Grameen Foundation

The objective of this project is to revise and implement effective control instruments in order to mitigate the inherent risk involved in disbursing loans. This project is part of the overall objective of implementing an integral system of risk management at Contactar. The volunteer must be proficient in Spanish and must have a comprehensive knowledge and experience in risk management, specifically credit risk. This project will need require a 2 weeks travel to Colombia. BACKGROUND Contactar is a microfinance institution in Colombia that serves both urban and rural areas (with an emphasis in the latter) through both individual and group microfinance methodologies (solidarity groups, associations and community savings and loans). In addition to providing loans, Contactar provides micro-insurance, financial education, and health promotion in the community. Contactar's mission is “to give financial access to urban and especially rural micro entrepreneurs and farmers, contributing to reduce poverty and improve their living conditions”. Since 2007, Contactar has grown by 40% and increased its coverage to 22 branches in two departments of Colombia (Nariño and Putumayo), which are mainly rural. It currently has a work force of 134 staff members. The portfolio has grown by 35% and the number of clients by 57% represented mainly by micro-companies and small producers with low incomes. As of December 2010, Contactar’s portfolio amounted over $26 million reaching 31.840 beneficiaries; for 2011, the portfolio is expected to grow by 60% and the number of clients by 61%. CHALLENGE Currently, Contactar follows informal procedures to manage and mitigate risks, which are neither systematized nor documented. Additionally, not all risks are taken into consideration. Due to its increasing growth and outreach, it has become crucial to implement an integral system of risk management within Contactar. After the initial assessment of Contactar’s needs in risk management, this project will focus on the implementation of a credit risk management that is suitable for Contactar’s current growth rate. Contactar’s risk management activities have been housed under the Internal Control Area. Contactar will implement a Risk Management Area and assign a Risk Management Coordinator to work closely with the volunteers on the follow-on projects. He/she will also work with the Commercial Sub Director. Currently, Contactar has the following instruments and measures in place to mitigate loan risks: -Credit risk guidelines. -Portfolio evolution weekly reports. -Loan regulations (credit manual, policies and procedures for loan approval and disburse) -Meticulous staff selection and ongoing trainings. -IT System is used with levels of attribution per function (e.g. loan officer, commercial director, etc.). The volunteer is encouraged to revise and update the abovementioned policies, which as of December 2010 resulted in PAR 30: 1.15 PROJECT DESCRIPTION AND OBJECTIVES Following a previous volunteer engagement where an overall risk assessment has taken place, the volunteer will get an understanding on how Contactar mitigates its current loan related risks and, considering its size and expected growth, will formulate a strategy vis-à-vis credit risk management. The volunteer will be expected to: -Complete all pre-readings provided by the risk management coordinator, including the existing assessment that will provide an overall understanding for how Contactar currently deals with credit risk and the required steps forward; -Visit Contactar’s offices in order to meet and interview with Contactar Executive Team and staff; -Will attend meetings with Contactar’s senior management; -Revise and perform pertinent adjustments to the existing risk guidelines; -Analyze the risk profile of Contactar’s loan portfolio; -Implement a methodology identifying the probability of non-payment, losses caused by non-performing loans, and exposure to default; -Identify and analyze risk indicators’ evolution in the Balance Sheet, Profit & Loss statements, product risk characteristics, portfolio quality, the evolution of the client’s qualification (according to their payment history); and, -Prepare a matrix regarding “clients’ risk profile” and “product marketing adjusted to risk”. The volunteer will be expected to spend roughly a week on the ground. VOLUNTEER DELIVERABLES AND TIMELINE The tasks identified, as well as the priorities, could change depending on the outcome of the initial risk assessment conducted by the first set of volunteers, which has not taken place at the time this scope of work is being drafted. The volunteer will be expected to: -Go through all pre-readings at the start of the project – one week. -Submit revised and adjusted guidelines in terms of loan risks – one week. -Submit a report on the methodology that will identify the probability of non-payment, losses caused by non-performing loans and exposure to default – 10 days. -Submit a report on risk indicators’ evolution in the balance sheet, profit & loss statements, product risk characteristics, portfolio quality and the evolution of the client’s qualification – one week -Submit a report on the analysis of the risk profile per type of loan – one week. -A matrix regarding “clients’ risk profile” and “product marketing adjusted to risk” – one week. Timing of these submissions will be negotiated with the volunteer. VOLUNTEER REQUIREMENTS Contactar seeks one (1) volunteer with strong knowledge and experience in credit risk management. The volunteer must be fluent in Spanish and English. PROJECT DURATION AND LOCATION This project will be implemented over a three-month period and an on-site visit of a minimum two weeks is required.