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Building an SME Credit Program: What are the must-haves? Lessons from the NBS Bank experience
June 19, 2017
By Peris N Mburu, Change Management Consultant, Change Management and Building Services Markets, FSD Africa and Maura Hart, Manager, Knowledge & Communications, Women’s World Banking
This post is part one in a series by FSD Africa and Women’s World Banking reporting lessons learned from an engagement with NBS Bank in Malawi.
Small- to medium-sized enterprises (SMEs) contribute significantly to the growth of a country’s economy and thus remain a key contributor to the private sector. Despite this, SMEs continue to experience higher obstacles to accessing credit from financial institutions.
FSD Africa and Women’s World Banking recognize that financial services providers often lack the capacity to serve the SME segment effectively. With support from FSD Africa, Women’s World Banking partnered with Malawi’s NBS Bank to design and implement a credit program for SMEs with a focus on women-owned businesses. Women’s World Banking embarked on a comprehensive research, design and testing process to develop a credit product, which proves that SMEs are not riskier than other client segments if businesses and risks are well analyzed and understood.
The following approaches, demonstrated by NBS Bank, are the must-haves for any financial service provider looking to serve women-owned SMEs with appropriate and sustainable loans.
Fully Integrate SME Credit into Bank Priorities
The SME credit program could have easily slipped to a low priority due to other competing priorities for the bank coupled with challenging macroeconomic conditions. However, from the beginning NBS Bank fully integrated SME credit into the bank’s operations to ensure long-term sustainability. This required significant shifts in culture and operations and buy-in from staff at all levels of the institution, including the Head of Personal and Business Banking, Chief Operating Officer, and Head of Credit who became key sponsors of the project.
Identify and manage external obstacles
Integrating the SME credit program into bank priorities also meant identifying and managing any external impediments. The Reserve Bank of Malawi’s restrictions on lending threatened the program’s sustainability, so Women’s World Banking worked closely with NBS Bank to mitigate and manage the effects of these restrictions and move the implementation forward.
Build Staff Capacity and a Supportive Organizational Culture
NBS Bank established an SME Unit with an SME Manager to oversee the department and communicate with other areas of the bank. SME Business Relationship Executives, Service Center Managers, and Underwriters received training on credit methodology to analyze SME businesses, marketing, sales, time management and gender. Women’s World Banking also hired a Resident Advisor to work closely with the SME Manager and ensure continuous monitoring and training to understand and institutionalize SME best practices.
Prioritize Leadership Development
Women’s World Banking paired the SME credit program with comprehensive leadership and management capacity training to support the bank’s ability to serve low-income women clients. The program included a three-day Senior Management Program (SMP) for the NBS Bank executive team to improve their cohesion, management and leadership skills and a four-day Management Development Program (MDP) with middle managers to address the key concepts of managing for results and to develop transformational skills. The second part of the program was a one-day Training of Trainers (TOT) designed to prepare the participants to replicate the learning with other managers within NBS Bank. The NBS Bank experience illustrated relevance to business goals, strong leadership commitment and ownership ensures continuity, sustainability and appropriate resource allocation for the program.
Monitor with Diligence
Women’s World Banking developed a thorough process for obtaining feedback from the SME Unit and other units at NBS Bank. During the pilot phase, weekly calls were held to review progress, discuss achievements, and solve any issues. In addition, two monitoring visits were conducted in the field. These visits included meetings with the SME Unit and other bank staff as well as visits to SME clients to obtain feedback from all beneficiaries. This ensured open communication and efficient monitoring from the start.
A Global Lens
We can draw many parallels between the NBS Bank case and Women’s World Banking projects around the world. In Latin America, Women’s World Banking worked with Interfisa Banco (Paraguay), Caja Arequipa (Peru), and Fundación delamujer (Colombia)—to offer individual loans tailored specifically for rural women whose significant economic contributions to their family incomes were previously under-valued by banks, and often by the women themselves. Looking specifically at the initial implementation challenges, here are some of the key parallels that illustrate how many of the issues in Malawi were universal:
Integrating the product into bank priorities in Peru
During the time of the pilot, Caja Arequipa was simultaneously rebranding as well as implementing a new core banking system. Both initiatives diverted attention from the rural project, perhaps leading to some of the initial lack of commitment by branch managers and loan officers. Additionally, managers throughout the organization focused on meeting annual goals, which did not yet reflect the rural expansion project. A new focus on microentrepreneurs in the next annual strategy did much to rectify this misalignment. The institution developed a new system of performance targets focusing on growth parameters for microentrepreneurs, and appointed a dedicated manager for rural expansion to work across multiple departments.
Building a supporting organizational culture in Paraguay
Interfisa Banco’s committed leader and Board made it clear that serving rural women was the way forward and the institution needed to find a way to do it sustainably. Top managers made the pilot program a priority and conveyed this message clearly to the rest of the staff by using internal communication channels, and by actively participating in the pilot development and monitoring. Board and management provided the resources needed while senior managers attended loan officer trainings. Staff members integrated lessons from the gender training into their client advisory services.
Monitor with Diligence in Peru & Paraguay
One of the pilot adjustments made at Caja Arequipa was to better track and monitor whether clients received the appropriate loan product and how interest rate, which was identified as causing low uptake, affected uptake moving forward. At Interfisa Banco, changes in the management information system allowed for real-time reporting by branch managers to monitor disbursement and repayment information, rather than monthly or quarterly as reported previously. In real time, managers can understand immediately why loans are rejected, why there are arrears in the portfolio, and how branches are performing on various metrics.