Terms of Reference

“Comprehensive Credit Analysis and Collections Framework and Staff Capacity Building through
Training”
Program Background and Objectives
The International Finance Corporation (IFC), a member of the World Bank Group, promotes sustainable private
sector investment in developing countries as a way to reduce poverty and improve people’s lives. In addition to its
investment work, IFC, through the Regional facilities executes a major donor-funded program of private sector
technical assistance and advisory services in the South Asia region. The objectives of the program are to promote
direct investment in the private sector, build local businesses and financial intermediaries, and help improve the
business enabling environment.

The South Asia Enterprise Development Facility of the International Finance Corporation (IFC SEDF) is a multi-
donor funded facility to support the establishment and growth of private Small and Medium Enterprises (SMEs) in
Bangladesh, Bhutan, Nepal, Northeast India, Sri Lanka and Maldives. SEDF is managed by the International
Finance Corporation, the private sector arm of the World Bank Group. SEDF started its operations in October 2002
and since then has completed numerous projects aimed at SME development.

As part of its objective of facilitating ‘Access to Finance’ for SMEs, IFC SEDF signed an agreement with one of its
Partner Financial Institutions (PFIs) to market its products and services to SMEs. As part of the agreement, IFC
SEDF is doing a comprehensive credit analysis and collections frame work as well as staff capacity building through
training programs for the PFI.

The PFI has experienced accelerated growth between 2007 and 2010 which has resulted in a doubling of the bank's
total portfolio from BDT 9 billion to a portfolio of BDT 18 Billion and 1 million customers. With an initial focus on
the smaller segment within the SME sector the bank is now expanding into lending to medium sized and larger
companies.

To grow in a sustainable manner, the PFI is enhancing its capacity for analysis and reporting of its lending portfolio.
It is putting special emphasis on increasing its ability to analyze the non-performing loan portfolio and all aspects of
the collection process. By strengthening its ability to analyze its current portfolio, the goal is to adjust its lending
practices to lower the number of loans becoming non-performing and increasing its effectiveness in collections.

Many of the PFI’s current processes and reports are manual or rely on simple Excel/Access applications (in line with
the rest of the banking sector in Bangladesh) which make them inefficient and it is hard to ensure data quality. The
current systems are reaching the limit given the high volume of transactions and the bank is looking the develop
processes and systems which will have the capacity to deal with the expected continued high growth of the portfolio.

Scope of Work

A. Design of a comprehensive credit analysis and collections framework

The consultants will specify and design a comprehensive credit analysis and collections framework based on
international best practice. The framework should be tailored to the PFI’s portfolio and specific circumstances.

The PFI will be responsible for implementing and coding the framework into its existing systems and expand these
as required.

The project includes:

 Evaluation of the bank’s current credit analysis capacity and systems, including all aspects of non-
performing loans and collections management, and all associated reports being produced. This evaluation
should provide a gap analysis relative to international best practice.

 Development of a framework based on international best practice for comprehensive credit portfolio
analysis and collections, keeping in consideration the specific business model and portfolio of the PFI. The
framework should at least include the following
 o Outlining best practices in credit portfolio analysis, NPL management and collections and how
these apply to the PFI’s current portfolio and growth strategy.
o Specification in detail of what data should be captured for each type of loan throughout the credit
cycle from origination through collections. This includes both data captured once at origination
and other loan and collections data which is required to be updated over time.
o Recommend how the PFI’s systems should be expanded to accommodate the new analytical
capabilities based on a detailed understanding the PFI’s current system infrastructure. If relevant,
the consultants may also discuss with the PFI how vendor systems may be able to produce some of
the functionality.
o Detailed specification of the required portfolio analysis reports and collection reports, including
examples of all, and how the numbers in the reports are calculated based on the specific data
currently being captured (or proposed to be captured) by the PFI. The required calculations and
algorithms should be specified with the highest degree of detail, including where relevant pseudo-
code and specific reference to the PFI’s systems, such that the PFI can directly use these for
implementation.
o Credit portfolio reports include (this list is not meant to be exhaustive)
 Overall exposures (by business line/unit, product type, key product features, geographical
location, etc)
 Top credit exposures
 Exposure concentration analysis by risk rating, product, industry/sector, geographical
location, etc
 Exposure trends
 Probability of default
 Loss given default, recoveries
 Expected loss
 Vintage analysis
 Average credit rating
 Risk rating distribution
 NPL ratios (0+, 30+, 90+)
 Charge offs
 Etc
o The basic reporting pack to support a collections business include (this list is not meant to be
exhaustive):
 Stage of delinquency chart (days past due vs. volume)
 Collection strategy report (risk level vs. days past due vs. action taken)
 Net flow charts (current and past due; roll rates, % of outstanding)
 Migration report (delinquency matrix)
 Lagged vs. current reports (To avoid distortions created by fast-growing portfolios)
 Net write-off report (shows recovery)
o The framework should facilitate that all measures above can be segregated based on business
line/unit, product type, key product features, geographical location, origination date, etc. The
consultants should furthermore ensure that all regulatory reporting requirements are met.
o Included in the framework should be specification of how to perform stress tests and scenario
analysis of the portfolios. This should be specified in detail including specific stress parameters
and scenarios and pseudo code if relevant.

 Consultants must work very closely with the PFI throughout the project to ensure that the framework is
specific to the PFI’s circumstances.

 During the project, the PFI will make available at least one full time staff working with the consultants.
This will provide additional resources to the project but more importantly it will ensure that the PFI
becomes an integral part of the project, can take ownership of it, and makes the future implementation
easier.

 The framework should be designed such that it:

 Once implemented, the PFI’s intention is to use the system for all new business booked going forward. The
PFI is also looking to input the existing portfolio in the new system in a prioritized manner including
verification of existing loan data.

B. Capacity Building for the bank staff through trainings:

 Training on three levels (beginner, intermediate and advanced) and train-the-trainer for the bank’s
nominated staff. Modules are to be created for the bank and training sessions are to be conducted. During
the training, potential trainers are to be identified and these chosen few will go through a train-the-trainer
program. Designing a high quality program is the priority.

 At the end of the train-the-trainer program, the participants will run the training, during which they will be
evaluated and the best 5 trainers will be selected by the Consultant for the project. The modules and the
trainers will become internal recourses for the bank to use and develop/customize in line with their
requirements and all staff working in risk. They will be required to successfully complete the modules and
an assessment test in order to attain approval limits.

 The first (beginner) level training course: a foundation course covering the full credit cycle - origination,
assessment, underwriting, monitoring and collections. This will be used as a foundation course for all new
entrants into the credit risk and collections division and as a refresher for those having completed one year
with the bank. Expected number of participants: 200.

 The second (intermediate) level training course: aimed at managers and will be used to build on the skills
of those moving on from the foundation course and having between 3 - 5 years of experience. It should
include product cycles, product / portfolio profitability, loss mitigation and market risk (mostly associated
with collateral (land, securities etc)) and also covering operational risk from the point of view of enforcing
documents. This course should be divided into two modules: credit and collections. Expected number of
participants: 50.

 The third (advanced) level training course: aimed at the unit heads, i.e. managers of the managers (mid
management within the Credit and Collections Division reporting to the Division head). The content is
relatively open but the objective is to deliver a very strategic perspective. It should cover credit and
collections, products and any other elements that are considered essential to gaining an overall perspective
on credit and collections. Expected number of participants: less than 20.

C. Advanced training for senior bankers

 This training will be aimed at developing broad Risk Management concepts among senior risk managers.

 This course should include both practical and theoretical elements and be tailored to a bank with a main
focus on SMEs and with large volumes. Expected number of participants: about 5.