SENDFiNGO
Microfinance with Credit Unions
5 Year Business Plan
Prepared by Clay O’Brien
AYANI Inclusive Financial Sector Consultants
For SENDFiNGO
21 June 2012
TABLE OF CONTENTS
EXECUTIVE SUMMARY
I.BACKGROUND
A.Activities Prior to 2010
B.Financial Performance from 2010
II.GOALS AND OBJECTIVES
A.Original Program and Impact
B. Revised Goals
C.Credit Union Association and other Alliances
III.MARKET BACKGROUND
A. MacroEconomic and Political Situation
B.Regulatory Environment
C.Microfinance Sector
IV.BUSINESS APPROACH
A.Corporate Ethos
B.Target Clients
C.Products and Services
D.Competitive Landscape
E.Marketing
F. Detail on Locations
G. Branch and Head Office Operations
H.Human Resources Development
I.Information Technology
V.ORGANIZATIONAL STRUCTURE
A.Key Personnel
B.Performance Monitoring Plan
C.Governance
VI. FINANCIALS AND INVESTMENT REQUIRED
A. Financial Targets
B. Investment Required
C.Development Budget
Appendices
Appendix A: Business Plan Balance Sheet
Appendix B: Business Plan Income Statement
Appendix C: Business Plan Cash Flow Statements
Appendix D: Business Plan Ratio Analysis
Appendix E: Development and Total Budget
Appendix F: Total Financing Table…………………………………………………………………………57
Appendix G: Organisational and Senior Management Structure
1
EXECUTIVE SUMMARY
SEND-Ghana pioneered the use of credit unions to expand microcredit in order to promote sustainable livelihood security in the north of Ghana, one of the poorest parts of the country. It provided these loans through a relationship it built with credit unions, under which it offers funding and technical support to the credit unions.
In 2009 a Three Year Business Plan was prepared for the consolidation of the existing credit unions into a new entity called SENDFiNGO, which would strive for institutional and financial sustainability, as well as to scale up in new districts and communities. SENDFiNGO has achieved a result better than budgeted for 2011 in regard to nearly all of the indicators. An overall growth in SENDFiNGO clients of 116% was achieved in 2011 over the 2010 figure. By 31 December 2011 the program had grown from 1,314 members in December 2009 to a total of 5,057, ahead of the forecast total of 4,896 members.
Studies have shown the widespread positive impact of the project on the clients, some of which are summarised below:
•49% of women expanded their business;
•The women saving money increased from 24% to 40%;
•The women contributing to their household expenditure increased from 12% to 45%;
•The women contributing to household decisions increased from 36% to 54%;
•The women with business skills increased from 42% to 56%; and
•The women involved in leadership matters increased from 20% to 46%.
This Business Plan sets out the plans that SENDFiNGO has devised for the next exciting stages of its development. It will strive for institutional and financial sustainability for its ten existing branches, as well as to scale up inas many as four new districts and communities. The aim remains to allow poor women in the relevant districts to graduate to the stage where they can afford to become members of the credit unions and access all of the other available financial services.
SENDFiNGO will employ just nine of its own staff who will work with the credit unions in the existing areas and those “animated” in up to five new areas. At the same time, SENDFiNGO will support the Loan Officers at the credit unions who offer the microfinance products, as well as credit union services, in return for receiving all of the interest on the microfinance loans. The Loan Officers,whose numbers are forecast to grow to 44 by the end of Year 3, would be working wholly for the credit unions but would be paid and supervised by SENDFiNGO.
A financial model has been prepared that produces the following summary outcomes.
YearIndicator(GHc) / 2013 / 2014 / 2015 / 2016 / 2017
No. of Active Loans* / 7,450 / 9,318 / 10,957 / 12,888 / 15,846
Net Loan Portfolio / 823,160 / 1,355,936 / 1,512,085 / 2,221,078 / 2,875,534
Net Income pre-Grants / -64,467 / 130,177 / 270,193 / 439,269 / 610,705
Total Assets / 1,031,162 / 1,419,219 / 1,864,909 / 2,353,213 / 2,976,265
Total Equity / 1,026,888 / 1,414,945 / 1,860,635 / 2,348,939 / 2,971,991
OSS (%) / 84.1% / 132.7% / 158.3% / 183.5% / 196.0%
Under the modelling, SENDFiNGO will increase its outreach, through the associated credit unions, to more than 15,000 active borrowing clients by December 2017. As indicated, the SENDFiNGO operation will be sustainable by Year 2 and reach Operational Sustainability of 196% by Year 5. The return on assets will increase to nearly 14% by 2017 and the Operating Cost ratio will fall to less than 24% over the same period.
The funding required over the three years is assumed to be provided through unrestricted grants totalling GHc961,000 with no excess cash held on the SENDFiNGO balance sheet.
I.BACKGROUND
A.Activities Prior to 2010
SEND Foundation of West Africa first began work in the Eastern Corridor of Ghana by conducting a needs assessment in four peri-urban communities (Salaga, Kpandai, Bimbilla and Kete-Krachi), which culminated in the development in 2000 of the Eastern Corridor Livelihood Security Promotion Program (ECLSPP). The ECLSPP operates on a model of bringing microfinance into credit union development as a means of broadening access to financial services by members of these communities. Donors including the Canadian Co-operative Association (CCA) and CORDAID from the Netherlands have provided grants.
As a key component of using micro-credit to promote sustainable livelihood security, SEND has adopted the credit union model which emphasises savings as a precondition for accessing credit. To develop the credit union model, SEND entered into partnership with the Credit Union Association of Ghana (CUA), to provide technical assistance to SEND in order to animate credit union development as part of ECLSPP. In 2002 a Community Based Credit Union (CBCU) was opened in Kpandai and Bimbilla, and one year later another one was initiated in Kete Krachi. The Chamba and Banda CBCUs both started operations in 2005.
Due to the fact that many women were unable to raise adequate funds to purchase Shares in the credit unions and open accounts, SEND and its principal donor CORDAID established the micro-finance scheme with the Rural Commercial WomensAssociations (RCWA) members as the principals. Under this scheme the credit unions in Kpandai, Bimbilla and Kete-Krachiwere allocated microcredit funds for the RCWA members who were organised into savings and loans associations. Each association had to open an account with the credit union in order for its members to qualify for access to the loans while each loan beneficiary also had to open a sub-account as a member. The program began operating in 2005.
The program consolidated over the next two years and SEND undertook a feasibility study in 2008 to identify suitable communities in the northern part of the eastern corridor for the replication of the credit union with microfinance(CU-MF) orientation model. The survey recommended five peri-urban communities in the northern region. In addition SEND consulted with CUA for the possibility of extending the model to existing credit unions. CUA management agreed to have CUA member credit unions in the Northern, Upper East and Upper Regions develop microfinance services targeting women in these communities.
In 2009 a Three Year Business Plan was prepared for the consolidation of the existing credit unions into a new entity called SENDFiNGO, which would strive for institutional and financial sustainability, as well as to scale up in new districts and communities. Targets for clients and all financial indicators were set for the three years to December 2012. Amendments were made to the original Business Plan, which were agreed between SENDFiNGO and primary donor CORDAID, as shown in Table 1.
Table 1: Revised Summary SENDFiNGO Financial Performance
Item / Year 2010 / %age revision of targetsB-plan Target / Revised Target / Variance
Number of Active Clients / 3,200 / 2,240 / 960 / 70%
Net Loan Portfolio Balance Gh¢ / 145,556 / 109,167 / 36,389 / 75%
Net Income pre-grants / (97,080) / (72,810) / (24,270) / 75%
Financial Income Gh¢ / 48,462 / 29,077 / 19,385 / 60%
Total Assets / 208,133 / 156,100 / 52,033 / 75%
Loan loss reserve / 3,721 / 2,791 / 930 / 75%
PAR greater than 30 days / 2.5% / 2.5% / - / 100%
Total Equity / 136,133 / 102,100 / 30,303 / 75%
Operating Self-sufficiency (OSS) / 35% / 26% / 9% / 75%
Item / Year 2011 / %age revision of targets
B-plan Target / Revised Target / Variance
Number of Active Clients / 6,800 / 4,896 / 1,904 / 72%
Net Loan Portfolio Balance Gh¢ / 377,552 / 302,042 / 75,510 / 80%
Net Income pre-grants / (52,158) / (41,726) / (10,432) / 80%
Financial Income Gh¢ / 132,326 / 92,628 / 39,698 / 70%
Total Assets / 421,025 / 336,820 / 84,205 / 80%
Loan loss reserve / 9,614 / 7,691 / 1,923 / 80%
PAR greater than 30 days / 2.5% / 2.5% / - / 100%
Total Equity / 349,025 / 279,220 / 69,805 / 80%
Operating Self-sufficiency (OSS) / 72% / 58% / 14% / 80%
Item / Year 2012 / %age revision of targets
B-plan Target / Revised Target / Variance
Number of Active Clients / 10,050 / 7,538 / 2,513 / 75%
Net Loan Portfolio Balance Gh¢ / 730,546 / 606,353 / 124,193 / 83%
Net Income pre-grants / 40,256 / 33,412 / 6,844 / 83%
Financial Income Gh¢ / 295,812 / 221,859 / 73,953 / 75%
Total Assets / 764,916 / 634,880 / 130,036 / 83%
Loan loss reserve / 18,666 / 15,493 / 3,173 / 83%
PAR greater than 30 days / 2.5% / 2.5% / - / 100%
Total Equity / 692,916 / 575,120 / 117,796 / 83%
Operating Self-sufficiency (OSS) / 116% / 104% / 12% / 90%
The revised forecast for each CU are set out in Table 2 below.
Table 2: Revised Client Forecasts by Branch
Clients Forecast for 2011 and 2012Credit Union / Solidarity Clients 2011 / Farmers Loan 2011 / Total Clients 2011 / New Solidarity Clients 2012 / New Farmers Loan 2012 / Total Solidarity Clients 2012 / Total Farmers Loan 2012 / Total Clients 2012
Salaga / 175 / 190 / 365 / 182 / 73 / 357 / 263 / 620
Kpandai / 571 / 209 / 780 / 182 / 59 / 753 / 268 / 1,021
Bimbilla / 737 / 70 / 807 / 182 / 40 / 919 / 110 / 1,029
Chamba / 322 / 365 / 687 / 187 / 63 / 509 / 428 / 937
Banda / 370 / - / 370 / 182 / - / 552 / - / 552
Kete Krachi / 484 / - / 484 / 146 / - / 630 / - / 630
Tamale / 265 / - / 265 / 146 / - / 411 / - / 411
Chereponi / 338 / - / 338 / 345 / - / 683 / - / 683
Tatale / 400 / - / 400 / 408 / 20 / 808 / 20 / 828
Nalerigu / 400 / - / 400 / 408 / 20 / 808 / 20 / 828
Totals / 4,062 / 834 / 4,896 / 2,367 / 274 / 6,429 / 1,108 / 7,538
B.Financial Performance from 2010
A summary of the major financial outcomes for the year to 31 December 2011, compared to the revised annual targets, is set out in Table 3 below.
Table 3: Summary SENDFiNGO Financial Performance in 2011
Annual performance Summary (January 2011 to December 2011)No. / Indicators / Denomination / Annual Actual Output (January to December 2011) / Revised Annual Target in Business plan (Jan. to Dec 2011) / Percentage Achieved
1 / Number of Active Clients / Number / 5,057 / 4,896 / 103%
2 / Net Loan Portfolio Balance Gh¢ / GHC / 363,597 / 302,042 / 120%
3 / Net Income pre-grants / GHC / (39,581) / (41,726) / 95%
4 / Financial Income Gh¢ / GHC / 63,052 / 92,628 / 68%
5 / Total Assets / GHC / 466,634 / 336,820 / 139%
6 / Loan loss reserve / GHC / 3,412 / 7,691 / 44%
7 / PAR greater than 30 days / %age / 2.2% / 2.5% / 88%
8 / Total Equity / GHC / 451,964 / 279,220 / 162%
9 / Operating Self-sufficiency (OSS) / 61% / 58% / 106%
SENDFiNGO achieved a result better than budgeted for all of the indicators in the above table other than the quantum of financial income. An overall growth in SENDFiNGO clients of 116% was achieved in 2011 over the 2010 figure. The women solidarity loans grew by 145% whilst farmers loans also increased by 27%. In total 2,715 new clients consisting of 2,558 solidarity women and 157 farmers benefited from the loans during the year.
As a result of the above changes, by 31 December 2011 the program had grown from 1,314 members in December 2009 to a total of 5,057, ahead of the forecast total of 4,896 members.
In terms of branches, SENDFiNGO has expanded in three ways:
(a)Consolidated and strengthened the Credit Unions existing at the beginning of the Business Plan in the six communities of Kpandai, Bimbilla, Kete-Krachi, Salaga, Chamba and Bandaas follows:
•Salaga: from 285 members to 297, with the original Solidarity Loans been transferred to Bimbilla;
•Kpandai: 206 members to 543;
•Bimbilla: 314 members to 725;
•Kete-Krachi: 187 members to 484;
•Banda: 140 members to 355; and
•Chamba: from 182 members to 652;
(b)Partnered with the Tamale Community Cooperative Credit Unionand there were 591 microfinance loans by the end of 2011; and
(c)Expanded in 2010into three additional communities in the more remote areas of Nalerigu, Tatale and Chereponi by “animating” new Credit Unionsand reaching the following clients by the end of last year:
•Tatale: 525 members;
•Chereponi: 350 members; and
•Nalerigu: 535 members.
Comparing the above numbers with the detailed revised forecasts for 2011 in Table 2, the client numbers achieved for Salaga, Kpandai, Bimbilla, Chamba and Banda are behind those forecast but the other CUs were either in line (Kete-Krachi) or ahead of the expectation for the 2011 year end. The three new CUs have performed particularly well, both in terms of numbers achieved and general development and institutional progress.
As part of this expansion, three mobilization centres (facilitated by SENDFiNGO) were opened by: Bimbilla CU in Wulensi; Chamba CU in Bincheretanga and Kete-krachi CU in Chindri. SENDFiNGO has also worked with the credit union in Borae but it has not yet made any loans funded by SENDFiNGO.
This Business Plan sets out the plans that SENDFiNGO has devised for its next exciting stages of its development.
The financial model used in this Business Plan assumes, for convenience, a January 2013 start date, as this coincides with the end of the current funding from CORDAID and others.
II.GOALS AND OBJECTIVES
A. Original Program and Impact
The success achieved in the early years of implementation of a credit union with microfinance orientation by SEND-Ghana was one fundamental reason for the establishment of SENDFiNGO, in order toscale up and consolidate the model which combines the unique characteristics of a credit union and a microfinance institution. The model involves, first, the mobilisation of community people to establish a community based credit union. The model requires the ‘promoter[1]’ to provide infrastructure, human resources and technical assistance to the community people in the infant days of the credit union. The community makes savings from which they make loans to themselves after usually a period of six months. The use of exclusive internally generated funds for loans instils among the people the culture of savings as they are aware that the promoter is not bringing in external funds to be given to them.
However, the growth of a credit union through its traditional products and services may not ensure absolute equity in wealth distribution and the development of the individual. Therefore, it is important to identify members of the community who genuinely cannot meet the initial entry and loan qualifying requirements of the average credit union. The promoter then takes additional steps to facilitate the organisation and orientation of that class of the community that can be identified as productive poor into solidarity groups and then associations with a common interest. These solidarity groups of 5 to 7 are formed through a self-selection process. Between 5 and 7 of such groups (averaging 35 persons) make up an association, each with a name and a nominated meeting place, day and time. The association goes through an incubation process of about 4 weeks during which they are educated on the scheme that would provide them with credit and assist them to graduate overtime into membership of their community credit union. The period is also used to elect executives and develop relevant by-laws for the group.
The promoter at this stage introduces the external funds exclusively for this class of persons whose collateral is the solidarity group to which they belong. Loan repayments are made on a weekly basis and are completed in four months. As the savings base of the local credit union grows, the Board of Directors is encouraged to inject some of their internally generated funds into the microfinance scheme, since the interest rate is usually higher than that paid by the credit union to its own members.
The clients of the microfinance scheme who are able to grow their businesses well and demand higher loan amounts graduate into the credit union through their individual savings which they mobilise while they were members of the group. The synergy here is that the credit union funds a micro-loan to people who are not members in order to grow their businesses and, thereafter, such persons attain the qualification needed, join the credit union to make bigger savings and take larger loans.
The specific objectives of SENDFiNGO as laid out in the original 2009 Business Plan included to:
(i) Expand client numbers so that SENDFiNGO can become sustainable and self-funding;
(ii) Strengthen the human resource capacity of all credit unions;
(iii) Improve the management information systems (MIS) of the credit unions for effective monitoring of performance;
(iv) Improve physical and administrative infrastructure;
(v) Strengthen the governance structures and working committees of each credit union; and
(vi) Grow the working capital base of each credit union.
All of these objectives have been achieved over the first two and half years and the objectives will be further monitored until the end of 2012.
In addition, certain social indicators for SENDFiNGO were devised and set down in the Initial Monitoring Report of 2010 in the light of certain objectives. After some initial issues with the collection process, in 2011 and 2012 a total of 1,754 initial and second interviews obtained in order to compile meaningful longitudinal data. Some of the second interviews were conducted one cycle (4 months) after the original interview; others two cycles or 8 months later. All but three of the CUs participated to supply a meaningful number of two interviews.
The data received was entered into a spreadsheet and an external expert retained to process the data using the widely accredited SPSS system. Some of the key impacts over the period analysed by the survey are summarised below:
•49% of women expanded their business
•The women saving money increased from 24% to 40%
The women contributing to their household expenditure increased from 12% to 45%
•The women contributing to household decisions increased from 36% to 54%
•The women with business skills increased from 42% to 56%
•The women involved in leadership matters increased from 20% to 46%
B. Revised Goals
Building on the above achievements, the goals for SENDFiNGO over the next three to five years are to:
(i)Strengthen the institutional and organizational capacity of the three new credit unions to accelerate their growth towards operational and financial sustainability to cover their cost of operation;
(ii)Increase client numbers by extending the microfinance service to an additional 5000 new women in the communities;
(iii)Improve the institutional and organizational capacity of the older credit unions to solidify their institutional and financial sustainability;
(iv)Strengthen social performance management systems of the credit unions;
(v)Establish four new Community Co-operative Credit unions in four districts; and
(vi)Conduct feasibility studies for replication of the project in other communities.