How we operate
The microfinance institutions (MFIs) partners are an integral part of our operations. They are responsible for the review and evaluation of the project of each micro-entrepreneur, for publishing the profile of the borrower and the project on the MicroWorld website, and of course the payment to the micro-entrepreneur and collecting repayments. For this reason, the selection of MFI partners is a crucial point of our organization.
The selection process permits to assess the risk of each institution. It is mandatory and the same for each institution. The Investment Committee of MicroWorld decides the status of a potential MFI partner
MicroWorld is assisted by the expertise of Planet Finance Group to assess the risk.
Quality, not quantity
Our goal is to form long-term relationships with a few carefully selected microfinance institutions. We usually select one partner by country, financially strong and effective institutions, especially the MFIs with a strong social commitment. Our collaboration must be part of the mutual interest of both parties: financial support of the growth of our MFI partners in exchange for maximum guarantees for our lenders.
There are several steps in the selection process of MFIs:
1. MFI pre-selection
MicroWorld pre-selects microfinance institutions based on public data available regarding their activity. An institution must first have a strong social dimension and be financially strong. At this stage, the MicroWorld Operations Team relies on financial documents sent by a preselected institution and rating agencies reports to draft a first study of risk.
2. Validation of the Investment Committee and Risk: pilot phase
Based on the study of risk written in the pre-selection phase of the IMFs, the Investment Committee validates or not the partnership. Once validated, the institution enters a first phase of the partnership called 'pilot'. This pilot phase has a limited duration. The Investment Committee also identifies the risk associated with a partner institution. Lenders will clearly be informed via notifications on the website when an institution is considered more risky than average institutions on the website. In all cases, we recommend our members to diversify their loan portfolio between different MFIs and regions available on the website to reduce their exposure to risk.
3. Operational audit
Before publishing loans on the platform, a field audit is performed. This audit takes 2 or 3 days and permits to analyze the functioning of the IMF and to identify the various issues raised by the Investment Committee and Risk. The audit follows a set of procedures to analyze risk areas. Following this audit, the Operations team prepares an investment memorandum that completes the first study of risk with the data collected on the field. At this stage, the institution is in a pilot phase of the partnership and some loans are available on the platform.
4. Final Decision: confirmed phase
Once the investment memorandum reviewed and validated by the direction of Planet Rating, the Investment and Risk Committee meets to review the conclusions of the audit and determines the final collaboration with the selected MFI. The committee decides on the conditions of the final partnership and defines the MFI risk profile. The MFI then becomes a "confirmed" partner.
Once the MFI is selected and the partnership is approved and signed, a member of the MicroWorld Operations team visits the MFI for an extended period in order to conduct training of the MFI team on an online loan tool and on publication of information on projects.
MicroWorld believes in minimizing its impact on the work of its partners, and try to be as flexible as possible in the implementation of its procedures.
The MicroWorld Correspondent
MicroWorld ensures that the publication procedures and monitoring loans will be applied in the most serious way with the help of a local agent recruited by the MFI as a MicroWorld correspondent.
The MicroWorld correspondent is the link, the main contact between the MFI, loan officers and MicroWorld. In addition to being responsible for the publication and monitoring of loans, the correspondent is actively involved in the creation of media content (articles, pictures…) about the country and the reality of microfinance in the region. Refer to the "News" section of our website and the "on the ground" blog section. You will find portraits of micro-entrepreneurs and reports on the countries and regions in which partnerships are established.
Seyni – MicroWorld correspondent in Microcred Senegal
Once the MFI partner is chosen and "integrated", it is ready to publish loans on the website.
1. Loan application
A potential borrower applies for a loan at one of our MFIs partner. A loan officer employed by the MFI, visit the potential borrower to assess his/her demand. This assessment includes an analysis of the economic and financial situation of the micro-entrepreneur, his/her "business plan" (revenues and expenditures expected ...), his/her personality and temperament and possibly the credit history. The loan officer then explains how works MicroWorld and asks if the borrower agrees to be a "MicroWorld entrepreneur." With his/her agreement, the loan officer collects his/her testimony, and takes the picture that will then be published on the website.
2. Loan approval
Back to the branch of the MFI, the loan officer submits the loan application to the Credit Committee, usually composed of the director of the branch and possibly another loan officer. For larger loans, validation must be made by the head of the IMF. The loan finally approved, the loan officer downloads the picture and the details of the project of the borrower in MicroWorld system.
3. Disbursal and Loan Posting on the MicroWorld Website
When the loan is approved, it is usually disbursed to the borrower within 48 hours. The loan is then published on the website, to be financed by MicroWorld lenders.
This rapid procedure is explained by the requirements of quality and reliability that we have vis-à-vis our micro-entrepreneurs customers.
Once posted on the website, the loan request can be financed by MicroWorld lenders. Although the loan was pre-disbursed in the vast majority of cases, a contractual agreement is signed between the lender and the MFI. This ensures that the money will be used to repay the pre-disbursed money (technically put on the same bank account). The loan will remain on the website for a limited period which can vary with MFIs. If a loan expires before it has been fully funded, MicroWorld will send the amount collected to the MFI.
5. Fund transfer
To reduce transaction costs, transactions between MFIs and MicroWorld are made each month on the basis of net billing, the reimbursements of completed loans are subtracted to the funds raised for published loans during the month. One transaction can be done.
The loan officer visits the borrower regularly to collect loan repayments. Once the loan is fully repaid, the loan amount will be included in the net billing balance described above, and MicroWorld lenders will receive their funds in their MicroWorld account. If the borrower has only partially repaid his loan, the MFI partner agrees to cover the funds it has not (or will not) get. The MFI is indeed the sole authority to evaluate and validate credits for micro-entrepreneurs.