Consultant: Case Study on Alternative Credit Assessment: Facilitating Access to MSMEs and Women-led/owned MSMEs At Alliance for Financial Inclusion

1.0 Background

The Alliance for Financial Inclusion:

The Alliance for Financial Inclusion (AFI) is the world’s leading organization on financial inclusion policy and regulation. Currently, 102 member institutions make up the AFI network including central banks, ministries of finance and other financial policymaking or regulatory institutions from over 90 developing countries and emerging markets. AFI empowers policymakers to increase the access and usage of quality financial services for the underserved through sustainable and inclusive policies and an effective use of digital technologies.

Policies developed and implemented by the members of the Alliance contribute to the attainment of a number of the UN 2030 Sustainable Development Goals. By setting their own agenda, AFI members harness the power of peer learning to develop practical and tested policy reforms that enhance financial inclusion with strategic support from both public and private sector partners.

AFI has seven Working Groups (WGs), which have become the key source of policy developments and trends in financial inclusion and as the primary mechanism for generating and incubating technical content in the network: The WGs are Consumer Empowerment and Market Conduct Working Group (CEMCWG), Digital Financial Services Working Group (DFSWG), Financial Inclusion Data Working Group (FIDWG), Financial Inclusion Strategy Peer Learning Group (FISPLG), Global Standards Proportionality Working Group (GSPWG), Inclusive Green Finance Working Group (IGFWG) and SME Finance Working Group (SMEFWG) and also serve as “communities of practice”.

Providing a platform for knowledge exchange and peer learning among policymakers to share, deliberate and deepen their understanding, the working groups offer leadership and expertise in their respective policy fields and support the network to monitor new developments in emerging fields.

The knowledge generated via the working groups is disseminated for implementation by a range of capacity building activities such as Joint Learning Programs, and Member Trainings, Trainings by Private Sector Partners. The practical experience members garner from engaging in peer learning based capacity building is then applied by members as in country implementation (ICI) projects which are supported by the provision of financial or technical support to AFI member institutions in conducting activities that aim to deliver financial inclusion policies, regulations, supervisory tools or enablers for the development of policies, such as national financial inclusion strategies.

The working groups receive strategic guidance and insight from the High-Level Global Standards & Policy Committee, while the Gender Inclusive Finance Committee, supports WGs in integrating gender considerations into all aspects of their work and support members in fulfilling their Denarau Action Plan (2016) commitment to promote women’s financial inclusion.

AFI members have made further commitments in a range of other accords which can be read here.

The AFI’s five regional initiatives support policy implementation in Africa (AfPI), Latin America and the Caribbean (FILAC), the Pacific Islands (PIRI), Eastern Europe and Central Asia (ECAPI) and the Arab Region (FIARI).

2.0 RATIONALE for the Case Studies:

2.1 Challenges of MSME Access to Finance

Micro, Small and Medium Enterprises (MSMEs) play a major role in most economies, particularly in developing countries. They represent approximately 90% of businesses and more than 50% of employment worldwide, contributing 35% to global gross development product (GDP) and acting as an export enabler for developing countries. Equally important is women-led/owned businesses comprise 23 percent of total MSMEs and account for 32.4 percent of the MSME finance gap. Despite of its importance, access to finance is one of the main impediments to the growth of MSMEs. Financial service providers (FSPs), mainly banks perceive MSMEs adversely due to the risks outweigh MSME small ticket size. This wouldn’t be the issue if FSPs well understand MSME credit profile while MSMEs also understand the pre-requisite of financial product offering. It is vital to mitigate information asymmetry both from demand and supply-side. FSPs rely on Public Credit Registry (PCR) and Private Credit Bureau (PCB) in making use of credit reporting systems to screen potential borrowers and monitor their performance and assess MSME creditworthiness. Having an effective credit reporting system could reduce lender’s operating cost that translates into better access to credit for small borrowers especially during this pandemic. To some extent, a comprehensive information of MSMEs will also facilitate noncollateralized lending by providing sufficient information about a borrower’s credit repayment history to offset, or reduce, the need for physical collateral.

2.2 Alternative Assessment Facilitates MSME Access to Finance

The traditional 5 C’s assessment of CHARACTER, CAPACITY, CAPITAL, CONDITIONS and COLLATERAL limits MSME real potential due to rigid criteria and only applies to the larger SMEs as most microenterprises do not acquire asset for collateral. The emergence of FinTech and bigdata allow lenders to assess MSME credit worthiness beyond the traditional 5C’s via alternative credit assessment. It is part of the expanding and complements the traditional credit information system of which the system will allow alternative data such as transactional data (Point of Sales) and surrogate data (eg: utility payment). The alternative data applies new credit underwriting mechanism and data adoption. Even the new credit information system it bounds with limitations which include constituency clarity of alternative data, legal and regulatory framework, data privacy, consumer protection and cybersecurity among others. Another perspective to look at is how alternative data enables cross border data exchange with the intervention of Standard Setting Bodies (SSBs) such as Bank of International Settlement (BIS).

The basis of alternative data is based on smartphone metadata and psychometric test to assess borrower’s creditworthiness. Going forward, there could be an increasing demand for alternative credit scoring services from traditional FSPs and FinTech-based financial providers as the services encroach normal activities.

3.0 Objectives

AFI is seeking the services of a consultant to support the development of a case study titled “Case Study: Alternative Credit Assessment: Facilitating Access to MSMEs and Women-led/owned MSMEs”. AFI aims to develop country case studies within AFI member institutions that adopt the new application of alternative credit assessment to assess MSME credit worthiness.

The objectives of the assignment are to:

1. Illustrate the purposes, benefits (which include facilitate financing during the pandemic) and challenges of alternative credit assessment as alternative and or complementary to the calculation of MSME and women-led/owned MSME credit worthiness for better access to finance;
2. Identify member countries that apply alternative credit assessment and cover the following aspects: Regulatory framework that includes cross-border data exchange, the intervention of Standard Setting Bodies (SSBs), constituency of alternative data, operation, new credit underwriting model and expansion of credit information system;
3. Develop recommendations on the guideline how to implement regulatory changes regarding alternative credit assessment to facilitate MSME and women-led/owned MSMEs.

4.0 Deliverables

The appointed consultant is required to produce one (1) series of case studies and an excel database which will undertake the following activities:

1. Conduct desktop research on regulatory and policy initiatives on alternative credit assessment for MSMEs and women-led/owned MSMEs;
2. Conduct a review of AFI publications relating to the topic and pull guidance from these documents to ensure relevance and connectivity.
3. Develop short case examples of member institutions that apply alternative credit assessment to facilitate MSME access to financing;
4. Conduct interviews with AFI members to understand the operation and challenges faced in the implementation of alternative credit assessment financing and steps undertaken to mitigate the issues.
5. Develop recommendations to implement regulatory changes regarding alternative credit assessment to facilitate better credit worthiness and access to financing.

5.0 BRANDING AND PRESENTATION STYLE:

The Case Study will be branded with the logos of AFI and SME Finance Working Group (SMEFWG) on the front page of the document. The format and presentation of the Knowledge Product, including acknowledgements and references/footnotes, shall follow the AFI Style Guide (provided) and the information contained in the Knowledge Product fact sheet for consultants (provided).

6.0 TIMELINE AND SUBMISSION:

The consultancy work will begin in October 2021 until March 2022. The longer period includes the consideration of members year-end holidays in December 2022 until mid-January 2022. The consultancy is expected to take at most 30 person days. The final draft of the document should be completed no later than 31 March 2022.

7.0 QUALIFICATION:

The consultant undertaking this assignment should have the following qualifications:

· Advanced degree in a field related to Economics, Public Policy, International Development or another related discipline.

· A minimum of five years knowledge and experience in MSME development and financing policies.

· Hands on experience working in the field of FinTech and women related businesses to access and usage of financial services.

· Previous experience working with global and national institutions involved in financial inclusion policy and regulation, particularly in developing and emerging countries.

· Understand how to incorporate the element of gender and youth inclusive finance into the document.

· Fluency in English (oral and writing) is compulsory. Working knowledge of French and Spanish will be an added advantage.

· Writing experience. Submit related reports/working papers or research related to MSME finance and development.

8.0 REPORTING:

The consultant will work closely with the SME Finance Unit (Policy Programmes and Regional Initiatives (PPRI). The consultant will report directly to both Head of the PPRI Unit with technical support from Senior Policy Manager, SME Finance.

9.0 Criteria for Evaluation

The proposals submitted will be evaluated based on the following criteria:

· Qualification and competences of individual relevant for the assignment

· Experience in qualitative and quantitative research

· Hands on experience working in the field of FinTech and women related businesses to access and usage of financial services.

· Interview to determine fluence in English and added advantage of working knowledge of French.

· Reports/working papers relating to issues on access and usage of financial services

· Knowledge and experience in MSME development and financing policies.

· Clear understanding of the scope of assignment and clarity in the proposed methodology

· Coherent and detailed approach for completion of deliverables per the scope and timeline envisioned of this assignment.

Technical Scoring

1. Academic Qualification; 10%

2. Experience and technical competence of the key staff for the assignment; 50%

(a) In MSME development, financing policies based on FinTech and women-led/owned MSMEs 30%

(b) Global experience in qualitative and quantitative research 10%

(c) Interview experience & reporting/working papers related issues on women and youth MSMEs. 10%

3. Adequacy of the proposed work plan and methodology in responding to the Terms of Reference; 20%

• Technical approach and Methodology 10%
• Workplan 10%

4. Sample work – Relevance to Assignment and demonstrated experience in writing 20%

Total: 100%