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Copyright © 2013, Metropol Corporation Ltd By Sam Omukoko Managing Director Metropol Corporation Limited.

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Presentation on theme: "Copyright © 2013, Metropol Corporation Ltd By Sam Omukoko Managing Director Metropol Corporation Limited."— Presentation transcript:

1 Copyright © 2013, Metropol Corporation Ltd By Sam Omukoko Managing Director Metropol Corporation Limited.

2 Copyright © 2013, Metropol Corporation Ltd  A Survey carried out in 1999 in Kenya by:  USAID  GOK  K-Rep  Established that out of the estimated 1.3 Million Micro and Small enterprises, less than 5 % had access to formal finance.  SME’s Contributed nearly 75% of the employment and about 18.5 % to GDP.

3 Copyright © 2013, Metropol Corporation Ltd Metropol undertook a Mini survey on lenders and SME businesses in In 2004, we put a proposal to Pro-Invest of the European Union to assist us to develop a Credit scoring tool that Lenders could use in a low data environment. APDF- A program of IFC also later joined on board and provided funding as well as expertise in scoring development. Metropol Worked with a team consisting of : the Kenya Institute of Bankers; Uganda Institute of Bankers and Tanzania Institute of bankers together with 40 banks from Kenya, Uganda and Tanzania.

4 Copyright © 2013, Metropol Corporation Ltd Lenders. High mortality rates; Most SMEs don’t survive to the third year. Lack of business data; Scanty and unreliable data. Small transaction values. Higher cost/income ratios. Diverse sources of income. The source of repayment may not be the one initially appraised. Lack of collateral. No brick and Mortar support. SME Businesses. They are unable to access long term funding. Most support is short term. High Cost of Capital. Interest rate charged is too high. Stringent Appraisal Mechanisms. Too many documents required leading to lengthy waiting periods and stringent terms. Lenders don’t understand their businesses. Lenders emphasize too much on collateral and never analyze their business models. Lack of capacity. SME’s lack the capacity to provide complicated business plans and cash flow analyses. This is what they said…………

5 Copyright © 2013, Metropol Corporation Ltd Initial attributes Def of SME Work framework (Attributes agreed Upon 56) Workshop with Bankers from across the region Reduced attributes to 36 IFC Input 1,800 files from 25 banks Data Cleaning Cross tabulation East Africa SME Data At Bivariate Level (17 attributes) Multivariate Level (5 Predictive attributes) Regression Analysis The entire project took 18 Months….. From 2004 to Involved a lot of shuttling between Nairobi. Kampala and Dar es salaam. The central hypothesis of the project was that SME businesses are largely owner managed and their success depends on his character and business acumen.

6 Copyright © 2013, Metropol Corporation Ltd Bank implements the scoring tool internally. INTERNAL MODEL SME approaches the bank Bank Forwards request for Investigation to Metropol. REACTIVE MODEL- SITE VERIFICATION SME approaches the Banks. Bank References in the Bureau database. BUREAU MODEL SME approaches Metropol for profiling. SME approaches the bank for facilities. Bank Pulls the SME report on file for credit evaluation. PROACTIVE MODEL- SMEBS PROGRAM

7 Case Study 1: A MAJOR LARGE BANK CLIENT. PerformanceNo. Businesses Performance in % Defaulted45% Not Defaulted8495% Total88 Sample size: 88 Customers. Total Customers:504 Period :

8 CompanyDefault InsitutionNo. Defaults Period Of default after verification. Company 1Other Bank12 years Company 2Other Bank11 year Company 3Other Bank22 years Company 4Other Bank22 years Case Study 1: Of the 4 Companies that defaulted… None of them defaulted with the Bank doing the Site Verification but defaults happened with their other lenders. Company 1 and 2 were listed with dormant accounts whose defaulted amount <1,000 suggesting the proprietors may have just assumed they finished paying off the loans. Company 3 and 4 had both a loan and overdraft facility with other institutions. The loans appears to have been taken around the same period the application to the Bank was made. Additionally, the defaults for 3 and 4 started 2 years after the site verification highlighting the need for regular monitoring.

9 Ratings AssignedNumber Prompt Payment Irregular Payment Default ed A1485%15%0 B1965%35%0 C1475%25%0 NB1100%0%0 NR2673%27%0 Total74%26%0 Case Study 2: A MAJOR REGIONAL HOTEL. Sample size: 74 Total Customers :504 Period

10 Copyright © 2013, Metropol Corporation Ltd Partner &Membership Program.

11 Copyright © 2013, Metropol Corporation Ltd The SMEBS process is designed to accommodate the needs of lenders offering credit to the various different sizes of small business from entry-level, through micro and very small, up to full SME size. This ensures appropriate:  SMEBS fees for the SME  Amount of data to be collected and verified for SMEBS  Tier of SMEBS membership based primarily on data availability and credit risk, i.e. SMEBS score  Costs of SMEBS processing  Costs for inquiries to MCRB for SMEBS Reports

12 Copyright © 2013, Metropol Corporation Ltd Entry-levelMicroVery smallFull SME SMEBS Costs & Fees Basic KYC and MCRB SME bureau credit report inquiry data SMEBS Qualitative data SMEBS Quantitative data SMEBS Site Verification data + MCRB Alternative data* Data Composition & SMEBS Report content Low High Rich Basic Bronze Silver Gold Platinum SMEBS SME Ltd SMEBS SME Ltd SMEBS SME Ltd SMEBS SME Ltd SMEBS SME Ltd SMEBS SME Ltd SMEBS SME Ltd SMEBS SME Ltd SMEBS Credit Score 1, SMEBS Tier Level Typical SME Size #

13 Copyright © 2013, Metropol Corporation Ltd Data is acquired by the analyst / agent using a questionnaire structured to ensure that information is gathered incrementally as required in order to perform a rating appropriate to each level of membership. 1.Basic contact information [sufficient to pass KYC and to make an MCRB Report inquiry] Bronze – SMEBS credit score range 0 to 500 SMEBS SME Ltd SMEBS SME Ltd

14 Copyright © 2013, Metropol Corporation Ltd *NNN = score cut-off point(s) SMEBS SME Ltd SMEBS SME Ltd Silver – SMEBS credit score range 550 to Bronze data 2.Site Verification Data. This includes All the 17 predictive factors that were established in the Regression Analysis. 1.Bronze data 2.Site Verification Data. This includes All the 17 predictive factors that were established in the Regression Analysis.

15 Copyright © 2013, Metropol Corporation Ltd SMEBS SME Ltd SMEBS SME Ltd Gold – SMEBS credit score range 650 to Bronze data + Silver data 2.Qualitative data  Owner manager characteristics.  Psychometric factors. 1.Bronze data + Silver data 2.Qualitative data  Owner manager characteristics.  Psychometric factors.

16 Copyright © 2013, Metropol Corporation Ltd SMEBS SME Ltd SMEBS SME Ltd Platinum – SMEBS credit score over Bronze data + Silver data + Gold data 2.Quantitative data. 3.Statutory Compliance. 1.Bronze data + Silver data + Gold data 2.Quantitative data. 3.Statutory Compliance.

17 Copyright © 2013, Metropol Corporation Ltd Register This establishes the SME business profile on the Bureau. Data Collection Process Analysts collect data from various sources including site visits. Generate ratings category. Data is keyed into the SME profiles. TRAINING: ISSUE OF e- Certification Card. Off to the Lender. Monitoring Manage the relationship- Data updates. A 2 hour training is provided to cover:  CIS awareness  How CRB’s will help in Access to credit  How to improve their credit ratings  Tips on business credit management

18 Copyright © 2013, Metropol Corporation Ltd Lenders To offer SME’s credit and other products that are profitable to them. Other Stakeholders. To help build capacity for increased credit flow to the SME Sector. Metropol To create credit profiles and reduce Cost/Income ratio and Credit risk. SME’s To grow their business and contribute more to employment and wealth creation.

19 Copyright © 2013, Metropol Corporation Ltd


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