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Credit for the Informal Sector CRISP

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					      DFID Credit for the Informal Sector (CRISP) Output to Purpose Review




     Department for International

                      Development

Credit for the Informal Sector (CRISP),
          Zimbabwe Programme



  Output to Purpose Review
           James Macdade, Consultant, ECI
                Frank Matsaert, DFIDCA
           Zvisinei Manyoma-Meiki, DFIDCA
                Nahid Khalpey, DFIDCA




                              June 2000




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                       DFID Credit for the Informal Sector (CRISP) Output to Purpose Review



                         Credit for the Informal Sector (CRISP)

                                OUTPUT TO PURPOSE REVIEW
                                                    Table of Contents

A SUMMARY OF KEY FINDINGS AND RECOMMENDATIONS ............................... I
     A.1. BACKGROUND .............................................................................................................. I
     A.2. KEY FINDINGS OF THE OUTPUT TO PURPOSE REVIEW ..................................................... I
     A.3. RECOMMENDATIONS.................................................................................................II
1.      PROGRAM HISTORY / OVERVIEW .................................................................. 1
     1.1. IMPLEMENTING PARTIES ............................................................................................... 1
     1.2. ASSESSMENT OF PROGRAMME EVOLUTION ................................................................... 1
     1.3. CBU PROGRAMME SUSTAINABILITY .............................................................................. 3
2.      REVIEW OF FINANCIAL METHODOLOGIES AND PERFORMANCE.............. 7
     2.1. FINANCIAL PRODUCTS AND SUITABILITY ........................................................................ 7
     2.2. OPERATIONAL ISSUES .................................................................................................. 9
3.      INSTITUTIONAL ASSESSMENT – CBZ COMMUNITY BANKING UNIT ........ 10
     3.1. CAMEL ANALYSIS ..................................................................................................... 10
     3.2. SUSTAINABILITY OF THE COMMUNITY BANKING UNIT.................................................... 16
     3.3. IMPACT OF MACRO ECONOMIC EVENTS ON CBZ FINANCIAL PERFORMANCE ................... 25
4.      INSTITUTIONAL ASSESSMENT / CARE ........................................................ 26
     4.1. PROJECT MANAGEMENT ROLE ................................................................................... 26
     4.2. PROVISION OF TECHNICAL ASSISTANCE ...................................................................... 27
     4.3. BUDGETING AND PLANNING ........................................................................................ 28
5.      ASSESSMENT OF LOAN GUARANTEE FUND .............................................. 29
     5.1. KEY FINDINGS / ANALYSIS .......................................................................................... 29
     5.2. RECOMMENDATIONS .................................................................................................. 29
6.      SOCIAL DEVELOPMENT ASPECTS OF THE CBU PROGRAMME .............. 30
     6.1. REACHING THE POOREST? ......................................................................................... 30
     6.2. IMPACT OF SAVINGS ON CBU CLIENTS ........................................................................ 30
     6.3. DEVELOPMENT OF FINANCIAL SERVICES - INSURANCE PRODUCTS ................................ 31
     6.4. SOCIAL ASSETS ......................................................................................................... 31
     6.5. WOMEN’S EMPOWERMENT ......................................................................................... 31
     6.6. RECOMMENDATIONS: ................................................................................................. 32
7.      FOLLOW-ON PHASE FOR THE CRISP PROJECT ........................................ 32
     7.1. DEVELOPMENT OF PRODUCT AND METHODOLOGY ....................................................... 32
     7.2. TECHNICAL ASSISTANCE INPUTS FOR CRISP-2 ........................................................... 33
     7.3. WAY FORWARD......................................................................................................... 33




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                                List of Annexes
Annex 1 – Project Scoring Summary ................................................................................. 35
Annex 2 – OPR Terms of Reference ................................................................................. 37
Annex 3: Care Technical Assistance Provision ............................................................... 40

                                                    List of Tables

Table 1: CRISP - SUMMARY OF KEY ACTIONS REQUIRED ...................................ii
Table 2: Loans and Savings (value of Loans outstanding and Savings deposits in Z$
    000’s) .................................................................................................................. 2
Table 3: Self Sufficiency Indicators and Asset Quality ............................................... 3
Table 4: Progress in Meeting Recommendations of 1998 OPR ................................. 4
Table 5: OPR Scoring Sheet ...................................................................................... 5
Table 6: Capital Adequacy ....................................................................................... 11
Table 7: Asset Quality – CBU versus Zambuko Trust ............................................. 13
Table 8: Asset Quality ............................................................................................. 13
Table 9: Management Ratios ................................................................................... 14
Table 10: Management Ratios – CBU versus Zambuko Trust ................................. 15
Table 11: Earnings Ratio .......................................................................................... 15
Table 12: Earnings Ratios – CBU versus Zambuko Trust ........................................ 15
Table 13: Liquidity Cushion ...................................................................................... 16


                                                    Abbreviations


CBU                             Community Banking Unit, Commercial Bank of Zimbabwe
CBZ                             Commercial Bank of Zimbabwe
CRISP                           Credit for the Informal Sector Project
CSP                             Country Strategy Paper
ECI                             Ebony Consulting International, Johannesburg
LO                              Loan Officer
LGF                             Loan Guarantee Fund
MSE                             Micro and Small Enterprises
ROSCA                           Rotating Savings and Credit Association
RBZ                             Reserve Bank of Zimbabwe




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A SUMMARY OF KEY FINDINGS AND RECOMMENDATIONS

A.1. Background

A.1.1. The Credit for the Informal Sector (CRISP) is a British Government
Department for International Development (DFID) project, initiated in May 1995 with
CARE International Zimbabwe and the Commercial Bank of Zimbabwe (CBZ). The
goal of this project was to assist micro and small enterprises in Zimbabwe by
encouraging CBZ to design and deliver an appropriate range of financial services,
including savings products and credit, to this target client group. This lead to the
creation of the Community Banking Unit (CBU), which is now operational in four CBZ
branches throughout the country.

A1.2. Bannock Consultants carried out an output to purpose review (OPR) in 1998.
This OPR was carried out in May 2000 with a team from DFIDCA including: Frank
Matsaert (ED Adviser & Project Officer); Zvisinei Manyoma-Meiki (SD Adviser);
Nahid Khalpey (ED PDO) and James Macdade (Banking Consultant, ECI). Terms of
reference for the OPR are included in Annex 2.

A.2. Key Findings of the Output to Purpose Review

1. The CRISP project has been judged to have largely achieved objectives as
   specified in the project’s logframe. The CBU programme will have achieved
   revised project outputs1 of extending 5,000 loans during the first phase of the
   project, while maintaining excellent asset quality. Women have been the principal
   beneficiaries of project financial services (over 70 % of current clients). The CBU
   has also achieved a high level of operational sustainability. The Commercial
   Bank of Zimbabwe recognises the validity of the CRISP project and has
   committed significant support to the CBU. These accomplishments augur well for
   the medium-term sustainability of the programme going forward. Section

2. The CRISP project is consistent with the overall poverty reduction objectives of
   DFIDCA's Country Strategy Paper (CSP) for Zimbabwe. The CRISP project falls
   under CSP Impact Area 3 – “access of poor people to land, resources, and
   markets”. Thus far the CRISP project has resulted in the direct creation or
   retention of over 8,000 jobs. It also provides the MSE target client group, the
   majority of whom are women, with access to savings services and credit for
   investment in productive purposes.

3. The Loan Guarantee Fund (LGF) has served its purpose to provide an incentive
   for the CBZ to take up the risk and costs of lending to MSEs, and participate in
   the project. Due to the excellent asset quality management exhibited by CBU
   there has been little use of the LGF to cover project loan losses to-date. However
   loan security requirements of the Reserve Bank of Zimbabwe (RBZ) may make
   the continuation of a LGF necessary.


1
 The outputs were amended during the 1998 OPR. The main change was a reduction in the projected
outreach of the project to 5,000 clients from 15,000.


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4. The technical assistance provided by CARE was instrumental in the early stages
   of project implementation. However the level of this technical assistance inputs
   has fallen off during the latter phase of the project (despite the continued need
   for training for CBU staff in microfinance ‘Best Practice’ management techniques
   and other specialised inputs). CBU staff capacity issues constitute the greatest
   single constraint to programme up-scaling and increased outreach.

A.3.   Recommendations

1. Due to its success and potential, the CRISP project should be extended for an
   additional phase with DFID support, building on the success already achieved in
   providing an appropriate range of financial services to the MSE target client
   group. CRISP is a unique programme in the DFIDCA region in achieving the
   seemingly unachievable – leveraging a commercial bank into lending to MSEs –
   which has importance beyond Zimbabwe’s borders. The challenge for CRISP in
   the second phase will be to increase the scale and outreach of operations to the
   MSE target client group while maintaining acceptable asset quality and improving
   operational efficiencies. New products and service delivery methodologies should
   be implemented on a pilot basis. Timing for a second phase would aim for
   implementation by December 2000.

2. The Loan Guarantee Fund should be extended during the second phase of
   project activities, due largely to Reserve Bank requirements. This Fund may be
   transformed to capitalise new financial service products, such as funding the
   establishment of a micro-leasing subsidiary.

3. The provision of project management services and technical assistance to be
   provided during the second phase of the CRISP project could be based upon
   open competition among firms specialising in microfinance, dependent on the
   skills which CARE can bring to a second phase of the project.

Table 1: CRISP - SUMMARY OF KEY ACTIONS REQUIRED
           ACTION                  RESPONSIBLE             DATE TO BE                 PRIORITY
                                      PARTY               ACCOMPLISHED
Training needs assessment and
plan developed for CBU staff     CARE                   June 2000               High
Incentive scheme for CBU staff   CARE / CBU             June 2000               High
finalised
Strategic Plan for CBU
developed                        CARE / CBU             August 2000             High
Impact assessment completed      CARE                   September 2000          High
Expansion plan / CRISP Phase 2
proposal developed
                                 CARE / CBU             October 2000            High
Reporting needs and data         CARE / CBU /
requirements . reviewed          DFID                   June 2000               Medium
MIS needs assessment and plan
developed                        CARE / CBU             November 2000           Medium
Reduce size of LGF to £200,000   DFID                   July 2000               Medium




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                         1. Program History / Overview

1.1. Implementing Parties

1.1.1. The British Government Department for International Development (DFID)
CRISP program is based upon a Memorandum of Understanding signed in May,
1995 with CARE International Zimbabwe and the Commercial Bank of Zimbabwe
(CBZ) to assist micro and small enterprises (MSEs) in Zimbabwe by enabling CBZ to
“extend financial services to this new range of ‘higher risk’ clients who might
otherwise be excluded during loans rationing.” The overriding goal of the project is
“Increased employment and income for MSEs in the informal sector through
extension of banking services (credit and savings) to micro- and small enterprises in
urban and peri-urban areas of Zimbabwe.” This goal is to be accomplished through:

   the establishment of a credit window at CBZ branch offices;
   the establishment of a Loan Guarantee Fund (LGF) to cover a portion of CBZ
    loan losses on project loan portfolio; and
   the development of procedures and manuals to guide the delivery of financial
    services to the MSEs client target group.

1.1.2 To implement this project, the CBZ established the Community Banking Unit
(CBU) and actual service delivery began in the CBZ Highfield branch in mid 1996.
CBU is now operating in four branches (Highfield; Chitungwiza; Bulawayo; Mutare)
and the program is directed from CBU offices in Harare. With the addition of a
Manager reporting to the Assistant General Manager, Community Banking in April
2000, CBU staff now totals 14 operational personnel, including eight loan officers
(two per branch) and at least one Administrative Assistant in each CBU branch.

1.1.3. Bannock Consultants carried out an output to purpose review (OPR) in 1998.
Its recommendations are shown in Table 4 below. The current OPR was carried out
in May 2000 with a team from DFIDCA including: Frank Matsaert (ED Adviser &
Project Officer); Zvisinei Manyoma-Meiki (SD Adviser); Nahid Khalpey (ED PDO)
and James Macdade (Banking Consultant, ECI).

1.2. Assessment of Programme Evolution

1.2.1. Key Findings / Analysis

Financial Outreach of the CBU Programme

1.2.1.1 The CBU programme has experienced significant growth in the provision of
financial services (savings and credit) to the target client group since the
programme’s inception. This can be seen in Table 2 below.




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Table 2: Loans and Savings (value of Loans outstanding and Savings deposits
in Z$ 000’s)
              June 97 Dec 97 June 98 Dec 98 June 99 Dec 99             Mar 00
  No. Loans        260     725      1,054    1,404     2,006    1,348    1,562
 Value Loans   $ 1,020 $ 2,571 $ 4,253 $ 4,736 $ 6,109 $ 7,327               $
                                                                        12,778
 No. Savings     1,225   1,978      2,733    3,473     4,070    3,999    4,442
 Val. Savings  $ 1,302 $ 2,862 $ 4,011 $ 5,578 $ 5,942 $ 8,740               $
                                                                        11,349
  % Female
Loan Clients       67 %         67 %         69 %          69 %         71 %          68 %   71 %

1.2.1.2 Other measures which indicate the programme outreach include the
cumulative level of loans, numbers of savings clients and total deposits, the level of
loans to women, and estimated employment creation:

   As at March 31, 200, the CBU programme has disbursed 4,077 loans on a
    cumulative basis. If First Quarter, 2000, performance of 467 loans generated is
    maintained for the remainder of the year (a reasonable assumption since the four
    CBU branches are now fully staffed and loan targets have been established for
    each loan officer), cumulative loans disbursed by the end of the project’s
    current phase will exceed the target of 5,000 by year-end 2000.
   CBU has established a year-end target of mobilising savings with a value of Z$
    15.7 million.
   CBU currently provides over 70 percent of its loans to women, who
    traditionally have had limited access to credit in the banking sector; so achieving
    this percentage consistently throughout the life of the project is an important
    result.
   In addition to the number of loans granted and savings accounts created, CBU
    estimates that 8,500 employment opportunities have been created or
    sustained through the provision of credit facilities since the programme became
    operational.

1.2.2.3 Extending financial outreach through inclusion of new savers and borrowers
in the programme is essential to meet the CRISP project’s poverty alleviating goals,
as well as ensuring the sustainability of the programme over time. The Bannock
report estimated that for the period April 1997 to March 1998, 60 percent of clients
were new or first cycle borrowers. More recent data suggest that CBU is maintaining
this outreach performance. For the first quarter 2000, 65 % of the borrowers
were first-time clients. One factor in this performance is that new loan officers are
encouraged to develop new clients to meet loan performance targets.

1.2.2. Institutional Aspects of the Community Banking Unit Programme

1.2.2.1. In addition to achieving project financial outreach targets, the Community
Banking Unit has established an organisational structure, staffing complement, and
policies, procedures and MIS information systems that will facilitate the continued
operation of the Community Banking product. Importantly, CBZ management now


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appreciates and supports the Community Banking initiative. It views the CBU as an
important mechanism to develop new client relationships for the Bank and an
effective means of delivery an array of appropriate services to the MSE sector.
Evidence of the Bank’s support for, and its commitment to, the sustainability of the
CBU includes:

    the recent recruitment of a Manager to serve as a Deputy to the Assistant
     General Manager (whilst overall Bank staff is being rationalised);
    the development of management information system reports and other support
     by the Bank’s Information Technology Group;
    development of new products and services by the CBZ Marketing Department for
     the CBU.
    establishing Loan Loss Provisions for the programme and internal
     budgeting and expense codes that will allow CBU to more accurately monitor
     its cost structures and hence calculate profitability on an on-going basis; and
    CBZ management has also indicated the flexibility necessary to allow the CBU to
     experiment with management tools such as staff incentive schemes and
     delegated approval authority.

1.2.2.2. Although CBU has a good level of commitment from CBZ it still requires
access to donor funds to cover the ‘sunk’ investment costs of increasing its portfolio
and staff capacity. Without donor funds to further leverage CBU into the bank’s
mainstream business it is unlikely to take place.

1.3. CBU Programme Sustainability

1.3.1. The key components that contribute to the sustainability of any microfinance
programme are the quality of loan assets and operational efficiencies that result in
revenue generated in excess of expenses. By these measures, CBU has made
substantial progress in achieving sustainability of the provision of its financial
services to the MSE target population group (Table 3).

Table 3: Self Sufficiency Indicators and Asset Quality
                        Jan 98      June 98       Dec 98       June 99      Dec 99      Mar 00
    Operational Self
         Sufficiency       72 %        108 %        167 %        147 %        135 %      104 %
      Financial Self
         Sufficiency        N/A         85 %        110 %         63 %          96 %      87 %
    Portfolio at Risk    0.77 %       0.48 %       2.08 %      12.65 %        6.34 %    5.19 %
            Portfolio
    Non Performing           N/A          N/A          N/A      1.77 %         1.5 %    0.86 %

1.3.2. Self Sufficiency indicators measure the progress made in covering operational
expenses and the full financial and operational costs of the programme. As is noted
in Table 3, CBU has made substantial strides in achieving self-sufficiency in these
areas. It should be noted that the income figures used to calculate their ratios do not
include CRISP financial contributions through CARE, while they do include all




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                  DFID Credit for the Informal Sector (CRISP) Output to Purpose Review


expenses such as salaries, operational expenses such as rent and other overheads,
and contributions to a Loan Loss Provision (currently 4 %).

1.3.3. Portfolio at Risk and non-Performing Portfolio are excellent measures of Asset
Quality. Portfolio at Risk measures loans one payment or more in arrears. With the
exception of June 1999, CBU performance is within the range of generally
acceptable arrears for microfinance institutions. Non-Performing Portfolio measures
loans in arrears 90 days or more – these are considered probable losses for
microfinance institutions. This ratio has consistently been lower than 2 % for CBU,
which reflects both asset quality at inception and efforts to aggressively manage
past due loan situations. These measures, self-sufficiency and asset quality, When
viewed together, these high levels of self-sufficiency and asset quality, are a
good indication of the probable sustainability of the CBZ Community Banking
initiative.


1.3.4. Progress since 1998 Output-to-Purpose Review (OPR)

1.3.4.1. Bannock Consulting was appointed by DFID to do an output to purpose
review in March 1998. Table 4 below reflects progress against the main OPR
recommendations, those in bold indicate those not achieved.

Table 4: Progress in Meeting Recommendations of 1998 OPR
        RECOMMENDATION                                          PROGRESS
Consider an MIS option                  Achieved – BankMaster introduced throughout CBZ, good
                                        IT support with well experienced staff who have the
                                        technical skill. CBU needs to decide how to computerise
                                        branch records and customise reports to reflect its
                                        needs, in liaison with CBZ IT department
Place CBU in operations Division        Agreed by all in a workshop that CBU remain in Credit
                                        Division (reason why Bannock recommended this was
                                        due to John Heath who was very instrumental in the
                                        programme but was placed in the Marketing Division of
                                        the Bank-this changed).
Limit first loans to Z$5,000            Being sensitised slowly to clients as there are still a
                                        number of clients requesting small loans. It is important to
                                        maintain focus on the poorer micro-entrepreneur-Agreed
                                        by all stakeholders that min amounts of $1-5000
Promote training of Loan Officers       Weakness in this area especially in the group lending
(LOs)                                   methodology – CARE to undertake training needs
                                        assessment for all CBU staff by June 2000
Appoint a mid-level manager to          Achieved. Appointed 1 April 2000
oversee Los
Develop pro-forma P&L Statements        Achieved but requires modification to reflect all overhead
for all branches                        costs
Increase interest rates for all loans   Achieved. Commercial interest rates are being used
disbursed




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Table 5: Logframe OPR Scoring Sheet
COUNTRY- ZIMBABWE                           PROJECT TITLE - CREDIT FOR THE INFORMAL SECTOR PROGRAMME (CRISP), Zimbabwe
PERIOD COVERED - 1998 - 2000                MIS CODE:073-540-                                             DATE PREPARED - MAY 2000


  PROJECT STRUCTURE                           INDICATORS OF                    SCORE           PROGRESS                               COMMENTS AND
                                               ACHIEVEMENT                                                                          RECOMMENDATIONS
 PURPOSE
                                                                                                                                                      st
 Improved access to credit by MSEs,     1. 5,000 loans are extended to MSEs     1/2      1. 4,077 loans as at the end of   1. If performance in the 1 Quarter is maintained
 including MSEs owned and/or            by CBZ over the 5 years of the                   March. In the First Quarter       the target is likely to be surpassed. The original
 managed by women, through the          project.                                         2000,     467   loans     were    target for the programme was revised
 establishment of sustainable banking                                                    extended. Around 70% of           downwards (from 15,000) at the last OPR due to
 outreach facilities                                                                     client MSEs owned and             delays of more than a year starting the project,
                                                                                         managed by women.                 assumptions of opening all 4 branches at once,
                                                                                                                           and failure to replace the full time TA in Year 1.


                                                                                 2       2. Operational self sufficiency   2.Financial self sufficiency lagged due to the
                                        2. CBZ credit extension to MSEs                  level for April 1999 - March      high level of inflation over the period (at 60%) ,
                                        achieves cost recovery over the life             2000 on average was 124%.         and but should improve as outreach increases.
                                        of the project                                   However on a financial
                                                                                         sustainability level the figure
                                                                                         was 85%
 Outputs
 1. MSE credit & savings window         1. CBZ credit & savings services         1       1. Staff and systems in place     1. Impressive performance. There is a need to
 established by CBZ is fully            established and fully operational                in four branches                  look at the development of an individual loan
 operational and is financially and                                                                                        product for graduates. Savings mobilisation has
 institutionally sustainable                                                                                               been impressive, and new products should be
                                                                                                                           considered. The group methodology may need
                                                                                                                           to be adapted.
                                        2. Non performing loans less than        1       2. On the basis of 90 days        2. Impressive achievement considering the start
                                        5% of portfolio                                  past due 0.9% of loans            up nature of the project by international
                                                                                         outstanding. On the basis of      standards, the current economic environment,
                                                                                         30 days past due the figure is    and client base. The bank’s overall rate is 15%,
                                                                                         4.6%                              meaning CBU is outperforming commercial
                                                                                                                           lending operations.

                                        3. CBZ income from MSE credit &         1/2                                        3. Financial self sufficiency lagged due to the
                                        savings window covers costs and                  Operating self sufficiency        high level of inflation over the period (at 60%).
                                        realises a profit margin                         105% as of March and              Full accounting system set up for overhead



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                                                 DFID Credit for the Informal Sector (CRISP) Output to Purpose Review


                                                                                         financial sustainability 88%        costs on an aggregate and branch basis has
                                                                                                                             been established.
2. Established CBZ branches and         CBZ offering financial services to       1       Branches operating at               Appropriate savings and credit services are
facilities are fully operational        MSEs at 4 bank outreach branches                 Highfields, Chitungwiza,            available, and new insurance, pension and credit
                                                                                         Mutare and Bulawayo                 card products to be made available to CBU
                                                                                                                             clients.
                                                                                                                             Loan insurance and funeral products should help
                                                                                                                             to mitigate the effect of HIV/AIDS amongst the
                                                                                                                             client base, and reduce their vulnerability.
3. Training programme in place for      CBZ client training offered to 10% of    2       Induction and basic business        Focus needs to be developed to address client
loan clients                            MSE borrowers                                    orientation training given to all   training needs in bookkeeping, money
                                                                                         clients.                            management, inventory control and marketing.
                                                                                                                             This should be analysed in relation to external
                                                                                                                             agent provision, or internal resources.
     NEW OUTPUTS AGREED
4. Impact assessment is                 Socio-economic         impact      and                                               DFID to forward information to Care on IA work
implemented prior to the end of the     inclusiveness       of    methodology                                                at CETZAM & Finca Malawi, as well as REMI in
project.                                gauged both at a qualitative and                                                     DFIDEA.
                                        quantitative level. Factors such as
                                        seasonal variation, social networks
                                        and livelihood benefits included. To
                                        be completed by August 2000.
5. Training Needs Assessment            TNA         plan and assessment                                                      Care to investigate prospects for cross visits, in
undertaken and completed for CBU        completed       prior    to   strategy                                               liaison with DFID opportunities regionally.
staff                                   workshop, by June 2000.
6. Strategic Plan developed with        Strategic plan for CBU developed                                                     Care & CBZ to initiate work on ToRs to discuss
stakeholders by end of project          with all stakeholders (CBU staff, CBZ                                                with DFID.
                                        management, CARE, DFID, other
                                        donors) by August 2000
7. Incentive scheme for all CBU staff   Incentive        scheme        options
implemented                             investigated and recommendations
                                        made to CBZ management by June
                                        2000
8. MIS needs assessment and plan        Comprehensive MIS plan developed                                                     CBU, Care & DFID to streamline reporting
for CBU developed                       with CBU & CBZ IT department,                                                        formats by end of June 2000.
                                        implemented by November 2000
9. Role of LGF reviewed in              Expansion phase plan completed by                                                    Discussions to be carried out with CBZ as to
expansion phase plan                    October 2000                                                                         their level of provisioning and Reserve Bank
                                                                                                                             regulations.
10. Individual loan product             Individual loan product in place by
introduced                              September 2000, and procedures
                                        manuals developed for the loan
                                        product.



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2.        Review of Financial Methodologies and Performance

2.1. Financial Products and Suitability

2.1.1. Product and Methodology

2.1.1.1. The CBU offers the MSE client target group savings and credit
products that are based upon individual performance, cross-guaranteed by
members of a solidarity groups. A savings account must first be opened with
a minimum deposit of Z$600 (equivalent to US$ 15 2). If a savings client
wishes to borrow, s/he must join or form a Micro Enterprise Business Group
of five members. The size of the initial loan ranges from Z$1,000 to Z$15,000
and must be secured with a minimum 20 % deposit in the individuals savings
account. This deposit is blocked for the duration of the loan (no grace period,
monthly repayments, for a duration of 6 months for the first loan cycle).
Incremental loan amounts can be extended for subsequent borrowings after
full repayment of the initial loan, up to a maximum of Z$75,000. The
additional loan cycles must also guaranteed by the borrowers’ solidarity
group.

2.1.1.2. During the appraisal process for the first and subsequent loans, Loan
Officers visit the prospective client’s business establishment and consult with
neighbours, business associates, etc. in order to ascertain the viability of the
business and the borrower’s ability to repay the loan. During the appraisal
process for the first loan cycle the Group members must attend a weekly
orientation on loan repayment, use of accounts, for six weeks. Once an
appraisal has been conducted by the Loan Officer and recommendation
made to the Assistant General Manager, loans are reviewed within 48 hours
and returned to the originating branch for disposition. If the loan is approved,
an offering letter is prepared for the client. Upon acceptance of the terms and
conditions, the loan is manually entered into a Loans Register by the
Administrative Assistant, a loan disbursement voucher prepared for signature
by the CBZ Branch Manager, and the loan is deposited into the client’s
savings account. Additional internal accounts are also prepared for loan
repayments and accrual, tied to the client’s savings account. Loans must be
repaid in full before additional loan requests can be entertained.

2.1.1.3. Savings accounts earn 20 percent annual interest; loans are priced at
3.5 percent over the Prime Lending rate (currently 61 percent), for an
effective rate of 64.5 percent. Loans in arrears are penalised an additional 10
percentage points. Loan applications are charged Z$100. Loan repayments
are debited from clients’ savings accounts on the 20 th of each month and are
considered delinquent as of the 25th day of each month. Partial payments are
not accepted and are considered as being in arrears unless the full payment
amount is placed into the savings account by the payment due date.



2
    Exchange Rate used in this report is Z$ 40 to the US Dollar, and Z$ 60 to Pound Sterling.


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2.1.2. Key Findings / Analysis

2.1.2.1. The experience of the CBU to-date with provision of savings products
has been well received, with 4,442 accounts currently in operation with a
value of Z$11,349,252. With its low minimum balance, the CBU savings
product appears to be very appropriate for the MSE client target group (in
contrast to Barclays Bank’s minimum of Z$3,000, for example).

2.1.2.2. In general the value of accessing savings services for the MSE client
target group is often overlooked by donors and other stakeholders. Work by
individuals such as Stuart Rutherford and multi-donor initiatives as MicroSave
Africa have provided concrete evidence as to their need for appropriate
savings services, and that savings services are more effective for
reaching poorer clients. The range of savings products may be expanded to
include fixed term deposits which would yield greater interest for the client,
and provide a more stable funding base for the CBU and would allow for the
development of longer term credit products.

2.1.2.3. With respect to the loan products, the current credit facility and
methodology is appropriate for initial borrowers and for those clients who will
not progress to borrowing larger amounts. The minimum loan amount is also
appropriate for first time borrowers. However the loan product and
methodology, as well as its consistent application by loan officers, breaks
down as loan amounts increase. Borrowers who may be able to support the
increased credit amounts and repayments are impeded by the reluctance, or
inability, of co-guarantors to insure repayment in case of default. The use of
‘top-up’ loans which are secured by orders for clients’ finished products are
employed to circumvent this constraint. However this lending methodology is
inconsistent with the group solidarity model and poses performance risks by
the client for the CBU.

2.1.3. Recommendations

2.1.3.1. The CBU should expand the range of savings and loan products
offered to the MSE client target group. Additional products / methodologies
may include:

   Higher interest rate Fixed Term savings accounts;
   Interest rate incentives tied to increased savings amounts;
   Individual loans based upon clients’ cash flow and security. These loans
    would be offered on an optional basis and reserved for clients who have
    completed at least three loan cycles without problem. Additional security
    may also be required.
   Pilot testing of the Village Banking model in rural growth points where CBZ
    has a presence. The use of Village Banking may allow CBU to realise
    increased operational efficiencies in those areas where rural clients may
    not require larger loan amounts
   Insurance products designed to guarantee loan repayment in the event of
    the borrower’s injury or death, as well as supplemental pension benefits
    and coverage of funeral expenses.


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   Micro-leasing products would allow clients to finance equipment on a
    lease-to-own basis instead of using loan products. This would also free
    up debt capacity for working capital purposes.


2.2. Operational Issues

2.2.1. Key Findings / Analysis

2.2.1.1. A variety of operational issues that influence the efficient provision of
financial services were noted during the preparation of this report. For
example, long queues of clients were present at all branches during site visits,
due to the payment of school fees through CBZ, in several cases delaying
service to CBU clients. There is also a degree of overlap between CBU staff
and regular CBZ branch personnel, as CBU personnel are often called upon
to serve non-CBU clients as needed, resulting in less attention given to
special needs of CBU clients. The turnover of Branch Managers has made
sensitisation of these regular CBZ staff to the special characteristics of CBU
clients more difficult than it could have been if Branch Managers were in
place for longer periods.

2.2.1.2. There is still an inordinate amount of reporting and other information
recording/gathering that is done on a manual basis, with resulting
inefficiencies. The time-consuming and often repetitive nature of these tasks
may lead to inadvertent errors. This extends to administrative tasks such as
loan disbursement as well as manual updating of loan portfolio information.

2.2.1.3. However it should also be noted that progress has been made with
the automation of many information needs. The implementation of the
BankMaster software package throughout CBZ has helped and the Bank’s
Information Technology & Systems Development Department has been
responsive to CBU requests for specialised reports. It is acknowledged by
both CBU management and the IT department that a comprehensive
review of the MIS needs of the CBU should be undertaken, with a view to
developing a plan for additional automation in administration and loan
portfolio management. This MIS review should also take into account data
elements which may enable the CBU, DFID and other stakeholders to monitor
client-level impact data on an on-going basis.

2.2.1.4. A final point should be noted with respect to productivity improvement
and scaling up for increased outreach of the loan products. In an effort to
increase the number, volume and amount of loans outstanding, CBU has
initiated a system of setting loan targets for each loan officer. While the actual
targets may be subject to revision in light of experience (and especially in the
context of the prevailing economic difficulties and political uncertainties),
performance targets should be an integral part of a comprehensive staff
incentive system. Staff incentive systems have proven extremely effective in
increasing efficiencies, maximising outreach and enhancing asset quality.
The desirability of a staff incentive system tied to performance targets
was the subject of broad consensus among CBU staff at the Workshop


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held during November, 1999. The desirability of developing clear career
path opportunities for CBU staff was also highlighted during this workshop, as
well as interviews with CBU staff during site visits undertaken for this report.

2.2.2. Recommendations

2.2.2.1. In order to enhance the operational ability of CBU to deliver an
appropriate range of financial services to the MSE target client group, the
following actions should be implemented:

   Dedicated teller facilities should be established for CBU clients at CBZ
    branches. When not needed, these resources could be shared with non-
    CBU clients;
   Sensitisation on microfinance and the Community Banking products and
    clients should be provided to regular CBZ branch and headquarters staff;
   An inventory of administrative procedures and information needs for CBU
    should be undertaken to develop a comprehensive MIS and automation
    plan in concert with the CBZ Information Technology and Systems
    Development Department;
   Regular profit and loss and balance sheet information should be
    generated through the MIS system for all CBU branches and head office
    to monitor financial performance on a profit centre basis;
   Options for an incentive plan based on staff performance should be
    developed, analysed and recommended for implementation;
   Career paths for CBU staff, including those within CBU and in the CBZ,
    should be developed and disseminated to CBU staff for discussion and
    review.

    3.   Institutional Assessment – CBZ Community Banking
                              Unit
3.0. The CAMEL ratio analysis provides a standardised methodology to
undertake an institutional assessment of the CBU. A CAMEL ratio analysis
was undertaken during the previous Bannock review, and has been updated
in order to measure progress of the CBU in the intervening two year period.
This methodology measures such aspects of microfinance operations such as
Capital Adequacy, Asset Quality, Management efficiency, Earnings, and
Liquidity. Following a discussion of these indicators, a review of CBU
operational sustainability will be presented, especially in contrast to a
comparator organisation Zambuko Trust. The CBZ vision for CBU will be
briefly analysed, followed by discussion of operational issues such as staff
capacity, management structures and MIS systems. A brief financial review of
the CBU parent organisation CBZ concludes this section of the report.

3.1. CAMEL Analysis

3.1.0. A CAMEL analysis was performed using full year 1999 data. It was
then compared to the ratios calculated during the preparation of the Bannock
report using data, in many cases estimated, for the period April 1997 to March


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1998. The limitations of current CBU data information were apparent during
the preparation of this analysis: reports are currently compiled manually using
spreadsheets prepared by the CBU Project Administrator, and variations
between reports were encountered. Difficulties were also encountered in
accessing this data from her computer and it was not apparent that any
backup copies of this data existed. While progress has been made since the
Bannock report noted these same limitations, it is clear that work in this area
of availability and use of critical financial information remains to be
accomplished.

3.1.1. Capital Adequacy

3.1.1.1. These ratios measure the leverage of shareholders equity and the
financial intermediation effect of gathering deposits and recycling them
through the economy as loans. By these measures, CBU and its parent CBZ
performance is satisfactory. Relevant ratios are presented in Table 6.

Table 6: Capital Adequacy
                                      Mar 98*                 Dec 99
     Year-end Capital to
      assets ratio (CBZ)                      7.7 %                    7.6 %
  Deposits to loans ratio
              (CBU only)                   108.4 %                  119.3 %
  Deposits to loans ratio
                   (CBZ)                   219.0 %                  135.9 %
* Note: March 1998 figures as per Bannock Report

3.1.1.2. CBU does not currently have capital attributable to its program;
rather, as part of the CBZ organisation CBU would have call on the funding
resources of the parent organisation CBZ. In this regard, CBZ has made
significant progress. Shareholder equity has increased 14 % from the
previous year to Z$773 million at year-end 1999, yielding a risk weighted
capital adequacy ratio of 12.75 %, a level standard for money-centre banks.
Deposits have also increased substantially, registering an increase of over
100 % to Z$7.4 billion at as year-end 1999. This reverses the deposit flight
experienced in the previous year, and is a mark of renewed consumer
confidence in the Bank as a whole resulting from the privatisation exercise.

3.1.1.3. For CBU itself, its deposit base can be considered its capital or
source of funds for on-lending. The ability of CBU to attract adequate levels of
deposits is crucial to the programme’s long-term sustainability, and a clear
advantage that CBU enjoys relative to its comparator microfinance institution,
Zambuko Trust (whose lending operations have been impeded by a scarcity
of capital). Since the inception of the programme, deposits have steadily
increased and total Z$11.3 million as at 31 March 2000, up from Z$3 million
in March 1998. Recently loans outstanding have exceeded deposits (due in
part to aggressive lending targets being established at CBU); the deposits to
loan ratio at 31 March 2000 is now 89 %. This is not a cause for concern,



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however, given CBU’s access to the parent’s funding base of over Z$7 billion
in deposits.

3.1.1.4. As part of the establishment of automated income statement and
balance sheet information, CBU should calculate nominal capital attributable
for its operations; this will assist in the prudent management of lending
activities and yield a clear picture of its financial condition going forward.

3.1.2. Asset Quality

3.1.2.1. Along with ratios designed to measure self-sufficiency, the quality of
loan assets is of paramount importance in the sustainability of microfinance
operations. Many promising MFIs have ceased to function due to untenable
levels of non-repayment of loans.

3.1.2.2. Asset quality is composed of several attributes:

   Quality-at-entry: loans are originated according to established
    procedures, and based upon stringent and objective appraisal of the
    client’s ability to repay loan obligations. The use of solidarity groups to
    cross-guarantee the initial lending cycles to the MSE target client group is
    appropriate and mitigates to a substantial extent the risks associated with
    this lending activity.
   On-going Loan Monitoring: loan repayments are continuously monitored,
    and information systems exist to alert Loan Officers to repayment
    problems by clients. The entire loan portfolio should be monitored by
    lending officers and programme management to detect trends and events
    that may adversely affect loan portfolio quality and allow for informed
    management decisions.
   Aggressive Problem Loan Management: based upon loan portfolio and
    individual repayment information, clients experiencing difficulties in
    repaying loans are quickly and accurately identified and follow-up is
    made. After all possibilities are explored and exhausted with the clients,
    guarantees may be called upon. These loans must also be conservatively
    classified as Special Mention (30+ days past due), Substandard (60+
    days past due, or Non Performing/Loss (90+ days past due). Loan
    classification must be accompanied by adequate provisions for possible
    loan losses.

3.1.2.3. The CBZ Community Banking Unit has better than average asset
quality, due in large part to attention to the components of asset quality noted
above. While information was not available with respect to the number of loan
applications declined, or first-cycle loan defaults, the solidarity group lending
methodology coupled with relatively low initial loan amounts have enabled the
CBU to have good quality-at-entry loan experience. This quality-at-entry will
be substantially enhanced through the implementation of a properly
structured staff incentive scheme, in which loan officers will enjoy
financial reward for the origination and management of performing
loans.



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3.1.2.4. If there is an area where CBU could use improvement is the second
facet of asset quality, the on-going management of loan assets. Additional
computer-generated MIS needs to be developed to allow automated reporting
on individual loan repayment experience, as well as portfolio information on a
branch basis and by sector and lending cycle.

3.1.2.5. Overall, however, CBU has superior experience with aggressive
management of problem loans. This is demonstrated by their low levels of
non-performing assets, relative to comparator MFIs. For example, when
comparing CBU with Zambuko Trust, asset quality is as follows in Table 7
below.


Table 7: Asset Quality – CBU versus Zambuko Trust
                                         CBU                  Zambuko
 Portfolio at Risk (Z$ 000s)                     464                5,381
           Portfolio at Risk                   6.3 %               14.3 %
 Non Performing (Z$ 000s)                        109                4,385
  Non Performing Portfolio                     1.5 %               11.6 %
** Note: As at 31 December 1999

3.1.2.6. The difference in asset quality between these two organisations is
stark: while Zambuko is a more mature programme, having been established
in 1992, the amount of non-performing assets as a percentage of portfolio at
risk is troubling and could threaten the continued operation of the programme.
In microfinance, loans that are 90 days or more past due should be
considered as losses, with appropriate reserves established and loans written
off. By contrast, the non-performing assets of CBU are a much smaller
percentage of the portfolio at risk.

3.1.2.7. The evolution of CBU asset quality in comparison with the information
developed in the Bannock OPR report of 1998 are as follows in Table 8.

Table 8: Asset Quality
                                       Mar 98*                 Dec 99
  Loan loss provision (CBZ)                  4.9 %                   5.2 %
      Loan loss experience                   0.0 %                   0.3 %
                        (CBU)
        Reserve ratio (CBU)               0.0 %                         4.0 %
    Portfolio in arrears ratio
                   1 - 30 days            0.0 %                         2.3 %
                 31 - 60 days             0.2 %                         3.7 %
                 61 - 90 days             0.0 %                         1.1 %
                      91+days             0.5 %                         1.5 %
       Portfolio at risk ratio            0.7 %                         6.3 %
Non – Performing Portfolio                0.5 %                         1.5 %
* Note: March 1998 figures as per Bannock Report




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3.1.2.8. The profile of asset quality for CBU is commendable, especially given
the current difficult economic environment in Zimbabwe. The CBZ Executive
Director for Credit noted that mid-level firms have been adversely affected by
the current economic situation. Many CBU clients (especially those with larger
loan amounts) produce finished goods for the retail sector and as such are
vulnerable to erosion of consumer confidence and continued high levels of
inflation. Small and medium-sized enterprises also do not have the financial
resources to absorb shocks as do larger, more diversified companies. As a
final point of comparison, it is estimated that the non-performing
portfolio for CBZ as a whole is 15 % - and as such the CBU loan
portfolio is well out-performing the entire Bank!

3.1.3. Management Efficiency

3.1.3.1. These ratios measure the ability of staff to manage loan clients, as
well as costs per unit of loan assets generated. One concern has been the
slow progress in ‘scaling-up’ the CBU in order to maximise outreach of the
CRISP programme. As is shown in the Table 9, progress has been made in
this regard, especially in terms of the number of active borrowers per loan
officer. This number reflects the opening of the Mutare branch and the
recruitment of several new loan officers; it should be noted that several
seasoned loan officers now manage an average of 300 clients, which is the
industry norm for this lending methodology. It should also be noted that the
actual client load per staff may be in fact even greater, if savings (non-
borrowers) clients are included. As a practical matter loan officers and other
staff provide these clients with substantial and often time-consuming services
such as verifying balances, etc.

Table 9: Management Ratios
                                       Mar 98*                Dec 99
 Active borrowers/loan officer                133                       225
   Active borrowers/total staff                66                       112
        Portfolio/credit officer         466,089                  1,221,258
   Cost per unit of money lent               0.42                      0.35
           Cost per loan made               1,991                     4,109
            Average loan size               4,855                     5,436
* Note: March 1998 figures as per Bannock Report

3.1.3.2. As shown in Table 9, substantial progress has been made by the
CBU in terms of increasing productivity of loan officers and the entire staff.
These productivity gains have been registered in spite of expanded branch
operations and new staff. CBU productivity ratios also compare favourably
with its comparator MFI Zambuko Trust. This is shown in Table 10 below.




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Table 10: Management Ratios – CBU versus Zambuko Trust
                                        CBU                  Zambuko
Active borrowers/total staff                   112                       86
        Portfolio / total staff            610,629                  259,762
Cost per unit of money lent                   0.35                     0.75
          Average loan size                  5,436                    3,138
** Note: As at 31 December 1999

3.1.4. Earnings

3.1.4.1. This section of the CAMEL methodology measures profitability and
sustainability. These measures, when coupled with asset quality, provide
good indicators on the future viability of microfinance operations. CBU has
attained improved profitability and a good degree of sustainability, even when
the contribution from the CRISP programme are excluded. The evolution of
earnings and sustainability when compared to the levels noted in the Bannock
report are shown in Table 11.

Table 11: Earnings Ratio
                                      Mar 98*                 Dec 99
      Return on performing
                       assets            -76.8%                       12.2%
         Financial cost ratio             11.9%                       15.6%
   Administrative cost ratio              32.7%                       27.8%
  Operating self-sufficiency              40.5%                      108.2%
   Financial self-sufficiency             36.6%                       84.5%
* Note: March 1998 figures as per Bannock Report

3.1.4.2. It is useful to note the progress made since the Bannock report
compiled figures for 1998. CBU performance on the crucial sustainability
ratios in comparison with Zambuko Trust are as follows, in Table 12.

Table 12: Earnings Ratios – CBU versus Zambuko Trust
                                        CBU                  Zambuko
  Operating self-sufficiency              108.2%                  96.8 %
   Financial self-sufficiency              84.5%                  90.8 %
** Note: As at 31 December 1999

3.1.5. Liquidity

3.1.5.1. As is noted in the Bannock report, liquidity should not be a major
concern with the CBU since a) it has a sizeable deposit base of its own from
which funding of lending operations can be made; and b) it can call upon the
substantial funding resources of CBZ. Liquidity management may be of more
concern in the future, especially if the CBU is spun off into a subsidiary of
CBZ. However for the moment this is not of concern. Liquidity cushion, which


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measures the cash on-hand, needed for two weeks of operations is as
follows:

Table 13: Liquidity Cushion
                                      Mar 98                  Dec 99
          Liquidity cushion             115,366                   160,168
* Note: March 1998 figures as per Bannock Report

3.1.6. Summary & Conclusions – CAMEL Analysis

3.1.6.1. Progress has been noted in all aspects of financial performance as
measured by the various ratios that comprise the CAMEL analysis. Especially
impressive has been the ability of CBU management and staff to ensure
asset quality while undergoing a rapid expansion of the loan portfolio in terms
of client outreach and value. Implementation of additional automated MIS
reports and a staff incentive system will aid in maintaining the progress of this
extremely important aspect of programme management.

3.1.6.2. A serious issue facing the CBU and its MSE target client group is the
worsening of the HIV/AIDS epidemic. The development of insurance
products will assist both borrowers and the programme in case of
incapacity or death. The high level of asset quality, which must be backed
by an appropriate level of loss provisions, make the continuation of the Loan
Guarantee Fund in the medium term unnecessary.

3.1.6.3. Equally impressive have been productivity gains, which have resulted
in the CBU attaining a significant levels of sustainability. Again, increased use
of expense reporting, and the development of income statement and balance
sheet information for both CBU branches and the programme as a whole will
enable profitability to be closely and accurately monitored.

3.1.6.4. It is recommended that the CBU prepare this CAMEL analysis on a
semi-annual basis to monitor the financial performance of the programme.

3.2. Sustainability of the Community Banking Unit

3.2.0. In general, sustainability for microfinance institutions is composed of
several components:

   Adequate staff, in terms of number, training and motivation, as well as
    sensitivity to the economically active poor
   Procedures and systems that facilitate the consistent application of
    financial products and methodologies in an efficient and transparent
    manner
   A clear vision of programme operations to provide the economically active
    poor with an appropriate range of range of financial services on an
    accessible basis, which is widely shared among management, staff,
    clients and other stakeholders,



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   A methodology and range of services that correspond to real needs of the
    MSE client target group, and yield an acceptable return and asset quality
    for the institution

3.2.1. Key Findings / Analysis

3.2.1.1. The CBU largely satisfies the above-mentioned sustainability criteria.
In particular:

   CBU has been able to recruit and retain a sufficient number of qualified
    staff to provide program operations. The dedication of staff was well
    noted during the site visits conducted in the preparation of this report.
    However they have received little substantive training in microfinance
    ‘Best Practice’ techniques that would result in greater skill levels and lead
    to greater efficiencies and better service to the MSE target client group.
    The lack of a systematic training program in microfinance is a
    shortcoming of the CRISP programme. In addition, a staff incentive
    scheme tied to measurable performance targets of outreach and asset
    quality has not been implemented, despite extensive discussion and
    consensus on this issue at the staff workshop held in November, 1999. A
    career path for existing and prospective staff also needs to be developed.

   Procedures and systems are adequate for the management of the CBU
    operations at existing client levels. Yet there is still a substantial amount
    of manually gathered and classified information that leads to inefficiencies
    and potential errors. The implementation of computer-generated
    information systems has begun, and promises to greatly enhance
    the on-going operations of the CBU, as well as leading to greater
    efficiencies that will allow up-scaling of operations to reach
    additional MSE clients. The Procedures Manual is adequate and allows
    for updating as needed.

   The business planning process is inadequate at present and is
    treated as an exercise to be done in order to please DFID, rather than as
    a tool for all stakeholders that will guide the CBU into the future. Current
    reporting procedures whereby CBU submits portfolio and other
    information to CARE who in turns forwards this information to DFID
    without any additional commentary or analysis, could be substantially
    imrpoved. Finally, up until recently, there was no knowledge by the CBU
    of project budgets managed by CARE. This led to inefficiencies and
    delays in reimbursement of legitimate project expenses. In general,
    communication and the overall level of interaction between CARE
    and CBU has been sub-optimal, and its solution represents an
    opportunity for strengthening the CBU through the CRISP project.

   The financial products currently offered by the CBU are appropriate
    with low barriers to entry for the economically active poor. However the
    existing loan product becomes less attractive for more successful
    members of the MSE client target group due to the reluctance or inability



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    of solidarity group members to cross-guarantee larger loan amounts. This
    dis-equilibrium both penalises more successful clients and
    undermines the solidarity loan product as ‘top-up’ loans are made
    on an individual basis, for example. There is also a perceived need to
    offer other savings and insurance products.

3.2.2. Recommendations

3.2.2.1. In order to enhance the institutional sustainability of the Community
Banking Unit, the following actions are recommended to be instituted before
the end of the current project phase in December 2000:

   An in-depth training needs assessment of CBU staff should be made
    by CARE, leading to the establishment of a systematic training
    programme in microfinance ‘Best Practice’ techniques. This
    assessment should also inventory local and regional training resources
    that can be utilised in the training programme, including the use of
    internal CBZ training resources.

   CARE should prepare a review of several staff incentive schemes,
    including analysis as to the appropriateness of each model to the
    operations of CBU, and distribute it to CBU staff for review. This
    should be coupled with proposals from CBU management as to possible
    career path options for existing and future CBU staff.

   A business plan should be prepared with the active and meaningful
    participation of all stakeholders in the CRISP project (CBZ
    management; CBU management and staff; DFID; and CARE). It should
    incorporate the results of the training needs assessment and training plan,
    the review of the Loan Guarantee Fund, as well as projections of client
    levels and proposed new financial products, etc. An outside facilitator
    should assist in this process.

   Current reporting requirements should be reviewed by all
    stakeholders with a view to their rationalisation. Budgets and other
    project financial management tools should be shared among all parties
    including CBU management.

   An Information needs assessment should be undertaken leading to
    the development of an MIS plan for existing and proposed CBU
    operations. This should be done in conjunction with the CBZ Information
    Technology and Systems Development Department.

   The CBU Procedures Manual should be revised to take into account
    changes agreed to at the November 1999 workshop. The Procedures
    Manual should be distributed in a binder format facilitate updates
    and changes in the future as new procedures and products are
    developed and adopted.



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   Additional financial products should be developed and implemented to
    reflect the needs of the MSE client target group and the experience of the
    CBU programme to-date. The adoption of an individual loan product
    for clients who have successfully completed a minimum of three or
    four loan cycles and require larger loan amounts should be a priority
    action for the CBU. Additional savings products such as fixed term
    accounts, savings accounts with variable interest rates according to the
    amount of deposit and current accounts should also be evaluated for
    implementation. The development of insurance products and alternative
    means of accessing accounts via cards should also be carried out by CBU
    as soon as possible.

3.2.3. Strategic Vision

3.2.3.1. A key issue with respect to the strategic vision is how the future of
CRISP is viewed by CBZ. The OPR exercise focuses on examining the past
performance of the project. But as the project nears the completion of its first
phase it is equally important to think ahead to how the CRISP concept will be
taken forward by CBZ. These issues are integral to the development by CBU
of a business plan, with the meaningful participation of all stakeholders
(including DFID). Internally it is important to gauge how CRISP relates to
other poverty alleviation activities undertaken with both DFID and other
donors.

3.2.3.2. Top CBZ management are highly committed to seeing CBU succeed
and grow as a percentage of the overall bank’s activities. They are
encouraged with CBU’s performance and have expressed their willingness to
allocate further resources to it - in terms of staff training and MIS investment -
but what will be as important are CBZ resources to rapidly expand CBU’s
lending portfolio and savings generation. From this perspective it is worth re-
examining the role of the LGF. Top management agrees that the LGF was
initially required to give CBZ the comfort of being able to call down a
guarantee against what was initially seen as a risky form of lending. The
performance of CBU has shown that CBZ can successfully lend to this market
and control the risk. CBZ management has indicated that they are prepared
to continue CBU activities without a LGF, and create a loan loss provision
from the CBU’s activities to cover any default at 4% per annum. CBZ also
indicated that they would be willing to negotiate with the Reserve Bank
regarding the requirements for uncollateralised lending by slight adaptations
to the current methodology.

3.2.3.3. CBZ have also taken the step of registering a company for CBU’s
activities. CBZ envisages CBU as a stand-alone subsidiary, leasing space
from CBZ and operating with the goal of generating profits. It is not clear how
the independent CBU would operate vis a vis other donor projects (such as
with the World Bank, IBWO, NORAD and IDEA). This is partially a function of
the fact that CBU does not have a concrete business and operating plan to
take it forward, apart from the framework created under the auspices of
CRISP. Clearly a major priority will be for CBZ, DFID and CARE to begin
a deep process of strategic planning for CBU. This should go beyond the


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creation of a DFID specific project, but rather develop a business plan for the
provision of an appropriate range of financial services to the MSE target client
group. It is recommended that CARE and CBZ lay out a process and terms of
reference for this task, which should be facilitated with external personnel,
and draw in other donors. The process could have several stages, initially
internal to CBZ/CBU, then in conjunction with DFID, and then open to a wider
set of donors. The process should maintain CBU’s focus on its core activities
and be cognisant of the danger of diversifying project based tasks too quickly.

3.2.3.4. CBZ’s commitment to the CRISP concept is encouraging and DFID’s
potential assistance in a follow-on phase could be formulated to cover the
bank’s start-up costs in this market on a sliding scale basis, as was done in
current project. It could also focus on training (an area that CBZ felt has
remained underdeveloped under CRISP) and the provision of more
specialised technical assistance, and possibly provide capital for a pilot micro-
leasing product.

3.2.4. Staff Capacity

3.2.4.1. For any microfinance institution, the technical ability of the
professional and support personnel to deliver an appropriate range of
financial services is perhaps the key factor in the sustainability of programme
operations. Microfinance personnel must have not only the requisite technical
knowledge and technical skills to deliver an array of complex financial
products, but they must also have a high degree of empathy for the
economically active poor, with an appreciation for the challenges faced by
clients as well as their goals and aspirations.

3.2.4.2. An essential means of imparting both technical skills and enhancing
sensitivity to the MSE client group is a systematic programme staff
development programme. This is based on a thorough needs assessment of
the technical and professional skills needed to successfully discharge the
requirements of particular positions. It also means gaining a broader
knowledge of what are termed microfinance ‘Best Practices’, which among
other aspects share experience in serving the economically active poor in
various setting and with different financial products and services.

3.2.4.3. A suitable incentive scheme is also essential to the development of
staff capacity. It should reward increased client outreach in terms of volume
of new and repeat business, while at the same time guarding asset quality
and mobilising additional resources such as savings. Sanctions to discourage
improper behaviour, failure to meet agreed upon targets and other
undesirable tendencies are also a part of this incentive system. Finally, a
clear career path with suitable opportunities for growth, promotion and
advancement must be established and applied in a fair and transparent
manner.

3.2.5. Key Findings / Analysis




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3.2.5.1. The Community Banking Unit owes much of its current success to the
professionalism and dedication of its management and staff. Recognising that
staff capacity is central to the continued operation of the CBU programme,
the following points were noted during the preparation of this Output to
Purpose Review:

        The CBU programme has not benefited from a comprehensive,
         systematic training that is required to establish and sustain a
         microfinance operation. This is a serious shortcoming in terms of
         support to the CBU by the CRISP project. While training has been
         delivered by internal CBZ resources, it has not always been appropriate
         in terms of the relevance of the microfinance products offered and MSE
         client profiles. Training has not been based on a needs assessment of
         position requirements or individual competencies/needs nor delivered in
         a systematic manner.

       Skill levels of long-serving personnel at the Loan Officer and
        Administrative Assistant positions appear adequate. Recruitment
        (both from inside CBZ and externally) of new personnel is problematic
        since there is no training for personnel prior to their assumption of duties.
        This leads to inefficiencies and the potential for errors as personnel ‘get
        up to speed’ while on the job. The CBU’s ability to staff positions with
        new personnel who are capable of efficient operational performance
        upon assumption of duty will be a serious constraint to programme
        expansion (including client outreach, additional range of products
        and services offered and geographic expansion) if not addressed.

       There is an overall lack of awareness of the Community Banking
        business and products on the part of other CBZ staff, especially at
        professional levels such as Branch Managers. This lack of awareness
        of both the CBU operations and microfinance in general among the CBZ
        staff poses occasional operational problems and impedes recruiting for
        CBU positions from internal CBZ candidates.

       While a consensus on the subjects of a staff incentive scheme and
        career path clarification was reached at the November 1999
        workshop, implementation of these personnel management tools has
        not taken place. These tools are critical for CBU to attract and, more
        importantly, retain suitably qualified personnel.

3.2.6. Recommendations

3.2.6.1. CBU and its partners in the CRISP project must urgently address the
concerns noted regarding staff capacity and development. Issues of staff
capacity are crucially important to the medium-term sustainability of the
programme since they have a direct impact of the financial and operational
performance of the programme. Before the conclusion of the current phase of
the CRISP project, the following actions are recommended:




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   A through needs assessment of existing and potential staff positions be
    undertaken leading to the development of a systematic training
    programme for CBU staff in microfinance ‘Best Practice’ technical skills.

   Internal CBZ training personnel should undergo ‘Training of Trainers’ in
    subjects related to microfinance, and these topics should be included in
    CBZ training curricula, with the aim of building internal CBZ training
    resources.

   Sensitisation efforts to build awareness of microfinance in general and the
    CBU programme in particular should be undertaken for CBZ management
    and other stakeholders as appropriate.

   In addition to a systematic training curricula for CBU staff, study tours and
    other exchange visits should be arranged with leading African
    microfinance practitioners (e.g., K-REP in Kenya, ACEP in Senegal,
    Banque Nationale de Devéloppement Agricole in Mali, Alexandria
    Businessman’s Association in Egypt).

   Information should be gathered on several staff incentive schemes and
    analysis of their applicability to CBU prepared and disseminated to CBU
    staff by CARE.

   Career path options including the development of complete job
    descriptions should be prepared and disseminated to CBU staff.

3.2.7. Management Structure

3.2.7.1. As with any organisation, the articulation of an appropriate and
responsive management structure is central to the medium-term sustainability
of the Community Banking programme. However management structures
cannot remain static – they must change and adapt to reflect the
management needs of the programme as its grows and expands in terms of
staff competencies, range and complexities of products offered, etc. The CBU
programme has grown from operations in one branch and a small number of
clients to a network of operations in four branches with over 4,000 clients.
From this perspective, the following issues observations were noted during
the preparation of this OPR report:

3.2.8. Key Findings / Analysis

   The current management structure of having all branches report directly to
    the Assistant General Manager was appropriate for initial stage of the
    CBU programme operation, but CBZ and CBU management should now
    explore new options.

   The lack of a transparent staff incentives package and clear career path
    opportunities impede the development of a more decentralised
    management structure.



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       Sharing facilities with regular CBZ retail branches has led to confusion in
        the past with respect to reporting requirements. It has also led to CBU
        staff serving non-CBU clients, and lack of dedicated teller facilities for
        CBU clients often result in long queues and disincentives for CBU clients.

       While the current centralised loan approval mechanism does not impede
        rapid client response at present, the value that the Assistant General
        Manager adds to the approval process is marginal since no independent
        verification or analysis of client information is made. The current loan
        approval mechanism poses a significant constraint to scaling up of client
        outreach.

       The benefits that CBU enjoys from its association with mainstream CBZ
        retail operations are substantial (IT support; security; lower overheads;
        association with CBZ) and outweigh the disadvantages at present.

3.2.9. Recommendations

3.2.9.1. In order to enhance its current operational efficiencies and promote a
structure that will be suitable for future operations over the medium-term, the
CBU is invited to review the following recommendations to its management
structure:

       Based upon the implementation of a suitable staff incentive system and
        career path development, CBU branch operations should be managed on
        an ongoing basis by a Senior Loan Officer who would continue to report
        to the Assistant General Manager. The Senior Loan Officer would be
        responsible for overall marketing and asset quality targets of the branch
        as well as regular reporting and other daily operational details.

        As part of the expanded responsibility of the Senior Loan Officers, s/he
         should be able to approve loans in amounts up to Z$10,000. The
         performance of these loans would be monitored as part of a
         comprehensive computerised MIS information and staff incentive
         programme. Loan approvals would require the concurrence of the Branch
         Credit Officer.

       The newly-created position of Programme Manager at Head Office should
        include responsibilities for management of the staff training programme
        and development and implementation of the CBU MIS plan.

       CBU should continue to share facilities with retail CBZ branches to
        minimise overhead expenses. However unique CBU teller facilities should
        be established for priority of CBU clients.


3.2.10 Management Information Systems

3.2.10.1. The design, development and use of computerised Management
Information Systems (MIS) are essential for the efficient operation of


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microfinance institutions. While manual information gathering and reporting
systems can be employed (as is the case to a large extent with CBU at
present) their preparation is time-consuming and presents many opportunities
for error. They also prevent meaningful scaling up of programme operations
to provide access to financial services to the MSE target client group.

3.2.10.2. It has previously been noted in the Bannock report and more
recently in the assessment done by Vulindlela that sufficient MIS resources
are an area of needed improvement for CBU.

3.2.11. Key Findings / Analysis

   The broad area of information management remains an area of relative
    weakness for CBU. Information on loan portfolio and other financial
    performance indicators are prepared manually, in a range of formats that
    do not facilitate trend analysis.

   CBU has worked with the CBZ Information Technology and Systems
    Development Department to develop a Trial Balance report that reports
    clients arrears according to ageing. However this report does not facilitate
    trend analysis, or summary breakdowns by loan officer or branch, for
    example.

   CBU has developed, with the IT Department, a chart of unique accounts
    that will allow income statements to be generated for each branch to
    monitor financial performance. Currently, CBU manually prepares income
    and expenses statements, extracting information prepared by the CBZ
    BankMaster MIS system.

   CBU management and staff appear unaware of the query functions of
    BankMaster and the use of EZ Data, which can be used to extract
    information and prepare reports on an as-needed or regular basis. The
    COGNOS software also running with BankMaster can be used to both
    extract and present data in graphic form.

   Limitations exist to the BankMaster system that make its use less than
    ideal for microfinance operations such as the CBU programme. For
    example, the system does not recognise partial payments and hence
    loans are classified as past due when in fact some payment has been
    made. This again requires the manual intervention of the loan officers.

   No balance sheet is prepared for the CBU programme, which would
    include an amount of notional or attributable capital.

   Key client-level data are missing that would assist programme
    management and other stakeholders (esp. DFID) in ascertaining impact of
    the programme in attaining poverty alleviation objectives.

3.2.12 Recommendations



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3.2.12.1. The areas of needed improvement in the preparation and use of
MIS information noted above are not meant as a blanket criticism of the CBU
programme. Indeed much progress has been made since the Bannock
report in developing and using MIS information, although a great deal of it still
manually generated. However the lack of integrated and relevant MIS is a
constraint impeding the programme from scaling up client outreach whilst
maintaining acceptable asset quality and increasing efficiencies. In this light,
several actions can be undertaken before the end of the current project phase
to begin to address these concerns:

   Designate the CBU Manager as responsible for all MIS and information
    and reporting issues. This is an appropriate level to exercise supervision
    of this vital area, and such a designation will help to ensure accountability.
    If additional training in MIS design for microfinance institutions is required,
    CARE should identify training resources and cover training costs out of
    project funds.

   An information and reporting needs assessment should be conducted by
    the Manager and with the assistance of external technical assistance
    mobilised by CARE to identify information, reporting and MIS needs of the
    CBU. This work should be accomplished in close collaboration with the
    CBZ IT Department, and serve as the basis for upgrading existing CBU
    MIS resources.

   Balance sheet and income statements should be prepared for each CBU
    branch every quarter to better identify costs. Similarly, financial statements
    should be prepared for the programme as a whole including an amount of
    notional or attributable capital. This will greatly facilitate the preparation
    and analysis of ratios and other measures to monitor the financial and
    operational performance of he programme.

   CBU staff should receive instruction on the use of query functions of the
    BankMaster software, as well as the use of EZ Data and COGNOS data
    extraction and graphic presentation software.

3.3. Impact of macro economic events on CBZ financial performance

3.3.0. While the Community Banking Unit has registered good asset quality
and demonstrated earnings potential, the programme nevertheless relies on
the financial strength of its parent CBZ. Within the context of political
uncertainty and economic instability now prevailing in Zimbabwe, the ability of
the banking sector, specifically the CBZ, to maintain its financial health is a
concern for the future of the CBU project.

3.3.1. Key Findings / Analysis

   As the levels of non-performing loan assets at the CBZ increase (now
    thought to be 15 % of loans outstanding, up from 11 % at 31 December
    1999), profits will necessarily be affected as the bank increase loan loss
    provisions. Provisions for doubtful loans increased to Z$126 million as at


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    31 December 1999, an increase of 84 % from the previous year. Overall
    provisions were 7.7 % of gross loans outstanding.

   The foreign currency crisis shows no signs of abating, and will have a
    ‘ripple’ effect through the economy as larger firms scale back on
    operations due to lack of foreign exchange for inputs. This is especially
    important for CBZ with its large credit exposure to the manufacturing
    sector and middle market clients.

   Inflation erodes the attractiveness of keeping cash in the banking sector
    as deposits; information is unavailable as to the level of CBZ deposits,
    which were over Z$7 billion as at 31 December 1999. This level of
    deposits was a 104 percent increase of the previous year’s deposit levels,
    a significant turnaround after the deposit flight experienced during the
    period 1997 – 1998.

   The largest shareholder is the ABSA Group of South Africa, one of the
    leading commercial banking groups in the region. They have provided
    significant management and technical support, especially in the areas of
    systems development and credit management.

3.3.2. Recommendations

   Continue to monitor the financial performance of CBZ, especially with
    respect to the level of non-performing assets.

   Continue to monitor the deposit levels of CBZ.

   Create a balance sheet for the CBU, including amounts of notional or
    attributable capital, to facilitate the analysis and monitoring of the Unit’s
    financial performance, including in comparison with the parent CBZ.

                  4. Institutional Assessment / CARE

4.0. According to the original project Memorandum of Understanding, CARE
International Zimbabwe was to serve as both project manager and technical
advisor to the CRISP project. During the preparation of this OPR exercise
CARE Zimbabwe was requested to provide data on the number of person-
days of technical assistance over the first phase of the CRISP project, as well
as information on what other inputs it had provided in support of the project.
This is included in Annex 3.

4.1. Project Management Role

4.1.0. According to the CRISP project MOU, CARE was to serve as project
manager, with several specific duties. According to section 14.2 of the MOU
these include:

   Establish and maintain the Loan Guarantee Fund



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   Process draw downs under the LGF
   Manage the development of training inputs
   Reimburse CBZ for project related operating costs
   Prepare quarterly project progress reports and financial statements for
    DFID
   Undertake monitoring and evaluation of project methods and procedures
    and document project milestones

4.1.1. Key Findings / Analysis

   There has been a low level communication at points during the project
    between CARE and the CBU. Until recently, the project budget was not
    shared with CBU; hence several requests for reimbursement were stalled
    because ‘there was not sufficient budget allocations remaining’. CBU has
    recently been provided with a copy of the budget which has alleviated the
    situation.

   Reimbursement for project costs have been hampered by delays, which
    have caused problems for the CBU within CBZ.

   Project reporting is done on a manual basis by CBU, and the variety of
    reporting formats constitute an unnecessary burden to already over-
    worked CBU Administrative Assistant staff.

   Quarterly reports submitted by CARE are composed of the narrative
    summaries and financial information prepared by the CBU. There is little
    independent monitoring, analysis by CARE to add greater value to the
    process.

   The first (and only to-date) draw down on the LGF was delayed due to
    unfamiliarity of CARE personnel with LGF procedures.

4.1.2. Recommendations

   The Project Manager role is largely unnecessary at this stage of the
    project, given the maturity of the CBU.

   Reporting requirements should be reviewed by all parties (CBU; CARE.
    DFID) with a goal of rationalising them and therefore decreasing the
    reporting burden to CBU staff.

   CARE should investigate its reimbursement procedures to ensure that
    CBU is reimbursed for justified project expenses without undue delay.

4.2. Provision of Technical Assistance

4.2.0. CARE was required by the MOU (section 14.2) to provide a variety of
technical inputs to the implementation of the CRISP project. These included:



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   Development with CBZ of appropriate policies and procedures
   Development of appropriate training courses for CBU staff
   Development of client training materials, including monitoring their impact
    and cost-effectiveness
   Co-ordinate the project review process with DFID and external audits

4.2.1. Key Findings and Analysis

   CARE provided good technical assistance, primarily during the initial
    phase of project implementation. However recently due to periods of
    absence of qualified CARE personnel, technical assistance levels,
    especially with respect to development of training resources for CBU staff,
    has been limited. This has, to some extent, held back to the
    implementation of the CRISP project.

   CARE’s efforts in development of client training materials has been
    ambiguous.

4.2.2. Recommendations

   Given the substantial constraint to programme scaling up and outreach
    due to the unfamiliarity of CBU staff with microfinance ‘Best Practice’
    techniques, CARE should undertake a comprehensive CBU staff training
    needs assessment and develop a systematic training plan by June 2000.

   An impact assessment of the MSE target client group should be
    undertaken to ascertain the effect of CBU products and services by CARE
    or an external contractor. The development of agreed upon indicators,
    assessment methodologies and impact exercise should be completed by
    August 2000.

4.3. Budgeting and Planning

4.3.0 As noted previously, communication and transparency with respect to
budget management by CARE, could have been better. This has resulted in
delays in reimbursement of CBU for legitimate project expenses.

4.3.1. Key Findings and Analysis

   Budgets could have managed on a more collaborative basis between
    CARE and CBU. This is surprising given the fact that CBU is part of CBZ,
    one of the country’s largest financial sector institutions, with a system of
    strict internal control and subject to external audits.

   A planning exercise was developed in December 1998 by CARE, which
    would appear to have been useful, but follow-up in respect of an incentive
    systems is unclear.




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4.3.2. Recommendations

   CARE should manage the budget more                            collaboratively   and
    communication should be improved with CBU.

   A meaningful strategic planning exercise, with ownership by CBU and
    including participation of other project stakeholders, should commence as
    soon as possible. An agreed upon plan should be developed by August
    2000.

              5. Assessment of Loan Guarantee Fund

5.0. The Loan Guarantee Fund (LGF) was established as an integral
component of the CRISP project to “partially reduce the Bank’s financial risk
exposure when extending loans to individuals within the less preferred client
groups in the MSE sector.” The LGF was originally constituted in the amount
of GBP 500,000; losses up to this maximum were to be shared on an 80%
(LGF) – 20 % (CBZ) basis. Due to the lack of claims against the LGF during
the current phase of the project, the LGF will be reduced to GBP 200,000
before the end of the current phase of the CRISP project.

5.1. Key Findings / Analysis

   The LGF has served its intended purpose of providing CBZ senior
    management with a ‘comfort factor’ in order to induce the establishment
    and implementation of the Community Banking Unit.

   Given the performance of the CBU in terms of asset quality of its loan
    portfolio (non-performing assets of 1.5 % of its loan portfolio, Z$110,000
    or GBP 1,832), there has been limited reliance on the LGF to-date by the
    CBU.

   The CBU made its first claim on the LGF in December 1999 for Z$6,000.
    To-date this claim has not been reimbursed by CARE, apparently due to
    unfamiliarity with the use of the LGF.

   The CBU has begun to create a dedicated Loan Loss Provision at a level
    of 4 % of gross outstanding loans.

5.2. Recommendations

   The remaining amount of the LGF (GBP 200,000 or Z$12,000,000) be
    retained for the follow-on phase of the CRISP project.

   CBU should continue to provide a loan loss provision of at least 4 %; this
    figure should be reviewed semi-annually to conform to the amount of
    loans classified as substandard or below (60 + days past due).




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   DFID should investigate the conversion of the LGF into a convertible
    debenture, which can be used at some future point to capitalise other
    CBU products such as a micro-leasing subsidiary.

    6. Social Development Aspects of the CBU Programme

6.1. Reaching the Poorest?

6.1.1. The overriding goal of the project is to increase employment and
income for SMEs in the informal sector through extension of banking services
(credit and savings) to micro-and small enterprises in urban and peri urban
areas in Zimbabwe. Over 60 % of the loan sizes are small, below Z$5 000.00
which is an indication that the target group has been reached successfully.

6.1.2. The project has had considerable effects at the employment creation
level. One of the clients visited during the review indicated that she had
accessed a sum of Z$15 000.00 for a hat making business. Before the loan
the client, a woman, only employed two workers. Now, after the loan, she
employs eight paid employees (most of whom had family dependants). In all
the five cases visited during the review employment opportunities had been
created after the small enterprises received CBZ Community Banking Loans.
These effects do not seem to have been isolated, but probably represent
CRISP’s ‘best’ performing clients. There are equally as many clients whom
have not expanded their businesses as quickly in terms of employment
creation, but have considerably added to theirs, and their households’,
income levels.

6.1.3. In common with the many MFIs worldwide, CBU does not reaching the
poorest of the poor, rather the ‘economically active’ poor. For the poorest
households, the opportunities for productive use of loans are limited and the
risk of taking a loan can be too high for them. However the depth of poverty
outreach of CRISP, given the low average loan balance, appears good
by international standards. The main potential for the programme to reach
the poorest segment of informal entrepreneurs is through its savings services.
Research by authors such as Rutherford have explicitly shown that savings
services can substantially reduce the vulnerability of the poorest households,
and provide them with a better fall back position in order to start thinking of
getting access to higher risk credit services. CBU has the potential through its
broad range of products (savings, credit, insurance and pensions) to reach
this target group, making the piloting of a village banking product in rural
areas of Zimbabwe, proposed in the next phase, a critical way of reaching
Zimbabwe’s ‘poorest’ households.

6.2. Impact of Savings on CBU clients

6.2.1. There are 4077 cumulative loan clients under the Community Banking
initiative since 1997. Currently there are 1, 562 loan clients, with a total
portfolio of Z$ 13 million. However within CRISP there are more savings
clients, with higher total savings value than loans.



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6.2.2. The impact of savings on the seven CBZ Community Banking members
interviewed during the review include:

 Wealth accumulation to finance long term goals and purchase consumer
  durables

 Insurance against disability, disease, retirement and sudden income losses

 Safeguard against uneven income streams due to seasonal variations and

 Savings for future investments in such things as education and other
  human resources development investments.

6.2.3. Thus CBZ is already extending savings facilities to the new range of
higher - risk ‘poorer’ clients who might otherwise be excluded from
receiving financial services from formal commercial banks in Zimbabwe. It will
be important for the scale of these services to be increased through a second
phase of the project.

6.3. Development of Financial Services - Insurance Products

6.3.1. Aids mortality is having major demographic impacts on the
Zimbabwean population. By 1995, the accumulated death toll from the
beginning of the epidemic was estimated at over 110,000. Over the ensuing
10 years, 1995-2005, an additional 1.1 million persons are likely to die from
the disease. HIV/AIDS is responsible for a high crude death rate of 16%,
reversal in the improvements in infant and child mortality rates from 6 in 1000
in 1987 to 15 in 1000 in 2000, and a decline in life expectancy . CBU has
responded well by creating an insurance product that will cushion
Community Banking clients against death. This will to some extent
address the socio-economic problems presented by HIV/AIDS, and further
scope exists to provide poor households with financial services and referral
services to offset the effects of HIV/AIDS.

6.4. Social Assets

6.4.1. Although in small groups of 4 and 5, group solidarity groups link the
members to vital webs of business and personal relationships that represent
an important social and business asset. From the field visit it was evident that
the women maintained their groups from cycle 1 to cycle 5 learning brisk
business from each other, gaining leadership skills and mutual assistance in
designing loss management strategies. The small groups often have
reciprocal borrowing - raundi (or ROSCAS) which develops trust among the
groupings – and provides a mechanism for saving amongst group members.

6.5. Women’s Empowerment

CBZ Community Banking facility is accessed by mostly women traders, about
70% of the total client base. During the review evidence suggests that the
project strengthens the position of the women in their families. Not only does


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access to credit give the woman the opportunity to make a larger contribution
to the family, but she can also deploy resources to assist the husband’s
business and can act as a family banker, thereby increasing her prestige and
influence within the household. The contributions to the family health and
education requirements subsequently increases as a result (according to a
woman tailor interviewed at CBU Highfields Branch).

6.6. Recommendations:

6.6.1. Impact Assessment - In order to enhance the social development of
the CBU, there is need to conduct a short but indicative impact assessment
that will give qualitative and quantitative analysis of the impact that CBU has
had on the communities before the project ends. CARE Zimbabwe is
expected to use it’s national as well as international linkages to facilitate the
impact assessment study before December 2000.

7. Follow-on Phase for the CRISP Project
7.0. The CRISP project has largely achieved its goals and objectives, in the
view of the OPR team. However the challenges for the Community Banking
Unit programme in terms of building internal staff capacity, scaling up and
increasing outreach to the MSE target client group, and ensuring continued
acceptable asset quality and operational efficiencies remain. It is the
recommendation of the OPR team that the CRISP project be extended for a
second phase to consolidate level of success already realised and expand
the programme’s outreach to additional economically-active poor in
Zimbabwe. The following observations and recommendations may be useful
in the design of the second phase of the CRISP project (CRISP-2). The
project is an important one for several reasons – first that it is the only
example regionally of a commercial bank successfully operating a
microfinance programme – second that as a commercial bank CBZ has the
potential through its bank network to rapidly expand CRISP and reach a high
number of beneficiaries through a relatively modest investment in a new
phase of CRISP. The up-scaling of CBU is also likely to have far reaching
effects on the financial system, by providing a wide set of services (including
a new micro-leasing product3 for MSEs), and leveraging other commercial
sources of finance into the market.

7.1. Development of Product and Methodology

7.1.1. CRISP-2 should continue to develop additional financial services and
products appropriate for the MSE target client group. These may include:

   Additional savings products, such as fixed term deposits and savings
    products whose interest rate varies according to the amount deposited.
3
  Micro-leasing is akin to commercial leasing of equipment, but differs in that it offers smaller
assets, such as sewing machines, which can be leased. The advantages for the leasee are
lower risk (as the lease is not a loan and is not fixed upon business assets) and the option to
purchase the asset through the lease charges (like hire purchase). It is ideal for MSEs wishing
to buy tools, small machinery and fridges.


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           DFID Credit for the Informal Sector (CRISP) Output to Purpose Review


   Individual loan products for ‘graduates’ of four loan cycles
   Village Banking methodologies, especially in rural areas, in order to
    maximise efficiencies while reaching significant numbers of new clients
   Insurance products to complement existing and proposed savings and
    credit products
   Card-based account management (already under development by CBZ)
   Micro-leasing products for equipment finance

7.2. Technical Assistance Inputs for CRISP-2

7.2.1. The nature of technical assistance inputs required for CRISP-2 will vary
considerably from the first phase of the project, due to the maturity of CBU
primarily and the challenges faced in up-scaling programme outreach while
maintaining asset quality and increasing operational efficiencies. While not an
exhaustive list, the following may be considered as a range of technical inputs
for CRISP-2:

   Training for CBU staff in microfinance ‘Best Practice’ techniques
   Developing specialised financial management tools such as product
    marketing, loan portfolio analysis, problem loan resolution, liquidity
    analysis and management
   Design of loan portfolio MIS systems
   Measuring impact of financial products and services, and clients needs
    assessment
   Strategic planning

7.2.2. In addition to these more specialised technical inputs, CBU
management and staff should become more engaged with the microfinance
industry in Zimbabwe through ZAMFI and participation in exchange visits with
regional and African microfinance institutions.

7.3. Way Forward

7.3.1. The action points in Table 1 (at the beginning of this report) summarise
many of the recommendations of this review. The report, it is hoped, will
provide useful guidance to stakeholders, and its numerous recommendations
are easily accessed at the end of every section.

7.3.2. Beyond the report itself are the steps required to achieve several key
benchmarks before the end of the project in December 2000. Primary
amongst these is the production of an integrated and fully owned (by CBZ)
business plan and operational strategy, which will feed into the design of a
potential follow-on phase of CRISP.           Equally as important is the
commissioning of an impact assessment study to gauge, what to date,
appears positive impact.

7.3.3. At the same time it is recommended that the DFID Zimbabwe team
meet as soon as possible to talk through aspects of this report and agree a
follow-on phase of support to CBU, and CBZ.



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DFID Credit for the Informal Sector (CRISP) Output to Purpose Review




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                   DFID Credit for the Informal Sector (CRISP) Output to Purpose Review



Annex 1 – Project Scoring Summary


                ON-GOING PROJECT SCORING SUMMARY REPORT
Project Title: Credit for the Informal Sector (CRISP)

Country: Zimbabwe                                 MIS Code: 073-540
Project Start Date: May 1995                      Date of Report: May 2000
Project End Date: December 2000
Risk Category (Optional): Low
Purpose Statement: Improved access                to credit by MSEs, including MSEs owned
and/or managed by women, through                   the establishment of sustainable banking
outreach.

Purpose OVI 5,000 loans are extended to MSEs by CBZ over the five years of the
project.

Purpose Rating: 1 / 2. Likely to fully achieve revised indicator.

Purpose OVI: CBZ credit extension to MSEs achieves cost recovery over the life of
the project.

Purpose Rating: 2. Operational self-sufficiency over 100 %; financial self-sufficiency
85 %

Aggregate Output Rating: 2.
Risk Category: Low
Rating Justification (What is the likelihood that the purpose and outputs of the project will
be fulfilled ?)

Purpose:

   Lending operations established and fully operational
   Lending procedures appropriate for MSE client group
   Acceptable levels of outreach attained

Outputs:

   Excellent asset quality experience
   Improving operational efficiencies
   Branch network established and staff levels appropriate

Attribution: (Commentary on to what extent achievement of purpose is attributable to
project outputs)
   Development of branch network and procedures essential to meet outreach
    purpose indicators
   Superior financial management resulting in high asset quality, improving
    operational efficiencies leading to cost recovery and operational sustainability



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                    DFID Credit for the Informal Sector (CRISP) Output to Purpose Review


Quality of Scoring: (Methodologies used and team composition details)
 Reviewed financial and other performance data, compared to mid-term
  evaluation to ascertain progress
 Site inspections to 3 (of 4) branches; meetings with CBU staff; client interviews;
  meetings with competitor banks and microfinance institutions
 Team composition: Banking Specialist; Enterprise Development Adviser; Social
  Development Adviser; Project Development Officer.


Achievement rating

The following rating scheme should be used to rate the likelihood of achieving outputs and in turn fulfilling the
project's purpose.

1 = likely to be completely achieved
2 = likely to be largely achieved
3 = likely to be partially achieved
4 = only likely to be achieved to a very limited extent
5 = unlikely to be realised
x = too early to judge the extent of achievement




Risk Category

Projects can be categorised into one of three categories of risk as follows:

H: High risk
M: Medium risk
L: Low risk




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                 DFID Credit for the Informal Sector (CRISP) Output to Purpose Review



Annex 2 – OPR Terms of Reference



TERMS OF REFERENCE FOR CONSULTANTS

Country                 Zimbabwe

Project Title           CREDIT FOR THE INFORMAL SECTOR PROJECT
                        (CRISP)


1.       BASIC INFORMATION

1.1   The consultant is to provide the services below to the Department for International
Development on behalf of the project partners and implementers, CARE Zimbabwe and the
Commercial Bank of Zimbabwe.

2.       BACKGROUND

2.1      The DFID-funded Credit for the Informal Sector Project (CRISP) was approved in
     May 1995, and designed to run over five years at a total cost of £1,298,394, including a
     £500,000 Loan Guarantee Fund. The purpose of the project is to improve access to
     credit by micro and small enterprises, including those owned and/or managed by women,
     through the establishment of sustainable banking outreach facilities. CARE Zimbabwe
     manages the project on behalf of CARE International UK and DFID, and the Commercial
     Bank of Zimbabwe (CBZ) are the local implementing partners.

2.2 Delays in the project preparations, including the establishment of the DFID financed
     Loan Guarantee Fund, meant that initial lending did not commence until mid 1996, and
     the LGF was sourced in January 1997.         The CRISP project, now known as the
     Community Banking Unit (CBU) within CBZ, has 4 Branches in Zimbabwe (Harare,
     Highfields, Bulawayo, Chitungwiza and Mutare). CRISP has been a successful
     programme to date in that it has successfully introduced microfinance lending into a
     commercial bank.

2.3 In February 1998 a mid term review was carried out by Bannock Consultants which
     provided a number of recommendations for consideration by the CRISP team, most of
     which have been implemented. A review of CBU was subsequently undertaken in early
     2000 by Microstart consultants, Vulindlela, which raised a number of key issues going
     forward.

2.4 The project currently has around 2,000 clients, and has successfully mobilised savings
     in excess of loans. The project will come to an end in December 2000, and work is
     underway to look at extending the project into a second phase. Key issues informing the
     design of the subsequent phase will be increasing client numbers, upscaling branch
     operations and ensuring sustainability of CBU operations.

2.5 It is proposed that the consultant form part of the DFIDCA team to carry out an “output
     to purpose review” of the project from May 1st to May 5th 2000.

3.       OVERALL OBJECTIVES



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                  DFID Credit for the Informal Sector (CRISP) Output to Purpose Review


3.1 To conclude on the extent to which the project has (to date) achieved the outputs and
     project purpose summarised in the Logical Framework Analysis (as attached and
     including recommendations agreed after the mid-term review), and score on an OPR
     scoring sheet.

3.2 To comment on the proposed expansion of the operations of CRISP and Community
   Banking, and the role of Care Zimbabwe and Microstart in providing technical assistance
   to CBZ.

3.3 To recommend improvements in project methodology and design of the Loan
     Guarantee Fund (LGF) to the project partners, to cover the remaining 4 months of the
     project life, and for a follow on phase of CRISP.

4.       SCOPE OF WORK

4.1 Meet with DFID, CARE and CBZ senior staff to discuss project evolution and
     achievements to date in terms of outreach and sustainability and institutionalisation of
     CBZ

4.2 Meet with other players in the Zimbabwe financial sector to obtain perceptions on the
     development and relative success of “Community Banking Unit” in Zimbabwe

4.3 Visit and interview CBZ staff HQ, and branches in Harare, Chitungwiza, Bulawayo and
     Mutare to identify extent of project weaknesses and achievements. Comment on:

            a) Calibre, training, and performance of staff
            b) Quality of procedures manual
            c) Disbursement and collection procedures
            d) Efficiency of loan tracking and MIS systems
            e) Efficacy of financial systems of Community Banking and their fit with the
               Bank’s main systems
            f) Design and upscaling of CRISP
            g) Sustainability and appropriateness of financial ratios used
            h) Institutional sustainability of CBU within CBZ’s mainstream banking operations.

4.4. Provide advice on how appropriate the chosen methodology is to MSE lending in urban
     areas in Zimbabwe.

4.5. Comment on: 1) Plans for a second phase of CRISP, 2) the role of savings services
     and other financial products, 3) the functioning of the LGF, and 4) the expansion of the
     project to date.

4.6. Conclude on the project’s achievements to date, complete an OPR assessment sheet,
     and recommend changes or additions to project targets, strategies and activities.

5.       EXPECTED OUTCOME AND DELIVERABLES

5.1 Provide a debriefing to a meeting with the project partners (CBZ, CARE and DFID) at
     the conclusion of the fieldwork.

5.2 Complete and collate an OPR report not more than 30 pages in length within 2 weeks
     of commencement of the work. 10 hard copies of the report should be submitted to
     DFIDCA, in addition to an electronic version in Microsoft Word 7 format.



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                        DFID Credit for the Informal Sector (CRISP) Output to Purpose Review


6.       COMPETENCY AND EXPERTISE REQUIREMENTS

6.1 The consultant should have expertise in best practice micro-finance lending, and
     especially in commercial bank based lending operations with experience of donor
     supported schemes in Africa.

7.       CONDUCT OF THE WORK

7.1 The consultancy assignment will take place during May 2000 for a total period of 12
     days. The fieldwork is expected to take 5-6 days, 4-5 days will be allowed for writing up,
     and 2 days for travel.

7.2      The OPR team will comprise:

         a) Social Development Adviser
         b) Banking Specialist
         c) Enterprise Development Adviser

7.3 The Consultant Banking Specialist will carry out fieldwork form May 1st to May 6th 2000
     with the DFID team.            The OPR team will carry out field visits as shown in the draft
     schedule below.

7.4 The breakdown of report writing responsibilities will be finalised during the first day of
     the OPR, but the consultant will be responsible for collating the overall report as
     stipulated in section 5.2.

Draft Schedule

           Day                                                 Tasks                         Who
        st
Monday 1 May                          am - JM travels to Harare                           JM & FM
                                      pm - Briefing with FM
             nd
Tuesday 2         May                 am - Flight to Bulawayo                             JM & DM
                                      Meetings with Bulawayo branch staff & clients
                                      pm - Flight to Harare
                  rd
Wednesday 3 May                       am - Drive to Mutare                                Group 1*
                                      Meetings with Mutare Staff and clients
                                      pm - Drive to Harare
                                      am - Visit to Highfield Branch                      Group 2*
                                      Meetings with Branch Staff & clients
                                      pm - Visit to Chitungwiza Branch
                                      Meetings with Branch Staff
             th
Thursday 4 May                        am - Discussions with Head Office Staff - Mr.       Whole
                                      Mandevenga & Mr. Makuvise                           Team
                                      pm - Discussions with Care Staff
        th
Friday 5 May                          am - Follow-up meetings with CBZ or other credit    Whole
                                      providers                                           Team
                                      pm - presentation of scoring sheet
             th
Saturday 6 May                        am - Flight to Abdijan -                            JM
Abbreviations: SC - Stephane Cardinal (Care); NK - Nahid Khalpey (DFIDCA); JM - James
Macdade; DM - Dyson Mandevenga (CBZ); FM - Frank Matsaert (DFIDCA)
DFIDCA
14th April 2000




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               DFID Credit for the Informal Sector (CRISP) Output to Purpose Review



Annex 3: Care Technical Assistance Provision

Note: This document was submitted to DFID after the end of the OPR .

Introduction

The CRISP project has been designed by CARE in collaboration with CBZ. The first
loans have been granted in July 1996 but the MOU between CARE and CBZ has
been signed in 1994.

From 1994 to 1996, CARE funded the planning and implementation activities with
funding from CARE Canada/Small Enterprise Development and Technical
Assistance Project (SEDTAP). CARE’s role has evolved over the years. At the
onset, it clearly included a heavy investment in product and methodology
development, market surveys and MIS development and testing. In addition an
interim Loan Guarantee Fund was established with CARE funding up to the signing
of the agreement with DFID in December 1996. CARE got involved in the
recruitment and training of the staff.

A significant effort has been made to sensitize bank management to the idea and
integrate the product within the bank, and in the microfinance sector in Zimbabwe.

Since the signing of the CRISP project, the following can be noted in terms of
CARE’s role:

Project management

CARE has been responsible for the project management which entails the following:


   Preparation of Quarterly financial reports to DFID and cash flow requirements;
   Fund transfers management;
   Reimbursement of CBZ for project related expenses;
   Ensure respect of procedures as enshrined in the contract signed between
    CARE and DFID;
   Budget revision and seeking approval from DFID;
   Participation in initial staff recruitment, job description development and training;
   Procurement and maintenance of project assets (e.g. vehicles, motorcycles,
    etc.);
   Coordination and submission of narrative reports to the donors;
   On-going monitoring of project activities through regular discussions and review
    of portfolio reports between CBU staff and CARE Project Manager (it should be
    noted that there was a gap with the departure of the TA in July 1999, however,
    with the hiring of a replacement as of November 1, 1999, that aspect is now
    back on track).
   Due diligence in terms of ensuring no draw down on LGF based on on-going
    monitoring.




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                 DFID Credit for the Informal Sector (CRISP) Output to Purpose Review


Systems and procedures development

Develop appropriate procedures and practices

Manuals and Procedures:
A Credit policies and procedures manual was prepared in October 1995 and
reviewed in 1999. Procedures have been reviewed with staff during workshops
organized jointly by CBU and CARE in December 95,October 97 and November
1999. Technical assistance has been also provided through the field visits made by
CBU and CARE.

Follow-up and technical support
A Technical Support Team has been formed in order to carry out field reviews. It
monitored the implementation through visits to the branch and has focused on
methodological aspects, portfolio performance analysis, branch organization, clients
visits.

Information Systems

   Research were made for an appropriate computerized MIS and how to make it fit
    within the CBZ system.
   A number of workshops were also organized to consider potential software
    options: Micro-Banker training workshops were held at CBU from January to
    June 1996 by CARE staff; FCU (now MFM-2000) loan tracking system training
    took place from 8 to 10 August 1996.
   Development of Portfolio report formats and production of monthly portfolio
    reports and now implemented.
   Data capture Forms have been reviewed.


Staff training

A Field Staff training manual has been completed in October 1995 but was never
formerly updated – Three workshops with a focus on staff training have been
organized in December 95,October 97 and November 1999. Staff training was also
provided on a regular basis during the field trip made by the Technical Support
Team.

Workshops,Training and visits


Dates                   Workshop / Visit          Venue                    Facilitated by

October 1995            Micro-Finance and Kadoma                           CARE Zim with
                        MIS workshop                                       CARE USA
December 1995           Training          Harare                           CARE Zim
                        Workshop
November 1996           Launch Workshop Harare                             CARE Zim and
                                                                           CBZ



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               DFID Credit for the Informal Sector (CRISP) Output to Purpose Review


February 1997         Visit to BRI ,            Indonesia                CARE
                      Indonesia
October 1997          CBU training              Harare                   CBU and CARE
                      Workshop
May 1998              Conference on             Kenya                    Identified by
                      commercialization                                  CARE – attended
                      of Micro-Finance                                   by CARE staff
June 1998             Boulder Institute         U.S.A                    Identified by
                      training                                           CARE – attended
                      First session                                      by CBU staff
November 1999         CBU workshop              Kadoma                   CARE and CBU




Project review process co-ordination

Steering Committee meetings and/or quarterly meetings between CBZ, DFID and
CARE took place regularly in order to monitor the progresses of the project.


Surveys and market analysis

 Market survey of MSE activity – Oct 95
 Impact assessment – Nov-Dec 97
Were implemented under CARE follow-up. CARE assisted with consultants
selection and development of terms of reference.


Expansion phase preparation

   Proposal and budget preparation (in collaboration with CBZ)
   Preparation of a projection model


Technical Assistance for the future

The nature for the support that CARE will bring in the next phase will be different
than in the last phase as CBU has significantly changed. CBU management has now
a wider understanding of Micro-Finance and does not request the same intensity in
the monitoring of the operations. That is why the role of CARE could focus on the
following. These are only indicative at this stage and are to be discussed with
CBZ/CBU:

   Training needs assessment and staff training: i.e identifying training needs and
    providing training when necessary through workshops but also facilitate access
    to other sources of training and resorting to external facilitators with a specific
    expertise. Assist in organizing quarterly field visits and provide recommendations
    for on-the-job training or ad hoc training.


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               DFID Credit for the Informal Sector (CRISP) Output to Purpose Review


   Assist in developing incentive scheme.
   Advise on the institutionalization process and evolution within CBZ structure.
    Participate in business plan preparation and follow-ups activities as required.
   Facilitate CBU/CARE monthly meetings at operation levels to monitor progress
    and achievements vis-à-vis project objectives and business plan.
   Facilitate CBU/CBZ/CARE/DFID quarterly steering meetings.
   Monitoring of field activities on a quarterly basis in order to support CBU team in
    the implementation. This could include recommendations for improving policies
    and procedures, for staff and/or participants training, institutionalization process,
    etc..
   Assessing impact of CBU at client level: assist in developing indicators to
    measure impact, coordinating development of approach/tools for CBU to be able
    to measure impact on clients, and follow-up on implementation.
   supporting the MIS: prepare scope of work to address OPR recommendation
    (Formats, etc.)
   Products Development and market research: facilitating access to information
    about new methodologies, assist with testing and implementation of new
    products
   participation in networks and exposure to other programs in order to ensure that
    CBU products stay responsive to the informal sector.
   Ad hoc assistance in organizing market surveys for expansion branches.
   advise on developing additional complementary programs or linkages programs
    like for example provision of Business Development Services to CBU clients.
   developing networking opportunities for CBU with other MFIs or similar programs.
   Project Management: as per section I but less procurement where CBZ would
    take over that function itself




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