(Draft) Terms of Reference
Hiring consultancy services for advising on ‘Financing Micro Enterprises and
Capacity Building in SIDBI’ using downscaling techniques (16 months assignment)
SIDBI is the implementing agency for the MSME financing and development project
financed by the World Bank, DFID, KfW and SIDBI itself. The project includes:
1. A World Bank line of credit for USD 115 million and KfW Line of Credit of Euro
43.50 million. A follow up Line of USD 400 million from the World Bank has been
contracted under the project.
2. A USD 5 million risk sharing guarantee facility under SIDBI.
3. A GBP 20 million TA package managed by SIDBI to strengthen the legal/regulatory
framework for MSMEs, improve credit information on MSMEs, develop business
development services for MSMEs and build the institutional capacity of banks and other
financial intermediaries to lend profitably to small businesses.
This TORs refers to the technical assistance to be provided to SIDBI for implementing a
project on financing Micro Enterprise and capacity building in SIDBI using Downscaling
SIDBI was established on April 2, 1990 under an act of Indian Parliament. The Charter
establishing it, The Small Industries Development Bank of India Act, 1989 envisaged
SIDBI to be "the principal financial institution for the promotion, financing and
development of industry in the small scale sector and to co-ordinate the functions of the
institutions engaged in the promotion and financing or developing industry in the small
scale sector and for matters connected therewith or incidental thereto. The GOI has
allowed SIDBI to finance Medium Sector enterprises as well with effect from June 2004.
SIDBI has been extending refinance facilities to Banks / SFCs and NBFCs ,, loans to
customers in micro, small and Medium Sector including services industry. Besides,
SIDBI has also created a SIDBI Foundation for Micro Credit (SFMC) to promote and
finance Micro Finance in the country.
SFMC has been in existence for more than a decade now and has been a pioneer and
leader in the segment of micro finance delivery through the Micro Finance Institution
(MFI) model and has already reached out to more than 20 million poor through a
network of 140 MFIs with a loan outstanding of Rs 28.84 billion( eq. of USD 641 million
@ Rs. 45/- per USD). The project has been executed in collaboration with DFID, UK and
IFAD, Rome. DFID, in its annual ranking of all its global projects, has assigned the best
possible ranking No. 1 for the project considering the fact that it has exceeded all the
originally envisaged deliverables.
Business Domain of SIDBI
The business domain of SIDBI consists of MSMEs which contribute significantly to the
national economy in terms of production, employment and exports. In the MSME
domain, Small scale industries are the industrial units in which the investment in plant
and machinery does not exceed Rs.50 million. The MSME Development Act 2006
defines MSMEs as follows in terms of investment in plant and machinery
Category MSME Act 2006
Investment in Plant and Machinery (Rs. Million)
Micro Upto 1.0
Small >1.0 but <=20.0
About 26.1 million such units, employing 59.7 million persons account for a share of
more than 30 per cent of India's exports and 40 per cent of industrial manufacture. In
addition, SIDBI's assistance flows to the professional and self-employed persons setting
up small-sized professional ventures and also service sector project viz. Projects relating
to Hotels (hospitality), resorts (leisure), Hospitals (healthcare), entertainment &
amusement segments. Organised retailing – departmental stores, food stores, etc.,
Logistics, including supply chains, material handling, warehousing, storage and inventory
management, IT/IT enabled services, Tourism and travel operators, Construction
contractors, Dealers/ Franchisees of Oil companies (filling stations), Transport operators ,
Telecom franchisees/ dealers, Car/auto dealers- workshops, Franchisees/ C&F agents of
various service/ product companies, Fashion industry/ design houses, Infrastructure
support services, Courier services.
SIDBI has a network of 103 branches spread across India including 7 branches
designated as specialized Micro Finance Branches (MFBs) at Hyderabad, Chennai,
Bangalore, Bhubaneswar, Kolkata, Lucknow and Guwahati. While the MSME
sector is served by a number of Banks and Financial Institutions, the lower end
Micro Finance needs are now increasingly being addressed effectively by SHGs
linked to Banks and / or MFIs. However, the segment of business requiring loans in
the range of Rs. 50,000/- to 0.5 million (i.e the lower end of Micro Enterprise
Segment) is presently not served effectively by any Institution. Recently, SIDBI has
started a simplified scheme under SFMC to provide loans to this segment with a
view to make a beginning towards addressing the credit needs of this crucial
3.2. Objective of the Technical Assistance Package
The objective of the assignment is to assist SIDBI to serve profitably the lower end of
micro enterprises by developing appropriate loan products, pricing mechanisms, credit
methodology, appropriate appraisal tools and suggest a suitable organizational structure
and human resource strategy
Owing to the existing gaps in the supply of credit and the desired developmental impact,
the project will target predominantly small businesses for meeting their investment credit
as well as working capital needs.
Eligible borrowers shall be individuals / proprietorship / partnership / companies
operating in manufacturing, preservation, processing and services sectors – that are
privately owned and controlled.
3.3. Scope of work
The project will be implemented in 7 Micro Finance Branches i.e. Hyderabad, Chennai,
Bangalore, Bhubaneswar, Kolkata, Lucknow and Guwahati. The team comprising of
Team leader and Senior small business finance expert must be prepared to work on a long
term basis in Lucknow HO. Other 2 small business finance experts will work from
Kolkata (cover Koltata, Guwahati and Bhuwaneshwar MFBs) and Chennai (cover
Chennai, Hyderabad and Banglore MFBs). While this assignment is initially for 16
months, it is crucial that during this period the Consultant creates a base for future
The Consultant would be responsible for and oversee the entire credit cycle of products in
the branches participating in the project during the project period.
In order to meet the objectives noted above, the Consultant shall carry out the tasks noted
The Consultant will design a commercially-oriented small business lending scheme for
SIDBI. The methodology shall encompass the entire credit cycle and thereby contain
appropriate means for:
designing appropriate loan products, including adequate pricing
The pricing shall factor sustainability and shall be based on technical parameters like
cost of funds, operating cost, loan loss provisions, taxes and a margin for SIDBI.
analysing existing application forms and develop suitable form for the different
products, the forms so designed may be done keeping in mind the statutory requirements
like Know Your Customer norms etc.
designing an appropriate marketing campaign; designing an appropriate client
targeting mechanism, including identification of target groups ,
identification, recruitment and training of staff / agencies along with terms of contract
for engaging the services of such agencies / staff for effective implementation of the
project along with identification of internal staff of SIDBI to oversee the implementation
of the project at the BO / ZO and H.O levels.
training the staff to evaluate and serve small businesses;
systems for processing and analyzing large numbers of credit applications for
different kinds of clients, i.e. different legal forms, economic sectors, and sizes from Rs.
50,000 to Rs. 0.5 million debt capacity;
establishing procedures for disbursing loans quickly to creditworthy clients;
Implementation of Credit Scoring methodology/ and models for enabling quick credit
decisions, Initially, based on best practices observed in successful projects being
implemented elsewhere to be fine tuned by the end of the project into a statistical scoring
Establishing appropriate accounting procedure and its integration with SIDBI existing
design an incentive structure to contract staff / agency / SIDBI loan officers and
branch management to generate a large and good quality portfolio of small business
Ensuring building up of a homogeneous pool of assets which can be securitized if
providing incentives that encourage a strong credit culture among clients regarding
creating efficient IT based appraisal, monitoring, control and audit procedures
The existing processes / systems / course of action to be adopted for recovery of loans
in default / NPAs will be studied by the consultant and a course of action that is feasible
and practical for the large number of loans to be handled under this dispensation shall be
evolved. Various possible options including recourse to DRT / courts of law etc shall be
examined for feasibility / cost implications before recommendations are made for
adoption in the scheme. Policy for write offs shall also be evolved.
develop simplified but effective documentation procedure and practices.
Design phase must include alpha testing of software development.
During project design the Consultant will also organize a study tour/training for the
SIDBI, in India and abroad where similar programs have been successfully implemented.
The cost for the study tour for SIDBI delegation should be separately borne by the
The Consultant will facilitate setting up a Strategic Business Unit (SBU) under SFMC at
SIDBI headquarters, Lucknow. The SBU would be responsible for the entire loan process
cycle from origination to closure of the loan. This will include working in the individual
branches and developing appropriate organizational structures and procedures to assist
SIDBI to start-up the project in additional branches. Specifically, the Consultant will be
responsible for the following:
a) Supervising Operations of SIDBI and branches: The Consultant will develop,
implement and oversee the SIDBI’s entire micro enterprises lending through 7 MFBs
from SBU created at Lucknow HO. After the design phase, implementation will be done
simultaneously in all 7 branches. The technical assistance input will be particularly
intensive in the first year of co-operation with SIDBI and when new branches are
included, and will be gradually reduced once the SIDBI has gained sufficient experience.
In the first 8 mnths, the technical assistance will focus on training the lending staff and
establishing the specialized SBU, with an appropriate IT platform. In the next 8 months
the focus will be on strengthening the in-house training and management capacity as well
as control and audit functions to enable SIDBI to continue small business lending without
further technical assistance typically after 16 months. The Consultant is expected to work
with SFMC and branch management to set-up appropriate credit approval procedures for
swift and transparent decision-making based on the debt capacity and overall credit
worthiness of the client. This will include, among other things, the organization of batch
processing mechanisms and efficient credit committee system; the consultant would be
an invitee on the Committee also, and shall work with ancillary departments (e.g. legal
department, Accounts, IT, MIS etc.). Loan applications will need to be approved by the
consultant prior to submission to the credit committee. The Consultant will also need to
implement systems for tracking and monitoring loans, the collection of repayments, etc.
Additionally they will be responsible for all related administrative tasks such as
preparation of related documentation, implementing a sound housekeeping in each
SIDBI/branch, and ensuring that the information systems are properly maintained.
b) Implementation of an appropriate Human Resources and Training Program: The
Consultant will work with SFMC, H.O and branch management in the positioning of
suitable loan officers for the MFBs from SIDBI staff and external candidates. As far as
possible, with a view to keep the rates of interest low for the end user, efforts shall be
made to tap into the low cost reservoir of talent pool locally available. The consultant will
introduce a performance measurement and incentive system in consultation with SIDBI
for loan officers and branches based on the number of the small business loans generated
and the quality of the managed portfolio. The cost of the reward system will be borne by
SIDBI/Project. The Consultant will train local managers and loan officers not only in the
various techniques of analyzing and granting loans, but also in various methods of
recovering them. It is expected that at a minimum 3 loan officers per branch be trained
(although more would be trained depending on regional coverage and potential credit
demand of the branch). The Consultant will train a greater number of Loan Officers than
needed by SIDBI directly for the small business lending operations to be further
developed as local trainers, in-house consultant and local managers on behalf of the
Consultant, so that the Program can be rolled out faster to new branches.
c) Setting Up Appropriate Audit and Control Functions: the Consultant will work at the
headquarters and branch level to set-up appropriate audit and control mechanisms for
overseeing the micro enterprises loan portfolio. The Consultant will, if necessary, also
contribute to strengthen the SIDBI’s overall audit departments.
d) Development and Implementation of appropriate electronic data screening and
processing and management information systems/IT: The Consultant will arrange to
create and implement appropriate electronic data processing and MIS for SIDBI, taking
into account the specific characteristics of micro enterprises lending, including all
necessary application, screening, and monitoring procedures as well as reporting. The
Consultant will also be responsible for the installation of these systems in the branches,
and training local staff to utilize and, in some cases, further adapt the systems. Electronic
data processing shall support documentation and monitoring of all operating procedures.
The Consultant will work on the design, test and implementation of a batch processing
software and MIS together with the SIDBI IT staff to ensure that they are integrated into
the SIDBI existing systems, develop user manuals and design and implement reporting
formats for use by departments within the Bank. The consultant will share the source
code with SIDBI once the software development process is complete. All software costs
associated with this assignment has to be built in the proposal by the consultants.
e) Work with SIDBI/branch managers on a day-to-day basis and through the credit
committee to ensure that the newly introduced credit process is genuinely understood and
mainstreamed in the SIDBI small business lending operations. The Consultant will as a
matter of their day-to-day work in SIDBI need to maintain contact with bank
management at various levels, including branch managers and department heads, in order
to solve problems, convince management to be more active in reaching small businesses
of all types and improve internal procedures to increase efficiency, transparency, and so
In addition to helping to provide assistance to the Credit Committee members on the key
principles of profitable small business lending (e.g. appropriate interest rates, analysis
based lending criteria, graduation principal), participation in formal credit decisions will
help assure quality control in terms of proper credit decisions. Once a branch has
performed satisfactorily for a sufficient period of time, the consultant would make a
gradual exit from the credit committee.
f) Marketing Campaign: The Consultant will assist SIDBI in evolving client targeting
methodology and design and implement a marketing campaign program for small
On-going Evaluation and Recommendations for Improving the Profitability and Outreach
of the Project: as experience is gained with SIDBI and borrowers in different states the
Consultant should evaluate (on an on-going basis) the profitability and outreach of the
loan products and modify them accordingly. The Consultant shall, whenever necessary,
provide SIDBI with information and recommendations for improving the lending
mechanism and other relevant aspects relating to the project, including, if necessary,
changes in the overall design of the program.
Implementation of an Exit Strategy: The Consultant should start implementing an exit
strategy after 13 months so that the project runs smoothly after exit by the Consultant.
3.4 Staffing Requirements
The Consultant should have the necessary experience and track record in commercially
oriented small lending through existing financial institutions to carry out the assignment.
They should also have experience in managing large, complex projects of similar nature.
A table with the minimum required level of staffing is presented below:
At the start and till
the end of the project
Team leader (long term) 1
Senior small business finance experts (long term) 1
Small business finance experts (long term) 2
In addition, short term experts on specific areas like legal, IT and training, etc. to be
positioned as per the requirement under the project.
A team comprising of team leader and Senior small business finance expert will be
placed in Lucknow HO from starting of the project. Other two Small business Finance
expert will work from Kolkata covering Kolkata, Guwahati, Bhuwaneshwar MFBs and
from Chennai covering Hyderabad, Banglore and Chennai MFBs, respectively. Lucknow
MFB would be supported by the HO team of the consultant.
All staff (long term) proposed for the assignment needs to be available for the entire
duration of the assignment and substitutions will be allowed only after prior
approval of SIDBI has been granted.
3.5 Implementation arrangements
The Consultant will report to the PMD and SFMC. PMD would be the facilitator and the
point of contact between the consultant and SIDBI. The consultant would ensure
participation of PMD Staff in all the processes including training. SIDBI shall provide
office space for specialized department/ division, assign counterparts to work with the
Consultants throughout the assignment, and give full access to information relevant to the
Senior long-term small business finance experts need to have at least 5 years of small business finance
experience in banks and a track record in managing large teams and small business portfolios. Long-term
small business loan experts need to have sufficient experience in implementing small business lending
operations in banks and training small business lending staff.
The time frame for the initial phase is 16 months The table below indicates the
deliverables that should be reached after each full year.
At end of At end of 16
8 month month
New small business loan officers trained
Local trainers and in-house consultants 7 20
trained for the Project
Loan Delivery Time 2 Weeks 1 Weeks
New Loan Accounts added/month/loan 6 10
officer - peak
New loan accounts added 250 1400
Net Increase in loan outstanding ( Rs Crore) 7 40
Level (%) of portfolio at risk over 30 days Up to 3% Up to 2 %
This project will be closely monitored by the SIDBI Project Management Division
(PMD) through meetings and time spent with the Consultant and through written reports.
With respect to the latter, the Consultant shall report on a regular basis in English as
Monthly lending statistics recording activity in the prior period: This shall include on a
branch-by-branch basis the amount and number of small loans disbursed per month;
amount and number outstanding as at the end of the month; average loan size, and
cumulative figures to-date. A detailed Demand Collection, Balance Statement including
loans in arrears / defaults and a separate statement for loans in default segregated by
Branch and Loan officer shall be prepared on a monthly basis. A portfolio review should
also be provided monthly for problem loans and arrears should be broken down 1-30
days, 31-60, 61-90, 91-180, and over 181 days. The monthly statistics will be due no later
than the 10th day of the following month.
The Consultant shall give specific inputs on decisions needed from SIDBI to address
problems and to smoothly proceed with implementation.
Additionally, during the first 3 months of this assignment, the Consultant should include
in these reports information on key issues regarding the implementation of the project,
progress or problems regarding the institution building in SIDBI, and unforeseen
regulatory obstacles plus any other issues they consider should be brought to the attention
of SIDBI. The narrative section of the monthly report should be maximum 5 pages.
Quarterly reports recording the main institution building and expansion activity in the
prior period. The report should include a description of any issues/problems that have
arisen during the course of the work and require resolution and any other points the
Consultant would like to bring to the attention of SIDBI. While this will concentrate on
matters that relate directly to the program, the Consultant shall also to the best of their
abilities notify SIDBI if they detect general problems occurring in the SIDBI (e.g.
problem with large exposures which may affect the bank’s financial performance). The
quarterly report should also include plans for initiatives in the forthcoming period and a
comparison of achievements against deliverables. The quarterly reports will be due no
later than the 20th day of the following month and should be maximum 20 pages.
A Final Report detailing the institution building measures taken, the training carried
out, the results achieved and detailed recommendations and, if need be, work plan for the
required capacity building in the PFIs for the following 2-3 years from the end of the
assignment. The report should be maximum 50 pages
In addition to the regular reporting noted above, the Consultant is expected to provide ad
hoc topic reports in English as required covering a particular problem or a good practice
that is thought to justify fuller examination.
3.8 Post Appointment
Phase Est. Time Expected outcomes
1. Preparation 3months Preparation of work plan and result agreements
Study Tour programme
Designing of new products and product alpha
Review of loan cycle
Training / organisational structure
a) Implementation A separate SBU is created in the Bank for
10 implementing the project
Roll out of the piloted products & procedures to
all 7 MFBs Rapid expansion of portfolio
b) Consolidation 3 All the new processes and procedures have been
tested and fine tuned Implementation of exit
Total 16 months There is rapid expansion in Portfolio in the targeted