strategic review phase 2 august 2010 - board

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MFC Strategic ReviewFinal report

- Warsaw, August 2010 -


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MFC Strategic Revie 2010 Accenture. All rights reserved.2

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Contents

1.Strategic Choices2.Mission and Objectives3.Business Strategy4.Operations5.Governance6.Human Resources7.Financial Model


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What are the strategic choices for MFC?

Strategic Choices Key elements Recommendation Priori

Opportunities Market Positioning Global Facilitator and Service Provider HIGH

Customer expansion Local liaisons in ECA sub-regions EU Focus

HIGH

Geographic expansion

Respond to opportunities for global interventions (such as Ford invitation to createan SPM fund for networks)

Realize the missoin in the regoin (globalizztion is a way to do this), market toolimited to get fees Demonstrate demand and potential of the region for MFC and relevancy to

MFCs mission Identify funders moving to these new regions Leverage experience in ECA to be used in other regions, explore possibility of

members facilitating in other regions)

MEDIUM

MFCs Value Proposition -offerings

Develop a Standard for Social Performance, based on the existing QAT (investorscould be interested by a standard)

MEDIUM

Partnerships Develop partnerships & alliances for MFC: not where MFC is stronger, butpotentially with institutions more credible in specific regions, e.g.. SEEP , Fitch,think tanks ; universities (Solvay , Greenwich )

MEDIUM

Continuous Improvement Miscellaneous optimizations ofcurrent operations based onNCAT assessment

CommunicationHR

HIGH


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Contents

1.Strategic Choices2.Mission and objectives3.Business Strategy4.Operations5.Governance6.Human Resources7.Financial Model


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Proposition1/3Revised Vision & Mission

Mission

MFCs mission is to contribute to poverty reduction and humanpotential development by promoting a socially oriented and sustainablemicrofinance sector that provides adequate financial and non-financialservices to a large number of poor families and micro-entrepreneurs..



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Proposition 2/3Definition of objectives for the next 5 years

# Objective Quantitative KPI Qualitative KPI Baseli ne

Target Timeli ne

Accountable

1 Set up adequate policies and regulationspromoting responsible finance andinclusion

# of countries adopting policies (incl. selfregulation)# of countries developing policies

Quality of the Contentof policiesCoverage of the

policies

7 countries out of 26 2015 Gzregorz &Piotr

2 Establish transparency on social andfinancial performance dimensions of MFIsand investors for a better allocation ofresources

# of MFIs reporting to MIX on social andfinancial# of investors disclosing agreed principleson SP

Quality of informationprovided to MIX

80% of MFIs alreadyreporting on financialperformance to reporton social

2015 Kasia & Ewa

3 Set up a sound management system tomanage both social and financialperformance at MFI

# of MFIs with the seal of good practices Code of good practices 20% of transparentMFIs

2015 Kasia

4 Build processes and tools for low incomepeople financial education

# of countries with a developed system forfinancial education

Quality of tools andprocesses

5 countries 2015 Kasia

5 Ensure long term sustainability of allactors

Long term funding securityRevenues growthEfficiency (operations, organization, etc.)Build own strategic investment capability

Stability of fundingmodel

> 5 years 2015 Gzregorz

6 Increase the number of served people /improve well being

# number of people served (check with MIX)

to be defined data available onannual basis

2015 GzregorzJustyna

Objectives within the control of MFC Objectives out of the control of MFC



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Proposition 3/3Definition of objectives for the next 5 years

# Objective Quantitative KPI Qualitative KPI Baseline Target Timeli ne

Accountable

7 Be recognized bystakeholders as thereference in the market

# of publicationsMFC website traffic

Survey to be defined Communication

8 Develop a standard to assess MFIscontribution to social performance

to be defined Survey to be defined Kasia (probablynot realistic asthere will be aglobal initiative)9 Strengthen a large and active

membership based network

maintain number of members Track the involvement ofmembers (participation totraining, conferences, etc.)

to be defined Communication

10 Establish a robust staff with the relevant

skills to support the activities of theorganization

attrition rate% employees reaching targetdevelopment

Climate Survey to be defined Business Support

Manager



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Contents

1.Strategic Choices2.Vision, Mission, Objectives3.Business Strategy4.Operations5.Governance6.Human Resources7.Financial Model



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Business StrategySector Dynamics and MFC

Donor interest in ECA microfinance is reducing, which combined with the rise of service providers andpeer networks is challenging MFCs sustainability.

Rise of Service Providers

ered by professional institutes (e.g. Frankfurt school), and local language providers

Donors Moving Away

declining and investments are increasing

rest is moving away from Europe to poorer states of Africa and Asia

Rise of Peer Networks

European Microfinance Network preferred by European CRussian Microfinance Network preferred for Russian langu

1 2

4

Is MFCs role sustainable?

Pressure on Grants

Pressure on EarnedRevenue

(Contribution) Changing Market Demand

Commercially transformed MFIs: Demand advanced trainings on ALM Other MFIs: Demand courses like leadership development and lo

3


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Customer expansionWestern Europe

To mitigate the donors shift, MFC should investigate the opportunity to focus more on EU

Potential Benefits

Funding opportunity: Microfinance is a priority for EU /EIF while there is no retail capacity in many ofthe EU countries

Political advantages of being more recognized

Alliances to be developed

Limitations

Limited competencies to work with banks.


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Geographic expansionMFCs Geographic Shift from Europe to Central Asia

MFCs epicenter had to shift to Central Asia in pursuit of donor funds

MFC set up an office in 2008-09 in Kirghizstan asa hub for Central Asia since donor interestwaned for funding in East Europe while risingfor the relatively poorer Central Asian states

MFC is also pursuing programs in Africa and LatinAmerica jointly with local organizations following donor funds move to these regions.However this could raise questions fromexternal stakeholders on MFCs vision offacilitation role within ECA.


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PartnershipProvide Services in ECA & Globally Build Partnerships

For enhancing the identified service(s), MFC should build capability with strategic partners.

Service Illustrative Potential Partner Partner Type Objective

SPM Ratings agency Fitch, S&P, Moodys* Commercial Fee-revenue sharing on social rating tools and audits

MCPI (Philippines) or SANABEL (Egypt) Peer network Joint enhancement and services on SPM tools

Research European Microfinance Platform Peer network Develop new research products

MIX (new leadership) NGO Joint ownership of financial benchmarking products

Training &Consulting

Banking practitioners Commercial Consultants-on-call for technical trainings such as asset-liabilitymanagement

Local country-level providers Any Local language trainings, customized trainings

Professional training institutes(e.g. Frankfurt school)

Commercial Joint delivery of leadership development & other such programs

*Moodys Investors Services is in the process of developing a social rating tool and has approached MFC for facilitating contact with MFCs members


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Contents



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OperationsCommunication, Process & Technology

Objective Initiative Description

Communication Website Redesign and upgrade MFC WebsiteInclude a Russian language page on WebsiteIntroduce Blogs for social networking on Website

Process Central procurement & supportservices

Create new position of Project Coordinator to support common administrative needs of program managers

Centralized document archive Upgrade server, increase capacity for central storageCreate procedure/manual for document sharing

Technology Server management Evaluate performance of current IT consultant, Trigger and if need be engage a new consultantIdentify Software as a Service (SaaS)provider (equivalent of US Convio in Europe) with CRM platformCreate Best Practices manual on IT/process for staff

Project management tool

Identify and customize project management tool (with features similar to Mind Mapping tool)

Process and technology tools will enable MFC to increase internal and external effectiveness of itsprograms.


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Contents


G


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GovernanceGoverning bodies interactions

Members

Elects at Annual Members Meeting

MFCManagement

Board

MFC Board of Directorsmeets on a quarterly basisis composed of

not less than 3 and not

more than 7 directors up to 4 member-electeddirectors up to 3 directorsnominated by BoardChairperson, Vice-chairperson, Secretary andTreasurer elected3 Founding memberspositions

MFC Management Board

Membership of the Board may notcoincide with fulfillment of a functionon the Management Board

NominatesReports

MFC BoardChairperson

Director Director Director Director DirectorDirector

MembershipCommittee

MFC ExecutiveDirector

Hires


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Organization


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OrganizationCurrent roles & responsibilities

Position at ure of co nt rac txecutive Director Permanent

eputy Director Permanentffice Coordinator Permanent

ommunications Manager /Permanent Probationnformation Coordinator /Permanent Maternity Leave

vents Assistant /Permanent Probation&ccounting FinanceSpecialist Permanent&ccounting FinanceAssistant TemporaryP M P ro gr am M an ag er Permanent

P M P ro gr am A ss is ta nt TemporaryBP Program Coordinator PermanentE P P ro gr am M an ag er PermanentEP Project Coordinator PermanentE P P ro gr am A ss is ta nt Permanent

Researcher Permanentesearcher Program Assistant /Temporary Part Time

A P rog ra m Ma nag er PermanentA P ro gr am A ss is ta nt PermanentA P ro je ct C oo rd in at or PermanentT S upp or t Outsourced

Website OutsourcedLegal Outsourced&inance Accounting Outsourced

# of FTE %Permanent 13 68%Temporary 3 16%Probation 2 11%Maternity Leave 1 5% Internal Staff 19 100%Outsourced 4


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Organization


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gTarget Organization chart End of 2011 Professionalisation

MFC Consultants

Management Board

Capacity BuildingProgram

ResearchPolicy & KeyAccount

Management

Social PerformanceManagement

Central Asia Program

Marketing &Communication

Administration & Finance


Deputy Director

BusinessSupportManager

Program Manager

Accounting &FinanceAssistant

BusinessSupportAssistant

Assistant

ProgramCoordinator

Financial EducationProgram

Researcher

ProgramAssistant

Conference andEvents

Event Coordinator

Consultant 1

Consultant 2

Consultant 3Consultant 4

Consultant 5

Consultant 6

Consultant 7

Consultant 8

Consultant 9

ProgramAssistant

Program Manager

ProgramAssistant

ProjectAssistant

Program Manager

ProgramAssistant

ProjectCoordinator

Marketing &Communications

Manager

ExecutiveAssistant

Chief OperationsOfficer

PolicyCoordinator

Organization


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gTarget Organization chart End of 2012 Expansion

MFC Consultants

Management Board

Capacity BuildingProgram

ResearchPolicy & KeyAccount

Management

Social PerformanceManagement

Regional Offices

Marketing &Communication Administration & Finance


Deputy Director

BusinessSupport

Manager

RegionalManager

Accounting &FinanceAssistant

BusinessSupportAssistant

ProgramCoordinator

Financial EducationProgram

Researcher

ProgramAssistant

Conference andEvents

Event Coordinator

Consultant 1

Consultant 2

Consultant 3

Consultant 4

Consultant 5

Consultant 6

Consultant 7

Consultant 8

Consultant 9

ProgramAssistant

Program Manager

ProgramAssistant

ProjectAssistant

Program Manager

ProgramAssistant

ProjectCoordinator

ExecutiveAssistant

Chief OperationsOfficer

PolicyCoordinator

Balkans Program

RegionalManager

Africa Program

RegionalManager

Central Asia Program

Marketing &Communications

Manager

Assistant

Standards &Certification

Standards &Certification

Manager

Human Capital


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MFCs Challenges on HR

Better career growth and compensation are the key drivers of staff attrition, limiting MFCs stability andcapability development in the long run

Staff compensation inconsistent increments & bon

Bonus criteria not transparent/ understood

Work overload, stretched resources

No access to think-tanks / consultants for product innovation

Staff Attrition >20% over 3 yrs

nior management sustainability / lack of career path visibility

loed teams, limited informal communication

igh expectations from program managers

New joiner integration a difficult process

Stakeholder Interviews


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Consultant ManagementR d ti


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Recommendations

Issue RecommendationCoordinate consultants schedules between projects/programs Create and share a calendar with all project managers / consultantsProtect consultants from last minute cancellations Explore possibilities to include clauses in MFC contract with clients regarding cancellation that

would secure certain remuneration for cancelationIncrease # working days for consultants Link consultants chargeability to their performance and their skillsUse consultants to develop fundraising and write proposals Develop incentives for consultants: either money or min. amount of number of days.Manage Consultants operationally Document within the assignment the required outputs for each consultantAssess Consultants performance Prepare objectives at the beginning of the project and provide a performance review at the end of

the project with inputs from the Client and the Manager.

Develop internal communication with consultants Provide access to intranet / SharePointOrganize a monthly conference callEnsure program managers provide a regular communication to consultants

Develop Consultants skills Considerproviding training to consultants or reducing the number of consultants to the topperformers

Keep track of consultants updated CVs and list ofcompetencies

Formalize a standard CV and list of skills to be updated at the end of each project

Contents


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Contents


Financial ModelOverall Structure


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Overall Structure

Surplus / Deficit

Revenues

Costs

Membership fees

Conference

Training

Consulting

Grants Program revenues

Running Costs

Investments

Salaries

Office costs

Governance costs

Marketing costs

Other costs Legal, Tax etc.

Variable Costs / projects

Fixed Costs


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Financial ModelAssumptions - Costs


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Assumptions Costs

Definition Amount for 2009 Forecasts assumptionsFixed costs PLN 2 245,8kSalaries salaries of fixed-term employees (13 people

on the 2009 payroll)PLN 1 452,1k- Warsaw office : PLN 1215,1k- Bishkek office : PLN 237k

Linked to resources ramp up + inflation rateOffice costs offices rental,

utilities,telecommunication expenses,

Offices suppliesincl. server ? Website maintenance ?

PLN 793,7k- Warsaw office : PLN 717,1k- Bishkek office : PLN 76,6k

Linked to office development, i.e.New office for MFC in Warsawbased on expansion opportunities (Balkans,

Africa, etc)

Governance costs Board expensesAnnual ConferenceMarketing costs including in projects To be increased in order to promote MFCs

brandOther costs

external accountants,auditors,legal and financial consultants.

Included in Office costsVariable costs PLN 3 643,3k Depending on number of projectsProject related costs PLN 3 643,3k Investments N/AStandard development To be further assessedCertification system To be further assessedMarketing brand, claims & labeling To be further assessedBusiness Consulting To be further assessed

Financial ModelAssumptions Revenues


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Assumptions Revenues

Definition Amount for 2009 Forecasts assumptionsMembership Fees PLN 213,8kVolume Number of members ? Members From 105 to 120 membersIndividual Fee Annual subscription fee PLN ? Inflation rate onlyProgram revenues PLN 7220,6kCapacity Building projects PLN 947,6k

Research projects PLN 1009,6k Social Performance Mgt projects PLN 850,5k Financial & Education projects PLN 1489,9k Events including annual MFC conference PLN 994,4k PolicyProjects financed by core grants Financed by Omidyar PLN 591,4k Other projects CitiFoundation grant and other grants PLN 1337,2k Other operating income PLN 9,4k Adjustments from previous year N/ANew revenue streamsAccreditation revenues accreditation &training of auditors To be further assessedLicensing revenues To be further assessed

Publications To be further assessed

Financial ModelFunding options


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Funding options

In order to cover investments, MFC could consider the following options:

1. Core grants if relevant / specific to Africa

2. Direct Member contribution

3. Loan from members4. Loan from bank with guarantee from members (MFC has a good financial standing)

5. Bridging loan from a social investment fund

6. MFCs own Endowment Fund, i.e. collecting grants to develop MFCs core activities

7. MFCs own Investment Fund , i.e. collecting investments to develop activities that would generaterevenues

8. Mix of the above

strategic review phase 2 august 2010 - board

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