Request For Proposal To Manage A Revolving Fund And Provide Business Capacity Development For MSMEs – Southwest State Of Somalia

REQUEST FOR PROPOSAL

TO MANAGE A REVOLVING FUND AND PROVIDE BUSINESS CAPACITY DEVELOPMENT FOR MSMEs

1.      Introduction

According to the UNHCR, forcibly displaced people (FDP) worldwide have exceeded 80 million by mid-2020, including internally displaced people, refugees, and asylum-seekers. Developing countries shoulder a disproportionally large responsibility for hosting displaced people, hosting about 85% of the world’s refugees, primarily in the Middle East and the Horn of Africa. The Least Developed Countries host 27% of the global total of refugees, with the least amount of means and resources available to meet the needs of people seeking refuge.

Globally 60% of all refugees and 80% of all internally displaced persons are living in urban areas. This creates immense pressure on infrastructure services and economic opportunities in countries that are already stretched to provide these services for their citizens. Globally the integration of refugees in the countries’ labour markets remains challenging, making them one of the most vulnerable groups in the host community. Additionally, the funding gap for long-term development approaches to support FDPs is huge. At the same time, while cities as first line of contact with FDPs possess superior knowledge of the challenges and opportunities created by forced displacement, local governments play a minor role as the response to forced displacement remains largely centralized.

Durable solution to urban forced migration is a solution implemented by a city using local resources and customized to the local socio-economic conditions and characteristics of the FDP population. Such a solution is based on integration of FDPs in the urban socio-economic system with the aim to create economic opportunities and ensure their ultimate autonomy and self-reliance while at the same time promoting local socio-economic development. Therefore, for host cities in developing countries to be able to provide equitable social and economic support for FDPs, they need to have an enabling regulatory and policy environment with effective frameworks and analytical tools. This is particularly critical for intermediary cities. A regulatory environment that welcomes FDPs would support them with the following: access to basic services, right to work for FDPs as a key aspect of the social economic policy, and the availability of meaningful durable jobs. In addition, financial capacity of local governments needs to be enhanced and innovative access to capital for both the local government and SMEs is needed. Access to capital will support the construction of productive infrastructure and allow SMEs to increase their capacity for growth and implement business solutions to forced displacement.

 

In this context, the Financing Durable Solutions Initiative for Forcibly Displaced People is designed to promote equitable access to social services and economic opportunities for forcibly displaced persons in Somalia so that they have a better quality of life with dignity. The specific objective is that durable solutions initiatives in support of forcibly displaced persons are sustainably financed in Somalia. Four key results are expected from the project:

·         Result 1: Established local policy and regulatory framework that creates an enabling environment for FDPs to have access to legal rights, services, and social-economic opportunities.

·         Result 2: Improved local capacity in increasing own source revenues and strengthening fiscal health.

·         Result 3: Financing mechanisms designed to unlock private capital for municipal projects that are economically productive with the capacity to absorb commercial funding;

·         Result 4: Financing and technical assistance provided to create jobs and economic opportunities for FDPs.

Baidoa, the capital of the Bay region and the largest city in the Southwest State (SWS) with a population of 792,000, and a host to one of the largest IDP populations in Somalia. Baidoa hosts around 360,000 internally displaced persons, consisting of more than 51,000 households severely affected by critical shortages of water and food (due to drought and floods), health services, livelihood support, and insecurity. In Somalia, some displaced persons become assimilated into the general population. However, there are still large numbers of displaced persons living in camps in urban centres. These areas are often characterized by absolute poverty. IDPs generally lack the resources that are available to local populations, such as houses, access to garden plots, or connections to local markets. In such circumstances, microfinance can be a viable livelihood strategy for displaced persons in Somalia. While no large-scale formal study of microfinance impact has yet been conducted in Somalia, the available evidence, both quantitative and anecdotal, suggests that thousands of displaced persons are taking advantage of informal microfinance services and generating household income through entrepreneurship.

Microfinance can only be a viable livelihood strategy for a significant number of displaced persons if the services on offer are sustainable.  Sustainability requires commitment from the governments, donors, and development partners to a credit culture, including contract enforceability and non-interference in market-based initiatives. The Ministry of Interior SWS is therefore calling for proposals from Microfinance Institutions with a profit in managing a revolving fund that will be used to empower IDPs and host communities invest in business projects in Baidoa.

2.      Project Objectives

The overall objective (impact) of this project is to promote equitable access to social services and economic opportunities for forcibly displaced persons in Baidoa so that they have a better quality of life with dignity.

3.      Specific objectives

The present RFQ seeks to contribute to Results 4: Financing and technical assistance to create jobs and economic opportunities for FDPs. The Southwest Ministry of Interior in collaboration with Baidoa Municipality and UNCDF will introduce a revolving fund to contribute to durable solutions to forced migration. The fund aims to enable up to 15 catalytic MSMEs that implement catalytic businesses that create jobs and economic opportunities for FDP in Baidoa.

The project will identify SMEs that engage in business solutions for displacement through a transparent project identification process After the project passes the preliminary screening, technical assistance will be provided including advanced financial due diligence, project preparation for investment readiness, business development services, and investment advisory activities. Specific activities may include an initial appraisal, data collection, site visits, review of the business and technical feasibility studies, compliance and governance requirements/structuring, contracts, financial analysis and deal/financing structuring. Special effort will be made to identify and implement catalytic businesses that create jobs and economic opportunities for FDP women and girls based on a gender-disaggregated analysis of forced displacement in cities. UNCDF will apply its Women Economic Empowerment (WEE) index as part of the appraisal process of business proposals to ensure their positive impact on FDP women and will prioritize such investments.

Moreover, UNCDF will support the project impact measurement and reporting with performance monitoring activities, which ensures that durable enterprises truly serve the purpose of creating jobs and economic opportunities for FDPs. The whole package of interventions creates an incentive to implement durable business solutions that contribute to the local forced displacement response.

4.      General Activities

The activities to be implemented by the microfinance institution in collaboration with MOIFAR, Baidoa LG, and UNCDF, under Result 4 will include:

·         A review of the microfinance ecosystem focussing on the structure, governance, policy, regulatory and financial environments.

·         Developing  an investment package/manual including project information, SMEs selection criteria, selection of appropriate investment options, and investor due diligence assessment

5.      Specific Activities

The specific activities to be implemented by the microfinance institution will include:

·         Identification and assessment of micro and SMEs that engage in business solutions for displaced persons through the dual key system (Call for Proposal for SMEs. At least 20 MSMEs Longlisted from the call for proposal)

·         Orientation of SMEs on investing with refugee lenses in partnership with business associations, and financial institutions.

·         Training and providing technical assistance to SMEs investors to build their capacity in financial instruments, capital requirements, and awareness of business opportunities (at least 20 MSMEs project developers trained)

·         Selecting ten projects that meet the criteria of best business solutions for displacement and durable solutions.

·         Disburse of 0% profit loans to MSMEs (at least 5 MSMEs supported with loans)

·         Post-investment support to projects (technical assistance and advisory services) to achieve the agreed Key Performance Indicator (KPIs) including viable SMS enterprises for FDP beneficiaries.

·         Monitor implementation of the financed projects, suggest corrective measures and report on impact on a quarterly basis.

6.      Qard-ul-Hassan

The selected microfinance institution shall deploy 0% profit rate loans (revolving Qard-ul-Hassan financing mechanism) to the targeted beneficiaries as set out in the disbursement criteria developed above and in line with the project objectives.

7.      Technical Proposal

Microfinance institutions should meet the following technical eligibility criteria.

Technical proposal 

Score. 70

Criteria 1: The financial institutions (Microfinance) should have valid registration from the Central bank of Somalia, the Ministry of Commerce & other relevant government institutions

10 points

Criteria 2: Evidence of tax clearance from the federal government or state government authorities (SWS ministry of finance)

10 points

Criteria 3: Documentary evidence of experience of at least 3 years executing similar contracts

10 points

Criteria 4: Should have at least four years of relevant experience in managing revolving funds and building the capacity of SMEs in vulnerable groups

10 points

Criteria 5: Should have experienced staff to ensure funds are properly managed (CV for key staff including portfolio manager, chief of finance, and Monitoring and evaluation officer)

10 points

Criteria 6: Documentary evidence of the Company’s Audited Financial Statements for the last 2 years (2021 and 2022)

10 points

Criteria 7: Should have a business capacity building tool kit

5 points

Criteria 8: Microfinance should have a developed company profile.   

5 points

8.      Financial Proposal

The financial proposal should have the following two parts:

i)                    Amount quoted for capacity bundling and,

ii)                  Microfinance profit margin quoted as a percentage (%)

Score 30

Total Cost of the following activities 

Amount (USD)

i) Capacity building for SME entrepreneurs, (Maximum Score: 15 points)

Ø  Identify and assess micro and SMEs that engage in business solutions for displacement through the dual key system (Call for Proposal for SMEs. At least 20 MSMEs Longlisted from the call for proposal)

Ø  Orient of SMEs on refugee lens investing in partnership with business associations, financial institutions

Ø  Training and technical assistance to SMEs investors to build their capacity in financial instruments, capital requirements, and awareness of business opportunities.

Ø  Project development support to micro and small business (at least 20 MSMEs project developers trained)

Ø  Select SMEs for financing on the basis of set criteria

ii) Profit margin (Maximum Score: 15 points)

Ø  microfinance profit margin quoted as a percentage (%) for disbursing 0% profit loans to MSMEs (at least 5 MSMEs Supported with loans) with a grace period of 6 months

Profit %

 

RFP Durbale Solution Microfinance 07.03.2023 M