The document summarizes the transformation of KWFT, a Kenyan NGO, into a regulated microfinance institution. The transformation was motivated by the need for commercial funding, improved profitability, product diversification, and meeting increasing customer demands. The process took 6 years and involved conceptualization, planning, implementation, and training phases. It resulted in KWFT becoming two institutions - one focusing on the vision and one being the regulated lending entity. The transformation achieved significant growth and improved performance and sustainability.
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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
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
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