Terms Of Reference (ToR) for Local Micro Finance Institutions for Partial Guarantee Fund for Financing Youth-led Businesses in Mogadishu & Baidoa Through Micro-financing (Murabaha) – Somalia

Terms Of Reference (ToR) for Local Micro Finance Institutions for Partial Guarantee Fund for Financing Youth-led Businesses in Mogadishu & Baidoa Through Micro-financing (Murabaha) – Somalia

 

TERMS OF REFERENCE TOR- LOCAL MICRO FINANCE INSTITUTIONS FOR PARTIAL GUARANTEE FUND FOR FINANCING YOUTH-LED BUSINESSES IN MOGADISHU & BAIDOA THROUGH MICRO-FINANCING (MURABAHA)

• INTRODUCTION

Save the Children International (SCI) is a non-governmental organization whose mission is to fight for children’s rights Save the Children International (SCI) is a non-governmental organization whose mission is to fight for children’s rights and deliver immediate and lasting improvement to children’s lives worldwide. SCI has been operational in Greater Somalia for over 40 years. Current programs straddle relief and development in various sectors including Health, Nutrition, Child Protection, Child Rights Governance, Vocational and Skills Training, Education and Food Security & Livelihoods (FSL) working in Somaliland, Puntland and Southern States of Somalia to help communities cope with drought, conflict, displacement and flooding.

SOM – Economic And Social Empowerment of Youth in Somalia (EASE-Y); Is a three years project funded by BMZ – Federal Ministry for Economic Cooperation and Development aiming at the Economic and Social Empowerment of Youth (EASEY) in Somalia. The project supports the economic empowerment of several young people not in employment, education, or training (NEET) who live in Mogadishu & Baidoa, Garowe, and Baidoa towns. Employers greatly value life skills, becoming even more critical with the rapidly changing nature of work to help address the unique challenges facing vulnerable youth from IDP and host communities in the target locations by targeting those youth most in need of assistance designed to 1) build skills in technical and vocational education and training that are more resilient to climate change, 2) pro-vide linkages and engagement with the private sector that result in income-generating opportunities including wage and self-employment; and, 3) engage youth in building transferrable life skills to help them succeed in their new environment, contributing to both social and economic empowerment with target 50% young women, and 15% youth with disabilities among its beneficiaries.  This project is gender-sensitive and ensures young women’s access to hands-on skills and mentorship.

• BACKGROUND

Somalia has one of the highest youth unemployment rates in the world with two out of every three young Somali employment seekers not being able to find work. Even within the country, the youth (15-29 years) have a much higher unemployment rate than the working age. Among the youth, females have even higher unemployment rate than the male. These are extremely high unemployment rates, especially considering high labour force participation rate among the youth population. Employment generation for youth is an obvious priority for the country since the youth are unable to secure employment despite actively seeking work. In Mogadishu & Baidoa specifically, around 72% of the unemployed youth are actively looking for a job. Youth in Somalia and Baidoa in particular, are easy prey to armed groups and relevant affiliates who use them in criminal and harmful activities when they are idle or lack skills and opportunities. According to the world back, unemployment is widespread within Somalia’s young population. With 70 percent of the population below the age of 30, youth unemployment is at 74 percent and 61 percent for women and men, respectively. Similarly, for persons with disabilities, unemployment is widespread.  In this setting, remittances and humanitarian aid alone are not sufficient to support the development of sustainable livelihoods that are necessary for poverty reduction and mitigation of political, social, and economic vulnerability. The country’s entrepreneurs are constrained by a host of challenges like poor physical infrastructure, recurring climate-driven shocks, conflict, insecurity, and the lack of access to credit and financial services.

Financial institutions in Somalia are still in infancy stage, most have been established within the last decade and many in the last several years. They are acutely aware of Somalia’s Vulnerability to a range of shocks -economic, climate, political, and conflict.  In general, this has resulted in a preference for very prudent lending that parts with money only briefly: hence, the preference for trade or real estate, where deals are neatly timebound. Many banks lend out just a small portion of their reserves, to avoid crippling defaults in the event of a shock. In Somalia, 73% of the population 16 years and older uses mobile money, even though only about a quarter of the population engages in savings activities, only about 15% of the population (and just 7% of Somali women) has a bank account, and less than 5% of people with bank accounts are active users. More than half of people who save do so with a mobile money account. The majority of the Somali population (80%) especially internally displaced persons (IDPs) and poor host communities are the biggest portions of the population who were left behind in lack of access to conventional banking and related services.

In response to these needs, Save the Children contracted with local short-term consultants to facilitate consultative workshops for micro-credit institutions, banks, credit schemes, the Chamber of commerce, the ministry of Labour and Social Affairs (MOLSA Staff), and representatives from IDPs and poor host communities in Mogadishu & Baidoa on financing for the poor. The workshop aimed to discuss the existing services and strategize ways through which micro-financing services can be extended to the poor IDPs and Host communities by directly linking to banks and micro-finance institutions.   In addition, challenges and barriers including policy-related issues were discussed and the following actions were taken

1. To properly link the poor IDPs and host communities to the banks and micro-finance institutions to finance their small business and expand their income generation activities
2. Linkages of public and private sectors to increase access to financial investments of poor IDPS and host communities through revolving funds loan
3. To increase and improve training/workshops for beneficiaries related to financial literacy awareness, income generation skills, and use of bank /micro-finance services
4. Micro-finance institutions and Banks should ease identification documents from the poor for easy access of financial services
5. Ministry of labor and social affairs (MOLSA) to promote micro-financing /revolving fund Loans to increase the benefit of the Loans and increase awareness among wider IDPs about access to finance.
6. Mapping of all existing micro-finance institutions and banks ready for financing the poor IDPs and Host communities

 

• The ministry of labour and social affaris (MOLSA) to Chair meetings with close cloboration of the ministry commerce and industry (MOCI) of the stakeholders (Banks, Microfinance Institutions and Business development services (BDs), Training Centers)
• MOLSA to Create a coworking environment where Microfinance Institutions, SCI, MoLSA, MOCI and Training institutions work collectively in and overcome those challenges that may arise during the Loaning /revolving fund disbursement processes. These include identifying defaults and undertaking prompt actions to offset these drawbacks.
• MOLSA and MOCI to create Post Support/sustainability- continue sustaining the access to finance mechanism( funding pool) and ensure this continues over and over again and reaches the wider community through a self-driven and community led approach.
• The line ministries to collaborate with SCI and other development partners and financial institutions to facilitate loans for deserving groups and individuals through financial inclusion models

As such, Save the Children, in partnership with MOLSA wants to have a partnership with micro finances and large financial banks institutions to increase access to financial investments for poor IDPS and host communities including youth (women and men) with or without disabilities through Loana revolving fund loan to establish or expand their businesses to have a strong voice and more control over their lives, ensuring financial freedom which ultimately increases communities cohesion.

• OBJECTIVES:
• To increase access to financial services through establishing innovative micro-financing that attribute to employment creation for vulnerable youth (women & men) with or without disabilities. A scheme will be set up for SC beneficiairies and vetted business plans with proven sustainability and profitability will be awarded with financing. – SC will make early deposit as guaranteed matching fund and will pick a relevant MFI/financial bank to set up the scheme and manage the business fund.
• To enhance access to relevant business development services mainly through training and business mentorship

4.0 Specific Objective/outcome:

• Set up a business financing scheme for save the children entrepreneurship participants and provide roadshow to participants about access to finance criteria and other required processes to be followed during the business financing application
• Provide financial access in the form of revolving fund to youth clients with or without disabilities in Mogadishu and Baidoa through revolving fund/micro-financing mechanisms to start their enterprises and become self employed
• Establish a revolving fund scheme and ensure business plans are vetted and potential business models are provided with seed funds, repayment of installments and management of the scheme.
• Revolving fund DISBURSEMENT, USE AND RESTRICTIONS
• Maximum Funds
• SCI will approve the allocation of $ 95,000.00 (Ninety-five thousand dollars) under SOM – Economic and Social Empowerment of Youth in Somalia (EASE-Y) Project in Mogadishu and Baidoa and Payments and return of funds under the agreement will be in USD. Save the children will have no responsibility for any funding shortfall or cost overrun caused by any factors including but not limited to costs incurred due to currency fluctuations, force majeure events and which are incurred in order to complete the Project or for any other purpose. Notwithstanding this clause, the entity shall at all times be contingent upon the terms and conditions that will be set out under the Agreement.

• Segregation of the Revolving Fund Loans

• The microfinance institution will be required to maintain a separate bank account for the Project, (the “Designated Account”) and share the Designated Account details with save the children for the purposes of the Agreement.
• The microfinance institution shall reconcile the Designated Account on a monthly basis. Any profit or other income generated by the revolving Funds Loan, including currency conversion gains, must be applied to the Project and will be reported in accordance with the provisions of the Agreement with the microfinance institution.
  • Use of the revolving Fund Loans and Standard of Care
• The microfinance institution shall agree to use the revolving fund Loans; (i) exclusively for the implementation of the SOM – Economic And Social Empowerment of Youth in Somalia (EASE-Y) Project in Mogadishu and Baidoa as outlined in the project description, and any subsequent amendments thereof; (ii) in compliance with all the Terms and Conditions that will be set out in a detailed agreement upon the selection of the micro finance institution (iii) in a diligent and efficient manner exercising due skill and care that is consistent with sound professional practices; and (iv) in compliance with all applicable
  • Conditions for Revolving fund Disbursements

Disbursement of the revolving Funds Loans under the Agreement with the potential MFIs shall be subject to the following conditions:

• Limit of disbursement amount: (i) The disbursement of the revolving loan fund will be done on a installment basis, upon verification of utilization of the preceding disbursement including matching fund from the micro finance institution except for the first disbursement which will be an advance payment upon signing of contracts/ MOUs. (ii) To mitigate the risk of non-repayment for loans advanced, capped at 15% of the end beneficiary loans and a consistent follow up by the designated credit department of the MFI/ Financial bank.
• Revolving fund disbursement Milestones: Save the children will review the progress of the micro finance institution in achieving the Project Milestones (defined below) prior to approving any other disbursement of the revolving fund.
• Reporting: The micro finance institution must satisfactorily fulfill all the reporting requirements under the Agreement upon the selection of the micro finance institution
• Access to the beneficiary/ies/ client files: The micro finance institution will be required to allow save the children and its agents timely and unconditional access to the files, data bases and to relevant records of the beneficiaries for the purpose of monitoring and evaluation;

 

• Compliance: The micro finance institution shall follow all other terms of the Agreement
• Disposals: The micro finance institution shall not (and the Investee shall ensure that no Beneficiary shall) sell, lease, license, transfer or otherwise dispose of the Facility or any other assets (including equity) to, provide or make available any loan, credit or financial indebtedness to, or in favour of a third party without the written consent of save the children and ministry of labour and social affairs (MOLSA).

• Special Conditions for the Revolving Loan Fund
  • The micro finance institution is expected to match the revolving fund advanced at the ratio of 1:1 minimum to leverage the project funds to increase investment targeting the end beneficiaries of the programme.
  • The micro finance institution shall charge a fair profit taking into consideration the need for social sustainability of the microfinance model, such fairness being that of a prudent person or professional in the microfinance business including that of external stakeholders, observers, investors, donors and borrowers.
  • All financing activities to Beneficiaries in relation to the revolving fund Loan shall be against cash flow lending approach, where collaterals will be only group guarantees and individual guarantees in addition to the guarantee scheme coverage.
  • The micro finance institution shall not charge a penalty for early payment by the Beneficiary/ies and shall not charge any penalty for delayed repayments (Murabaha).
  • The micro finance institution shall commit to work collaboratively with Save the Children to deliver any aspects of program including to determine how the current structures are serving on-lending to youth, women youth with or without disability and producers groups, to develop/redesign microfinance products and to recommend improvements to operations procedures/ policies to support microfinance
  • The projected portfolio for the Revolving Loan Fund showing the contribution of save the children under SOM – Economic and Social Empowerment of Youth in Somalia (EASE-Y) Project and the Micro Financial Institution is as below:

Activity	Target beneficiaries	Program funding ($)	%	MFI Matching Contribution ($)	Total ($)
Revolving Loan Fund Loans	84	$57,000.00		$57,000.00	$114,000.00
	56	$38,000.00		$38,000.00	$76,000.00
Totals	140	$95,000.00		$95,000.00	$190,000.00

 

• Special Conditions for the Partial Guarantee Fund
  • The purpose of the Partial Guarantee Fund is to support the microfinance institutions to expand lending activities to the targeted clients and mitigate the risk of non-repayment for loans advanced
  • The microfinance institution should show and be able to provide evidence that it made all efforts to collect the defaulted payments including case-by-case restructuring and /or mentoring, and refinancing in accordance with their existing procedures.
  • Each disbursement of the guarantee scheme covers the reported defaults in the portfolio and is conditioned upon the approval by the save the children to transfer such amount to the microfinance institution
  • The Partial Guarantee Fund will only cover the principal amount and shall exclude the profit.
  • To mitigate the risk of non-repayment for loans advanced, the partial guarantee fund capped at 15% of the end beneficiary loans as long as the Portfolio at Risk does not go beyond 10%. The MFI will ensure significant oversight and monitoring on loan repayment by the designated credit unit of the institution.

• Drawdown of the revolving fund

• The funds under revolving loan will be disbursed according to the payment method will be agreed by both parties (save the children and micro finance institution)
• The micro finance will be required to submit a payment Request with all necessary supporting documents that may be requested by save the children
• The initial drawdown/payment of the revolving fund shall be made upon signing of the MOUs/acceptance of the Agreement unless otherwise stipulated further. All other subsequent drawdown requests will be subject to achievement of the Project Milestones
• The Beneficiaries will be identified according to the agreed process in the project documents
• Disbursement:

• Save the children is not be obliged to disburse any funds until it has received official Agreement duly and properly executed by the micro finance institution
• Save the children will disburse funds under the revolving fund Loans in accordance with the Table below subject to the milestones and Impact Expected (“Project Milestones”) during the Project Duration and the condition that save the children may withhold such disbursements if it is not satisfied that the micro finance institution is adequately complying with any of its obligations under the Agreement.

S/N	Instalments	Payment date	Loan payment ($)*	Milestone
1	1st Instalment (60%)	January 2023	$57,000.00	SC will pay this installment in advance upon the signature of the contract and receive a signed official payment request letter from the micro-finance institution
2	2nd Instalment (40%)	April -2023	$38,000.00	Upon verification of utilization of the preceding disbursement
Total			$ 95,000.00

 

• Repayment of the Facility/revolving fund
  • The micro finance institution shall repay the Facility of $95,000.00 (the Revolving Loan Fund) in accordance with Table B below, subject to the terms and conditions of the Agreement that will be signed between Save the children and micro-finance institution

Table B: Loan Repayment Schedule

Month/Year	Repayment Instalment	Outstanding Balance
February 2024	$ 38,000.00	$57,000.00
April –       2024	$ 28,500.00	$ 28,500.00
May –        2024	$ 28,500.00	$ 00000.00
Total:	$95,000.00	$ 00000.00

• Investment of Facility
• Revolving Fund
  • The Revolving Loan Fund and the micro finance’s contribution is expected to revolve twice

during the duration of the Agreement with the selected micro finance institution but depends on extension project duration

• The Revolving Loan Fund will be dedicated capital for on-lending at an average of $95000.00 to finance micro-enterprises owned by youth women, men with or without disability and producers including farmers, fishermen, pastoralists and auxiliary small businesses along the value chains, e.g. fish shop, transporter and processing
• Proceeds of the Facility is exclusively limited to productive and trade projects and no consumption financing is provisioned in all targeted groups. Both new and existent projects will be targeted with at least 60% of the total portfolio being a new project
• Microfinance institutions will be responsible in making sure to receive all supporting documents from the youth & their Loaners to be eligible for and access the loan Loans from the institution

6.0   SCOPE OF WORK:

• This assignment will focus on engaging and partnering with financial service providers who are committed to availing to provide small-scale Loans to early-stage/start-up businesses owned by IDPs/ poor host communities in Mogadishu and Baidoa under BMZ EASE-Y project in response to the recommendations from poor financing workshop conducted by save the children in partnership with the ministry of labour and social affairs (MOLSA), ministry of commerce and industry. The Beneficiaries will be identified according to the agreed process mentioned above as well as in the project documents.

7.0 Duration of the assignment:

7.1.0 The Revolving Loan Fund and the microfinance’s contribution is expected to revolve twice (once during the duration of the Agreement with in the project period with the selected microfinance institution and the next round will depend on the extension of the project and Agreement). The first revolving fund disbursements to the clients will start on February 2023 and expected to be active until May-2024.

8.0 CAPACITY AND EXPERIENCE OF THE MICRO-FINANCE INSTITUTIONS

Below are the eligibility criteria for microfinance institutions

• The financial institutions should have complete legal recommendations from Central bank of Somalia & other relevant government institutions
• Should have rules & regulations in micro financial management and updated databases for managing revolving fund disbursements and repayment loans from the clients
• Should have relevant experience in the last five years in managing revolving funds for the poor and marginalized youth, women and men clients with or without disabilities
• The microfinance institution should have the capacity to match the revolving fund advanced at the ratio of 1:1 minimum to leverage the project funds to increase investment targeting the end beneficiaries of the program.
• The microfinance institution should have the capacity to charge a fair profit taking into consideration the need for social sustainability of the microfinance model
• The microfinance institution should have the capacity to maintain a separate bank account for the Project, (the “Designated Account”) and share the Designated Account details with save the children
• The microfinance should have the capacity to provide monthly, quarterly and annual up to date narrative and financial reports on loan returns
• Should have an experienced credit department with experienced staff in Mogadishu and Baidoa to ensure funds are properly managed and returned.

9.0 Application Procedure and Requirement

Interested bidders are expected to provide the following documentation:

• A technical proposal with a detailed response to the TOR
• A financial proposal detailing fixed rate for the loan and any other costs.
• Company profile and CVs of the key staff
• Relevant experience in the last five years in managing revolving funds
• Relevant registration certificates from the ministry of commerce and central bank of federal government of Somalia
• Tax clearance certificate

Applications can be submitted by either:

Electronic Submission via ProSave (Recommended)

• Submit your response in accordance with the guidance provided in the below document:
• Bidders are encouraged to apply via Ariba system. Please request the Ariba link via email sending your company profile and Business registration certificate/CV. Please address your Ariba link request to logistics@savethechildren.org

Electronic Submission via Protected Email box (Optional)

• Email should be addressed to sstenders@savethechildren.org
• Note – this is a sealed tender box which will not be opened until the tender has closed. Therefore, do not send tender related questions to this email address as they will not be answered.
• The subject of the email should be Financing Youth-Led Businesses in Mogadishu & Baidoa Through Micro-Financing (Murabaha)
• All attached documents should be clearly labelled so it is clear to understand what each file relates to.
• Emails should not exceed 15mb – if the file sizes are large, please split the submission into two emails.
• Do not copy other SCI email addresses into the email when you submit it as this will invalidate your bid

Interested consultants shall submit their applications through the email address provided above on 27^th January, 2023.

1. ANTI-FRAUD AND CORRUPTION

• The Selected microfinance institution should commit to acting transparently in all aspects of this project and taking all reasonable means to protect the contributions made towards the facility (Revolving fund constributions) from fraud or misuse.
• The Selected micro finance institution will not, except with the prior written consent of save the children, use, or allow to be used, any part of the Facility/ revolving fund (including any income derived from such funds) for any purpose other than the purpose of the Project or any other purpose approved by save the children
• The Selected micro finance institution will use the facility/revolving fund Loan in accordance with the financial projection provided and the Narrative and Financial Reports submitted to save the children.
• The Selected micro finance institution should confirm that they will comply with all applicable laws and regulations relating to anti-bribery and anti-corruption including but not limited to the UK Bribery Act 2010, and not engage in any activity, practice or conduct which would constitute an offence under the UK Bribery Act 2010 or any anti-bribery or anti-corruption legislation in Somalia.

1. CHILD SAFE GUARDING POLICY

• As a child rights’ organisation Save the Children has a duty of care to all children with whom it is in contact either directly or through its contractual partnerships. Because Save the Children is particularly concerned about child abuse or sexual exploitation by its own staff or by staff of any organization / body who is associated with its activities, the organization requires its staff, under the Terms and Conditions of their contracts, to immediately report any such concerns or suspicions.
• In the context of signing the agreement therefore, any concern or allegation of child abuse or sexual exploitation against a staff member of the Partner who is associated with the activities covered by the revolving fund agreement, will be formally reported to the relevant senior managers within the government agency, as per the agreed reporting procedure.
• It will be Save the Children’s expectation in the event such a report is filed that said report will be treated with the utmost urgency and investigated/managed appropriately and in the best interests of any child(ren) involved. Save the Children would be able to provide technical advice/support to this process if required/requested.
• Likewise, Save the Children will expect the selected Partner to report any concerns or suspicions it itself may have that a staff member or representative of Save the Children may be abusing or sexually exploiting a child or children so that swift action can be taken, according to the organization’s internal procedures for doing so.