancy and training experience of the consultant (40%),
• CV detailing the applicant’s relevant experience and capabilities,
• Brief outline of the proposed methodology that will be deployed to execute this assignment,
• Examples of previous work relevant to the assignment,
• References from previous clients or projects (A letter from previous assignments, if any),
• Description of any tools or resources that will be utilized in the project.

Financial Proposal

• Daily professional fee and other relevant costs
• Breakdown of any additional expenses anticipated during the activity
• Payment schedule or terms proposed for the assignment
• Justification for the proposed budget, including any assumptions made

The selection will follow a cumulative analysis method, with technical criteria carrying 70% weight and financial criteria carrying 30% weight.

First Consult will review submitted proposals in accordance with the qualification and experience requirements, as well as specific tasks stated above. The best technical and financial bids will be those that demonstrate competencies in related works, value for money and budget efficiency, which are closely tied to the rationally determined methodological approach and reasonable remuneration rates.

Working arrangement and Reporting

The consulting firm will be working under a contract with First Consult Development and will report directly to the First Consult Development-ER-CAP team.

The consultancy firm is expected to work within the required deadlines and be available in accordance with schedule, which can be adapted as needed.

Payment Schedule

• Payment will be made in installments based on the completion of pre-agreed milestones.