TERMS OF REFERENCE (TOR) FOR THE RECRUITMENT OF A CONSULTING FIRM TO DESIGN A FINANCIAL PRODUCT FOR PSNP HOUSEHOLDS IN COLLABORATION WITH FINANCIAL INSTITUTIONS 19 views

ABOUT FIRST CONSULT DEVELOPMENT 

First Consult Development (FCD) is an economic development organization dedicated to empowering vulnerable communities by designing and implementing sustainable projects across various sectors, including agriculture, manufacturing, and services. Our multidisciplinary teams leverage local expertise to drive enterprise growth, improve access to finance, and foster skill development. With a proven track record, we’ve successfully created jobs, generated wealth, and attracted investments, ultimately leading to the formation and growth of thriving businesses.

FCD is partnering with Mercy Corps and 6 other organizations to implement Highland Resilience Activity (HRA), on strengthening market systems for financial services to support access to sufficient and customized financial services for PSNP households and their MSMEs.

1. GENERAL INFORMATION   

2. PROJECT DESCRIPTION 

Highland Resilience Activity (HRA) is a five-year project (2023-2028) funded by USAID and led by Mercy Corps Ethiopia in collaboration with First Consult Development, Village Enterprise, Mahibere Hiwot for Social Development, Mums for Mums, Sidama Development Association, Hunde-Oromo Grassroots Development Initiative, and Action for Development. The primary target beneficiaries are the PSNP households in the target regions, who predominantly engage in subsistence crop/livestock production, off-farm businesses, and wage employment. These households face significant constraints in accessing formal financial services including saving, credit, and digital financial services. The project’s goal is to help 120,000 PSNP households sustainably meet graduation thresholds.

PSNP households in the target regions face significant barriers to accessing appropriate and affordable financial services. The primary constraints on the demand side include a lack of

financial literacy, a lack of bankable business plans, and high collateral required by financial institutions. Additionally, there is a general lack of awareness and knowledge among PSNP households about the available financial services and how to utilize them effectively.

On the supply side, financial institutions, like Banks, MFIs, and RuSACCOs, are facing challenges, such as liquidity constraints, lack of understanding of the financial needs of PSNP clients, and perceptions of high loan default risks from PSNP clients. This has significantly limited their ability to provide the necessary credit and other financial services to meet the demands of PSNP households. The lack of appropriate and tailored financial products, as well as limited access points for financial services in rural areas, further compound the difficulties faced by PSNP households in accessing the financial services they need to build resilience and engage in productive economic activities.

The objective of this consultant recruitment is to design and implement a customized financial solution for PSNP households and MSMEs in collaboration with partner Financial Service Providers (FSPs). These FSPs will be selected on a competitive basis and the consultant is required to closely work with the selected FSPs, Mercy Corps, and First Consult Development team in the designing and rolling out of the product.  The planned geographic areas for product development are

• Oromia (Deder, Fedis, Goro Gutu, Jarso, Kombolcha, Tullo, Chiro, Oda Bultum, Gemechis, Mesela);
• Sidama (Aletachuko, Darra, Dalle),
• Tigray ( Hintalo, Wajirat, Seharti, Samre, Alaje, Eadamehoni, Enderta);
• Amhara (Bugna, Gubalafto, Habru, Raya Kobo, Lasta, Estie, Sede Muja, Guna Begemider);
• Central Ethiopia (Mirab Badawacho, Shashogo, Soro);
• South Ethiopia (Yirgacheffe, Wenago, Boloso Bombe, Boloso Sore, Kindo Koyisha)

3. OBJECTIVESThe primary objective of this consultant recruitment is to design and pilot five financial products tailored to the specific needs of PSNP households and Micro, Small, and Medium Enterprises (MSMEs) in collaboration with existing Financial Service Providers (FSPs). This solution aims to improve access to financial services for these underserved populations and contribute to their economic empowerment. The collaboration with FSPs is crucial to ensure the sustainability and scalability of the solution beyond the consultancy period.

Expected Outcomes: The successful consultant will deliver the following concrete outcomes:

1. Development of Savings and Credit Products: This outcome involves the creation of a new or significant enhancement of an existing savings and credit product explicitly designed for PSNP households, encompassing smallholder farmers and agricultural MSMEs. Five institutions are expected to partner for this initiative.

   The consultant’s responsibilities include:

   • Product Design: For loan products, Define the optimal loan size, tenure (loan duration), repayment terms (frequency and schedule), and interest rates. This requires a thorough understanding of the target market’s financial capacity and risk
   • tolerance. The design should consider affordability and repayment feasibility for PSNP households.
   • Interest-Free Banking (IFB) Option: Exploring and potentially incorporating IFB options into the product design, contingent upon the demand and capabilities of the partner FSPs. This demonstrates responsiveness to diverse financial preferences within the target population.
   • Product Documentation: Creating comprehensive documentation outlining the product features, eligibility criteria, application process, and risk management strategies.
   • Needs Assessment: Conduct a thorough assessment of existing FSP products and services to identify gaps and areas for improvement in serving PSNP households. This assessment should consider both the supply-side (FSP capabilities) and demand-side (household needs and preferences).
   • Capacity Building: Designing and delivering targeted capacity-building training programs for FSP staff. This training should cover all aspects of the new product, including product knowledge, customer service, loan processing, risk management, and client relationship management.
   • Operational Support: Providing ongoing technical assistance and support to FSPs during the implementation phase to ensure smooth and effective service delivery. This might include addressing operational challenges, troubleshooting issues, and providing guidance on best practices.

2. Strengthening Financial Institutions (FSPs): This outcome focuses on building the capacity of partner FSPs to effectively deliver the newly designed or enhanced financial product. This involves:

4. SCOPE OF WORK

The consultant will undertake the following tasks:

Task 1: Needs Assessment: The consultant is expected to conduct a comprehensive assessment of the financial needs and constraints faced by PSNP households and MSMEs in the target regions. Engage with stakeholders, including PSNP households, financial institutions, and community organizations, to gather qualitative and quantitative data.

Task 2: Explore Case Studies: Investigate case studies of previous financial products developed for PSNP clients over the past 15 years. The consultant must Analyse the successes and challenges of these products, including their design, implementation, and uptake. The consultant must Identify best practices from previous projects and lessons learned that can inform the development of the new savings and credit product.

Task 3: Product Development: Design a savings and credit product based on assessment findings and case study insights, ensuring it:

• Meets the financial and socio-economic realities of PSNP households.
• Includes flexible terms that accommodate the agricultural calendar for on-farm PSNP households and flexible loan terms for off-farm PSNP and income variability.
• The consultant must develop loan modalities including loan size, Interest Rate, Repayment modality, Loan tenure, compulsory saving, credit life insurance, and collateral requirements.
• Conduct a validation with FSPs to ensure the product aligns with their operational capabilities and market demands.

Task 4: Capacity Building: Develop training materials tailored for FSP staff focused on understanding the unique needs of PSNP clients and best practices in delivering financial products designed to underserved PSNP households. Facilitate training workshops for FSP staff to ensure effective implementation and rolling out of the new financial product.

Task 5: Monitoring and Evaluation: Establish key performance indicators (KPIs) to measure the success of the financial product and its uptake among PSNP households and MSMEs. Implement a feedback mechanism to continuously improve the product based on user experience (continuous consultation of PSNP clients) and institutional feedback.

5. DELIVERABLES AND TIMELINE 

The hired consultant will develop and submit a draft the financial product for PSNP households for review by the technical committee comprising from First Consult Development and Mercy Corps Ethiopia. After review, the draft will be presented to stakeholders during a validation workshop, to be organized by First Consult Development. Based on the feedback gathered at the workshop, the consultant will finalize the document for approval by Mercy Corps and First Consult Development.

The consultancy firm will deliver the following:

1. An Inception Report: the inception report should outline the methodology that will be employed and the work plan for the assignment.
2. Needs Assessment Report: A detailed report summarizing findings from the needs assessment, including stakeholder insights and data analysis.
3. Case Study Analysis Document: A report analyzing previous financial products for PSNP clients, highlighting successes, challenges, and lessons learned.
4. Product Design Document: A detailed product design that includes all documentation outlining the savings and credit product features, terms, and implementation strategy.
5. Training Materials: Comprehensive training resources for FSP staff, including manuals and presentation decks.
6. Training Workshop Reports: Documentation of training sessions and validation workshops, participant feedback, and recommendations for future capacity building.
7. Monitoring and Evaluation Framework: A framework outlining KPIs and feedback mechanisms for ongoing assessment of the financial product’s impact.

Timeframe: The consultancy is expected to be completed within 6 months from the date of contract signing. A detailed timeline will be developed during the inception phase.

The consultancy project is expected to start on, January 2025 and end on, June 2025, with a maximum   total estimated LoE of 60 days.

6. LOGISTIC AND ADMINISTRATION SUPPORT

Travel expenses and daily subsistence allowance shall be covered by the consulting firm. The logistic and admin costs such as travel and per diems should be included in the financial proposal.

First Consult Development-HRA will cover the cost related to the validation workshop and consultants’ expenses related to the validation workshop.