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DEVELOPING A TRADE LINE PRODUCT IN MICRO–FINANCE INTEGO
GROUP FOUR MEMBERS.• KAYIRANGWA Anita• KAYITESI Eugenie • KAZIMA Godfrey • MBABAZI Odette• MUGESERA Innocent• UWIMBABAZI Beatrice
PROJECT BACKGROUND INFORMATION
MICRO – FINANCE INTEGO was founded on 11th November, 2006.
It has a strong reputation in planning and implementing projects.
Its major focus is not only to make profit but contribute to the development of Rwanda
MISSION STATEMENT
THE MFI seeks to grow shareholder value while playing a key role in transforming the economy and enhancing the wellbeing of the people.
Through dynamic and responsive teams, MICRO – FINANCE INTEGO aims at providing innovative financial solutions and maintain the highest levels of customer service and professional integrity.
The MFI Values The values that guide the MFI INTEGO
management and staff whilst undertaking activities that enable the MFI to achieve its vision and mission include:
Customer obsession Integrity Teamwork Innovation Excellence and Speed
SITUATION ANALYSIS
The MICRO – FINANCE INTEGO is located in the Rwandan capital city, Kigali at KIMIRONKO.
The Micro finance operates in a country whose population is close to 10 million of which around 54% are women.
This gives the Bank an opportunity to exploit through providing women with access to financial services.
Rwandan population also is composed of active youth who have attempted to initiate small income generating projects and who exhibited potential to make use of the available financial facilities.
SITUATIONAL ANALYSIS CONT’D
The 1994 genocide left most of the sectors of the country destroyed. Businesses were closed, banks robed, agricultural activities stopped, industries also stopped and as a consequence the majority of the population lost the sources of income.
The sector mostly affected was the financial sector because of the reduced disposable income of the majority of the population, hence a challenge of the financial sector revival.
SITUATIONAL ANALYSIS CONT’D
This was further compounded with increased social responsibility for the government, private sector and most importantly the house holds. This has adversely affected people’s capacity to save.
The cultural aspects of Rwandan society are issues any one in financial services business cannot ignore in order to effectively have a competitive advantage
The attitude, behavior and practice of the people were to keep their money in their houses under their beds instead of using banking services
SITUATIONAL ANALYSIS CONT’D
With rapid economic development in the region, various financial facilities entering Rwandan market put the Rwandan financial sector under pressure to formulate a creative, innovate and vibrant strategies to accommodate the increasing competition.
The recent Rwandan integration into east African community has increased the market potentials to explore not forgetting the awaiting competition ahead.
SITUATIONAL ANALYSIS CONT’D
The government of Rwanda embarked on promoting the establishment of Microfinance systems. This opened avenues for other financial institutions to enlarge the scope of their financial activities towards the low level income people.
This resulted in high competition among financial institutions which necessitated an effective marketing strategy.
CURRENT MFI’S PRODUCTS ANALYSIS
Some of the major products which the MFI offers to its clients include:
Savings Account Fixed Interest rate of 7 % p. a
Interest paid at the end of each year, credited into the savings account
Minimum to open account is RWF 5 000, no max amount
Withdrawal of up to Rwf 25 000 per week without notice
PRODUCTS ANALYSIS CONT’D
Term Deposits A term deposit is a savings account contracted
for a specific period through which you can maximize your interest income.
The larger the amount you deposit and the longer the term or period of the deposit, the higher the interest rate achieved.
You earn interest at a higher rate because you are promising to keep this amount of money with MICRO FINANCE INTEGO for the agreed term.
PRODUCTS ANALYSIS CONT’D
The features are: Customer decides how long he wants his
money locked Contract is for a specific period; 1 month min,
3, 6 or 12 months Higher interest for larger amounts deposited
for longer periods Interest 6 - 8.5% p.a ; rate is fixed for given
time Minimum of FRW 100, 000 to open account Interest is payable at maturity, credited into
current account
PRODUCTS ANALYSIS CONT’D
Overdrafts A customer can overdraw an account to a
set amount. (Thefacility allows you to have temporary credit on your current account.)
Overdrafts must first be arranged with your branch Manager
With a local currency Term Deposit withMICRO – FINANCE INTEGO, a customer has an automatic overdraft facility up to the amount of the term deposit.
PRODUCTS ANALYSIS CONT’D
The interest rate is 22%and an arrangement fee (minimum RWF 5000) is payable
Facility is re-paid within an agreed time – Normally 30 days
The customer has unrestricted withdrawals within his balance
Customer decides on a daily maximum withdrawal
PRODUCTS ANALYSIS CONT’D
Normal Personal Loan Can be used for anything except – buying
guns, narcotic drugs etc. Amounts – Are subject to purpose of loan,
security & ability to repay Maximum Period of payment - 36 months /
3 years Interest rates – 18% p.a. Early repayment – penalty 5% of
outstanding balance Early repayment – penalty of 2% of
outstanding balance
PRODUCTS ANALYSIS CONT’D
Housing Loan Housing loans are used for the purpose of
buying, or constructing a house Amounts depend on the customer’s ability
to repay Maximum period of re-payment - 5 years Customer participation - 20% of value of
house Interest rate - 16% p.a Early repayment - penalty 5% of
outstanding balance
PRODUCTS ANALYSIS CONT’D
Equipment Loan Equipment loans are used for the purpose of
buying equipment Amounts vary according to the client’s
ability to repay, the security, and the kind of equipment to be purchased
Maximum period of payment - 3 years Interest rate - 18% p.a Early repayment - penalty 5% of
outstanding balance
PRODUCTS ANALYSIS CONT’D
Vehicle Loan Vehicle / car loans are used for the purpose of
buying a car Amounts vary depending on the client’s ability
to repay and the kind of car to be purchased Interest rate- 18% Early repayment- penalty 5% of outstanding
balance Maximum period of payment - 4 years
PRODUCTS ANALYSIS CONT’D
Working Capital Finance Overdraft–the bank allows the company to
overdraw account to finance business needs arising for a short period (usually <1yr) to an agreed limit
Account must fluctuate i.e. show that money is being deposited and withdrawn regularly
Interest rate is 18% p.a.
PRODUCTS ANALYSIS CONT’D
With a local currency term deposit in MFI, a business can have an automatic overdraft facility up to the amount of the term deposit.
After a thorough examination of all MICRO – FINANCE INTEGO products, our group found it necessary to develop a new product called Trade line aimed at providing financial solutions to small and medium enterprises (SMEs).
TRADELINE AND ITS
CHARACTERISTICS This is a short term credit facility where the
Micro finance pre-finances customers to meet contractual obligations from reputable companies.
The facility is for a Maximum of 3 months Minimum financed amount is Rwf 500,000 and
Maximum Rwf 5M Maximum exposure per customer on this
product is 5M Interest rate of 7% of the total amount (for
the 3months) per contract Interest is paid upfront
TRADELINE CONT’D
The customer could repay the facility before maturity without penalty.
A penalty of 0.1% per day is charged for late repayment.
Small and medium enterprises play an important role in economic development.
Their contribution to the economy and overall importance shall be of paramount importance. In Rwanda, the SME sector will play a big role in growth and poverty alleviation but significant barriers remain.
JUSTIFICATION
SMEs have a problem as far as financing is concerned due to their lack of accurate and reliable financial information; they further lack
business planning skills and collateral. It is for this reason that a comprehensive plan
should be put in place to facilitate the SMEs to have access to funds that will uplift their business operations and at the same time improve the customer base of the MFI INTEGO.
Benefits of Trade-line product to the customer
As mentioned above, Trade-line product is a short term loan targeting to finance firms with contracts to supply goods. The loan will assist firms by pre-financing its business transactions and make their contractual obligations fulfilled.
The product shall also offer maximum flexibility to all clients but mainly to the SMEs because it will not require security or collateral, will involve quick processing and disbursement that will take approximately five days.
The MFI will focus to offer quality and professional services to its clients.
BENEFITS CONT’D
Benefits to the MICRO FINANCE INTEGO Being a short term loan, there will be a high
possibility of increasing the required liquidity ratio of the MFI and conversely improve the position with the central bank as compared to other competing Micro Finance Institutions.
Equally important, this product will increase the SMEs market share as a result of improved SME motivation to do business, increased number of people/ firms in business as well as attracting more clients with the Micro Finance Intego.
JUSTIFICATION CONT’D
The Micro Finance also envisages benefiting more on transaction fees and commissions derived from increased customer size.
Market analysis and segmentation
Following a thorough market survey, it was observed that the Rwandan market is still small in size with relatively low levels of economic activites making it to be currently dominated by small and medium enterprises which has attracted our attention. The potential market is fairly large considering the fact that the SME segment accounts for approximately 90% of economic activity in the country.
According to the World Bank 2007 report, there are about 72,000 formally registered companies in Rwanda, and there is potential for growth in the SME sector.
Competitive forces
MICRO FINANCE INTEGO like any other Micro Finance institutions in Rwanda already has this product on its portfolio in the form of bills/Invoice discounting and overdrafts; the introduction of TRADELINE is intended to create more efficiency and formalization to it.
The competitive advantage will be derived from quick processing and disbursement of the qualifying applications plus marketing and advertising that will attract customers and increase our customer base.
Target market
The short term loan is targeting SMEs businesses registered in Rwanda with a Trading License traders with the proven track record of supplying to buyers in their particular line of business and who shall have fulfilled the procurement procedures will be eligible for this facility.
QUALITY MEASURES
To ensure quality of the product, the group recommends that beneficiaries should meet the following condition to access the short term loans.
Suppliers of the customer must be recognized and of good reputation.
Items being supplied must have gone through a tender process.
Company must be registered nationally in customer’s name.
The customer must have a track record of banking for at least 6 months.
The customer must have an identifiable physical address.
QUALITY MEASURES CONT’D
Customer must be supplying to a corporate organization or reputable public institution.
Customers must have a track record in his line of business.
Facility should be in compliance with our normal credit policy guidelines.
The facility is for a Maximum of 3 months. Minimum amount of RWF 500,000 and
Maximum RWF 5M. Maximum exposure per customer on this
product will be 5M
QUALITY MEASURES CONT’D
Loans will be used to pre-finance firm orders from reputable and well known companies.
A Maximum of 70% of the order/invoice will be covered by the MFI excluding advance payments where applicable.
Where applicable, the MFI will pay the supplier directly (preferred case).
Interest rate of 7% of the total amount (for the 3months) per contract- paid upfront
Goods must be covered by a clear insurance negotiated by the MFI. The insurance cover includes insurance of stock against fire, loss/damage, or theft and life cover for the customer.
QUALITY MEASURES CONT’D
Security will be a Promissory note, Assignment of receivables, Pledge of business assets and Joint surety of shareholders.
The customer will deal exclusively with MICRO FINANCE INTEGO to finance the tender
The customer could repay the facility before maturity without penalty.
A penalty of 0.1% per day will be charged for late repayment.
In case of late repayment, the customer could negotiate with the MFI to extend the facility. In this case, an interest of 2% per month will be charged.
Promotion of the trade line product
An internal communication regarding the product should be emphasized to ensure that each Micro Finance employee is well informed about the product. This could be done through trainings across the bank branches.
Conduct surveys to measure results Strengthen internal communication by
holding staff briefs, memos, brochures and magazines
PROMOTION CONT’D
Carry out publicity through news papers, radio, TVs, bill boards, Signage.
An Expert to design the above promotion materials shall be outsourced.
PROMOTION CONT’D
Product branding Design Trade-line brand Review brand material Introduce and distribute to potential clients Distribution mechanism Set up a center for marketing the product Sensitization conferences Strengthen the customer service
department
Price
The trade line product shall come with a price to be offered by the customers
The product will generate an Interest rate of 7% of the total amount provided for 3months per contracts. Interest is paid upfront. The customer will repay the facility before maturity without penalty.
A penalty of 0.1% per day will be charged for late repayment. This is a competitive price in comparison to similar products in other Micro Finance institutions.
WORK SCHEDULE AND COST ESTIMATES
No.
ACTIVITIES ESTIMATED COST IN RWF
START DATE END DATE
RESPONSIBLE
1. 1.SURVEY2.Define target population1.2 Design questionnaires 1.3 Recruit and train field investigators 1.4 Data analysis and interpretation
1,000,000 1 January 2009
30th March 2009
R&D unit
2. PRODUCT DESIGN I.Hire a consultant to design the product
1,500,000 April 1st 2009 April 30th 2009
R&D and Consultant
3 CAPACITY ASSESMENT 1.Hire a consultant to assess the capacity of the MFI
500,000 April 15th 2009
April 30th 2009
Consultant
4 RESOURCE MOBILISATION
1.Confirm availability of funds2.Recruit and train staff 3.Procure an appropriate software 4.Procure office equipment and furniture
5,000,000 May 2nd 2009 June 30th 2009
Finance unit
5. PRODUCT TESTING 1.Customer sampling2.Provide the product to the sample 3.Evaluate their reactions
100,000
June 1st 2009
June 30th 2009
Credit unit and Marketing unit
6 PROMOTION OF THE PRODUCT
1.Design trade line brand 2.Review brand materials 3.Introduce distribute to the potential clients 4.Carry out publicity 5.Communicate internally
2,000,000
June 15th 2009
Publicity will be ongoing
Marketing
7 LAUNCH THE PRODUCT
Press conference and cocktail
1,000,000
June 22nd
June 22nd
Marketing and Management
8 DISTRIBUTION MECHANISM
8.1 set up center for marketing product8.2 carry out a sensitization conferences
1,500,000
23rd On going
Sales unit and Marketing
9 MONITORING AND EVALUATION
500,000
23rd On going
Audit
PROJECT RELATED PROBLEMS
Possible risks Measures
Inadequate skills to design the right questionnaire During the survey period there is a likelihood of failure to get timely and quality responses
Prior sensitization and constant follow up
Delays in product design completion and probability to get less product quality
Proper management of contract
Failure to get competent staff to deliver the product hence impact on quality
Continuous training
The sample chosen might give the wrong feedback; The possibility of delays to get the feedback which impacts on project’s time and cost The feedback may constrain the project to go back to the drawing board hence impacting on the project ‘s time and cost
Ensure proper sampling Sensitize the sampleConstant follow-up
There might be an excitement of promotion leading to cost overruns
Dispute, litigation between customer and buyer because of poor quality of goods and delay in delivery.
Customer must have a proven track record in his line of business
Delayed payment from buyer Strict monitoring steps. Customer’s account will be checked on a regular basis
Fraudulent documentation Introduce electronic monitoring Loans will be approved centrally to the main branch, no delegated powers to branch managers to approve loans.
Customer uses funds for different purposes
The supplier will be paid directly; Loans will be approved centrally in Kigali, no delegated powers to branch managers to approve loans.
Errors in analyzing credit files which affects quality of loans given
Train, supervise and evaluate
Possibility of bureaucracy which impacts on time and efficiency
Delegate powers where required
Recommended procedures to be applied to evaluate and audit the project
To evaluate and audit the MFI, the use of 4vs will be recommended:
Variation or variance should be measured: Here we will make use of diagrams to illustrate changes in output overtime.
Verification: this is about reviewing, inspecting, testing, auditing or otherwise establishing and documenting whether items, processes, services or documents conform to specified requirements.
Recommended procedures cont’d
Voice of the customer: feedback (likes, dislikes, problems and suggestions).
Voice of the process statistical data: feedback to the people in the process to make decisions about the process stability and/or capability as a tool for continuous improvement.
Recommended procedures cont’d
In order for the Vs to yield result, the MFI will make use of the following three source of information to back feedback from the “4Vs”:
A baseline document which will show the starting point of the project.
A projection plan for the product in order to know where we are supposed to be.
A management audit form which will go back to review the company’s :
Recommended procedures cont’d
Production/operation system ( purchasing, inventory control and procedures, scheduling, quality control, facilities, insurance.
Marketing (Pricing, market research, customer service, advertising & PR, sales management).
Research and Development
Recommended procedures cont’d
Financial accounting Budgeting Cost control Credit collection Raising money Dealing with banks and other MFIs Cost of money Use of specific tools
Recommended procedures cont’d
Management Strategic management (employee,
goals, structure, culture, vision, mission)
Record keeping Decision making Problem solving Government regulation (awareness
and compliance).
Recommended procedures cont’d
Human Resources Hiring Training Motivating people Communication Enforcing policies
Recommended procedures cont’d
Information systems/ information technology Gathering and disseminating
information User friendly and accessible Regularly updated Qualification