Fundeser Credit Risk Management & Process Improvement Project

2013-07-31 - 2014-02-28
Nicaragua

The Microfinance sector in Nicaragua has suffered from the effects of the economic recession, political and social instability that manifested in a Non-Payment Movement in 2008-09, and the government issuing a law that benefits debtors. Only a few leading microfinance institutions in the country have coped sustainably with these issues, one of those being FUNDESER, the second largest MFI in Nicaragua in terms of assets and portfolio as of November 2012. Even so, between 2008-2010 FUNDESER's loan portfolio was adversely affected by the crisis. FUNDESER has since shown signs of financial recovery, but the institution needs to continue to strengthen their operational base to remain sustainable and to be able to withstand any possible adverse events. The goal of this project was to increase access to financial services for micro entrepreneurs and low-income people in peri-urban and rural areas of Nicaragua, by helping FUNDESER improve its credit risk management systems and processes. This was accomplished by strengthening FUNDESER's institutional capacity in credit origination, monitoring, and recovery. The project put special emphasis on improving the efficient coordination of activities between the business and the risk departments, including the overall credit workflow.
LFS was the Technical Partner in charge of managing the project that comprised two main components: Credit Process Review This component covered the development of a revised credit methodology based on the existing credit policies and procedures, which were developed after the crisis with the support of different partners and newly recruited staff. Special was must be put on creating the right balance between productivity and adequate assessment of risks, taking into account the nature of the loan portfolio (i.e., mainly rural). Main activities included: Kick-off workshop to define and validate the work plan with all internal stakeholders Organizational structure review of the credit department, focusing on level of interaction with the risk management unit and human talent assessment to determine staff training gap Review of credit operations, procedures and policies, including credit methodology, with special focus on credit risk management After the credit process review, during a 6-week period the institution approved any required changes to processes/procedures before the implementation phase. Implementation of Recommendations to Improve Credit Risk The main goal of this component is to support FUNDESER in implementing the revised credit policies and procedures. The project will also support knowledge transfer in the credit business, including class room and on the job training. Main activities: Reorganize the structure (roles and responsibilities) of key staff in HQ and branch credit departments, with a focus on credit origination, risk analysis, monitoring and portfolio management Implement new credit policies and procedures with special emphasis on risk analysis and mitigation Implement the training plan with risk and credit staff; training methodologies such as in-room training, on the field training, training of trainers, and coaching