PATH WASH Program Scope of Work to Pilot Latrine Sales on Installment Payment Prey Veng, Cambodia

Transcription

1 PATH WASH Program Scope of Work to Pilot Latrine Sales on Installment Payment Prey Veng, Cambodia 1.0 Description Each year 1.5 million children die and millions more fail to thrive as a result of dehydration, weakened immunity, or malnutrition caused by diarrhea. PATH is committed to saving and improving the lives of children in developing countries by advancing safe water, sanitation, hygiene, and diarrheal disease solutions. For over 30 years PATH has worked with private- and public-sector partners to make appropriate products and services accessible to poor households and communities. PATH s strategic approach for this project is to work with existing private sector WASH product manufacturers, the private sector market, and commercial agents and focus these resources on the low-income market. In this effort PATH has been operating in Cambodia since 2008 to increase access and use of safe water and sanitation products and services. KREDIT MFI Microfinance Institution Ltd. (KREDIT MFI) is a socially-driven MFI, which brings non-financial services together with the standard financial services to liberate the poor out of poverty. KREDIT MFI will leverage its social focus and strengths to help its clients access sanitation products. This pilot seeks to test and validate the commercial viability of offering sanitation product loans to existing and new MFI clients. ide focuses on developing market systems to serve the needs of the poor in developing countries. For more than eight years in Cambodia, Vietnam, Timor Leste, Laos, and now in Nepal and Bangladesh, ide has been a pioneer in the application of market-based approaches to improve household water treatment, sanitation and hand washing (WASH) in rural areas. ide s approach exploits the comparative advantages of the private-sector, government, and NGOs to reach large numbers of poor households in short timeframes. 2.0 Objectives The objective of this pilot is to increase household access to safe and effective sanitation products and service through the use of financing mechanisms. Specifically, the pilot seeks to meet the primary aims: 1. To increase access to latrine products for lower-income households and households with irregular income streams by allowing these end-users to pay for latrines over time. 2. To facilitate greater latrine uptake throughout Cambodia in a shorter amount of time by providing local supplychain entrepreneurs access to working capital financing. These objectives will be reached by answering the following questions: What are effective financing models for both households and supply-chain actors? Do consumer and supplier loans facilitate increased uptake of improved latrines? Who benefits from consumer financing of latrines (e.g., socioeconomic status of households, gender distribution, and geographic distribution)? What is the financial performance of sanitation financing loans and can MFI partners profitably provide these services? What are the benefits and limitations of operating a community banking model compared to a branch model? 3.0 Main Activities and Approaches 3.1 Overall Pilot Management 1

2 This overall pilot will be managed by PATH and supported by one dedicated Financial Advisor (FA) employed by ide. 3.2 Sales Sales of latrines under this pilot will be the responsibility of each independent Latrine Business (LB). LBs will be responsible for hiring 2-3 independent latrine Sales Agents (SA) who will sell latrines in the designated LB sales territory. LBs and SAs will be trained in sales techniques and given sales materials by the ide Financial Advisor. KREDIT MFI will assign Credit Officers (COs) to each LB sales territory to work with the SAs. KREDIT MFI will work with PATH and ide to launch sales activities using a community bank model in 3 districts and a branch model in 1 district as shown below. o Kamchay Mear district (community bank model through KREDIT MFI s VSU program) o Kampong Trabek district (community bank model through KREDIT MFI s VSU program) o Preah Sdach district (community bank model through KREDIT MFI s VSU program) o Svay Anthor district (branch model) Each LB sales territory will be assigned a sales schedule by the FA to coordinate the sales of latrines on credit. The SA will be responsible for selling latrines and the CO (with help from the SA) will be responsible for processing all the loan requests and paperwork. An example of the model and sales schedule is included in Appendix B. In accordance with the model and schedule, a KREDIT MFI CO will be present at each sales meeting to assess all loans at the end of each meeting. In accordance with the attached schedule this will require COs to attend a minimum of 18 sales meetings per week based the following allocation. o Kamchay Mear district (6 meetings per week) o Kampong Trabek district (4 meetings per week) o Preah Sdach district (4 meetings per week) o Svay Anthor district (4 meetings per week) KREDIT MFI will have an initial 2-month ramp-up period in each district to reach the agreed number of meetings per week. The district implementation order and timing will be the following: o Kamchay Mear: months 1-9 o Kampong Trabet, Prey Sdach, Svay Anthor: months 3-9 The actually implementation timing may be faster than the minimums stated above depending on KREDIT MFI staff and the problems that arise. KREDIT MFI will have existing Village Chief Leaders (VCLs) help the SA organize sales meetings by hosting the meeting, gathering villagers and speaking occasionally at the meeting such as making a introduction. 3.3 Marketing and Promotion ide will work with LB to train them in appropriate latrine marketing and promotion techniques. LB will be responsible for marketing of their latrine products. KREDIT MFI agrees to work with PATH and ide to generate appropriate marketing and promotional materials for latrine loans and to promote these products to existing and potential KREDIT MFI clients. PATH and ide will be responsible for providing any such materials. 3.4 Distribution and Logistics LBs in each sales territory will coordinate delivery of latrine products on a schedule coinciding with the sales schedule. Delivery of latrines will occur within 1-3 business days from loan approval. This will ensure timely delivery of latrine products following closely upon latrine sales. 2

3 At time of delivery, LBs will replace any damaged or nonfunctional latrine ground parts upon client s request. In the past, customer satisfaction has been very high and ide has received very few complaints from households. While ide cannot offer a warranty beyond delivery, ide can agree to immediately seek to resolve any issues that results in a large number of household complaints. In addition, ide has a dedicated technical staff that works with latrine businesses to ensure good quality production. KREDIT MFI will assess latrine loans at each sales meeting and have staff follow-up as needed to complete the loan process. Upon receipt of delivery confirmation from LB, KREDIT MFI will disburse funds to the LB at the end of every week. 3.5 Product Selection LBs will be selling the Easy Latrine design or approved variations thereof (variations to be approved by ide) for the ground components. No shelter funds or support will be including in the project. KREDIT MFI is welcome to loan or not loan households additional funds for shelter construction as it sees fit. 3.6 Financing Model: KREDIT MFI will provide the following terms to consumers for the purchase of latrines: Community Banking Model (VSU Program) 1. There will be 2 sizes of loans. There is a thin ring loan for 170,000 KHR and a thick ring option for 190, Interest charged will be 2.9% per month. 3. Payments will be made over a 4-12 month period (one payment per month but can be paid back more rapidly based on normal KREDIT MFI repayment policies. 4. KREDIT MFI will offer one repayment plans, a balloon repayment option. 5. Loans will be made to groups only and the minimum loan group size will be based on the current KREDIT MFI s group size which is 4-6 individual households. To create a new community bank (i.e. new village), KREDIT MFI must have at least 2 groups. For an existing community bank (i.e. an existing village), KREDIT MFI can add one or more groups at any time prior to 4 months before the existing maturity date. If a community bank has less than 4 months until maturity, a new community bank would need to be created. 6. KREDIT MFI will make loans to both existing clients and new clients (in both new and existing villages). However, the initial focus will be on existing clients in existing villages. Branch Model 1. There will be 2 sizes of loans. There is a thin ring loan for 170,000 KHR and a thick ring option for 190, Interest charged on installment sales will be % per month. 3. Payments will be made over a 4-12 month period (one payment per month but can be paid back more rapidly based on normal KREDIT MFI repayment policies. 4. KREDIT MFI will offer one repayment plan, a declining balance repayment option. 5. All loans will be individual household loans without any form of group shared liability. Instead, KREDIT MFI will require movable collateral such as motorcycles, hand tractors, water pumps or other suitable items and will not use land or homes as collateral. In case there is a loan default, KREDIT MFI will proceed based on the Cambodian law and KREDIT MFI will follow its normal loan collection process. If KREDIT MFI determines a client cannot truly repay the loan, KREDIT MFI will be reimbursed for the loan principal up to an agreed amount by PATH, as detailed in Schedule C. 6. KREDIT MFI will make loans to both existing clients and new clients (in both new and existing villages). However, the initial focus will be on existing clients in existing villages. 3

4 KREDIT MFI retains all decision making authority on who qualifies for a latrine loan. PATH will provide KREDIT MFI a fee to compensate for the cost of administering the program and a loan guarantee to reimburse KREDIT MFI for the loan principal value up to an agreed upon limit as detailed in Schedule C. KREDIT MFI agrees to have COs present at a minimum of 18 meetings every week (based on the above allocation per district) to process all loan paperwork immediately after the meeting. If the Sales Agents cannot organize at least 18 meetings every week, KREDIT MFI will not be held accountable for failing to meet this requirement. In addition, KREDIT MFI will have an initial 2-month ramp-up period per district to reach the agreed required number of meetings. KREDIT MFI will provide capital to fund installment sales from its general pool of funds and make best efforts to write and support latrine loans with a loan target of 3,000 during the pilot period. If more than 3,000 loans are requested and approved by KREDIT MFI during the agreed number of meetings, KREDIT MFI will continue to write as many loans as requested and approved by KREDIT MFI for the duration of the pilot. KREDIT MFI is not responsible for persuading households to buy latrines. It is ide and PATH s responsibility to work with households to generate sales. In this respect, KREDIT MFI is not responsible for reaching the target of 3,000 loans. KREDIT MFI is responsible for making their field staff available for the agreed upon 18 meetings per week and processing the loans in a timely fashion and in the ways that are discussed elsewhere in this Scope of Work. 3.7 Project Support ide will provide the following project support: FA, LB and SA training and materials Promotional materials for marketing Reporting materials to be completed by SAs, LBs and FAs Training workshop for KREDIT MFI staff and VCLs on the Easy Latrine product and proper introduction of the LBs and their SAs PATH will provide the following project support: Training support for FAs, LBs, SAs and COs Technical assistance to FAs, LBs, SAs and COs Support to FAs in developing and maintaining the latrine sales and delivery schedule Financial and programmatic support to KREDIT MFI KREDIT MFI will provide the following project support: Loan Capital (as described in the Financing Model) Preferred introductions to their customer households in Prey Veng through their VCLs Participation by COs at a minimum of latrine sales meetings per week (per the agreed district allocation and ramp-up periods per district). Loan administration including loan assessment and disbursement, and payment collection Reporting of loan performance data and collaboration with PATH (through an external accounting firm) to estimate household loan program profitability Distribution of marketing/educational material (leaflets, etc.) to existing clients 4.0 Monitoring and Evaluation: Evaluation of the pilot under this scope will be based predominantly on commercial data collected monthly by LBs and SAs (through ide) and by KREDIT MFI. This information will monitor: 4

5 Product uptake, by measuring latrine sales, deliveries and loans over time (tracked by SA and LB) Sales closing rates by SA and LB (number of latrine sales divided by number of clients at group sales meetings tracked by SA and FA) Loan performance (i.e. PAR, % of loans by wealth designation, new vs. existing clients, etc. tracked by KREDIT MFI). KREDIT MFI will submit a monthly report of this information, in the template provided in Appendix A. An evaluation at the end of month 4 will be conducted by KREDIT MFI and PATH to assess the program to-date and look for ways to improve the project. This evaluation will include discussions with SAs, LBs, FAs, ide, KREDIT MFI and PATH to collectively consider program challenges and best practices. Results of the evaluation may be used to make modifications designed to improve the performance of the pilot. KREDIT MFI will also work with PATH and ide to furnish information that will assist in the assessment of the commercial viability of the project, by estimating program costs and weighing these against interest revenues and other benefits to KREDIT MFI from latrine loans. KREDIT MFI also agrees to allow an independent auditor, hired by PATH, to review KREDIT MFI records to assist in this process. KREDIT MFI will introduce a new field of data into its current forms and their MIS data tracking system to capture household ID Poor information. In addition, KREDIT MFI will retain paper copies of all sanitation loan household paperwork in the case that ide or PATH would like to compare or check the forms later. 5.0 Deliverables ide ide will deliver initial training and promotional materials for use in the pilot ide (and their staff FA) will be responsible for the delivery of monthly sales and delivery reports (including sales per SA and LB, closing ratios, etc.). PATH PATH will compile the information listed in all reports above and deliver a final report, assessing the success of the program and lessons learned. KREDIT MFI KREDIT MFI will deliver to PATH, monthly loan performance reports as detailed in Appendix A. Financial support from PATH will be tied to the timely and accurate delivery of these reports and agreed upon attendance by COs at all latrine sales meetings. Attendance by COs will need to reach a minimum of 18 meetings per week by the end of the third month of activities. The number of meetings per week will be calculated as an average figure each month to allow COs time to make up any missed meetings. Failure to reach this rate prior to this milestone will not result in forfeiture of KREDIT MFI s payment from PATH. However, failure to reach this level of meetings after the milestone will result in forfeiture of payment to KREDIT MFI from PATH. 6.0 Budget - See Appendix C, Budget and Payment Schedule 7.0 Activity Timeline 5

6 Sanitation Financing Program - Prey Veng Province Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Negotiation Agreement Train FA, LB, SA and CO Develop Final Sales Schedue for LBs and COs Field Activities/Sales s Mid-Term Review Monthly Loan Reports K K K K K K K Monthly Sales Reports I I I I I I I Independent Final Loan Performance Review P Final Report P Deliverables: K - Denotes Kredi, I - ide; P - PATH 6

7 EXHIBIT A To APPENDIX A KREDIT MFI Monthly Report KREDIT MFI & PATH/IDE PILOT MONTHLY REPORT - COMMUNITY BANK DISTRICTS All currency values are in Cambodian Riel Sample Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Total Loan Information Monthly total of loans disbursed (in Riel) 110,000,000 Portfolio Outstanding (in Riel) Only blue fields need 257,890,000 to have data entered. PAR > 30 days (in Riel) 590,000 Black fields are PAR % formulas % #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! Avg loan size per client 157,143 #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! Client Information # of clients acquired New clients (1st cycle) 400 Existing clients (2nd cycle, 3rd cycle, etc.) 300 # of clients acquired by wealth ranking 700 ID Poor ID Poor Non ID Poor 300 # of total active clients 2,345 # of clients who complete loan repayment 505 An identical report will be used for the Branch District. 7

8 1. Steps in the Latrine Sales and Financing Process Sample Model and Sales Schedule for Latrine Business SA and KREDIT MFI CO Step 1 What: Mgt Planning Where: Kredit Field Office Who: Kredit District Mgr & IDE Financial Advisor When: 2-4 times per month Plan which COs and Sales Agents will work together Select target villages Address special situations and problems Step 2 What: Village Introduction Where: Village (VCL s home) Who: VCL, Sales Agent When: When Sales Agent is ready Establish relationship with local village (VCL and potential other key opinion leaders) Plan and Prepare for Group Sales Learn about the village s sanitation situation Step 3 What: Group Sales Where: Village (VCL s home) Who: VCL, Villagers, Sales Agent, CO When: A few days after Step 2 To promote latrines and take orders at the end of the meeting Step 4 What: Loan Assessments and Approvals Where: Village Who: Villagers, CO, Sales Agent, VCL When: Immediately following Group Sales To complete loan assessment for everyone interested Additional follow-up visits will be done by Kredit staff as needed for loan process Step 5 What: Village Chief Signoff Where: Village Who: CO, Sales Agent (optional) When: Same day as Steps 3 and 4 (or next day if not enough time) To get village chief s signature if required by Kredit forms Step 6 What: Latrine Delivery Where: Village (Client s home) Who:, Client, Sales Agent, Latrine Business Delivery Person When: 1-3 days after Step 5 To deliver latrine to client Have client acknowledge receiving the latrine by signing official paperwork Step 7 What: Latrine Receipt Submission Where: Kredit District Office Who: Latrine Business Owner When: As needed To submit official paperwork required for fund disbursement Step 8 What: Cash Disbursement Where: Kredit District Office Who: Latrine Business Owner When: Every Friday To collect cash for latrines sold on credit Step 9 What: Weekly Sales Where: Latrine Business Who: Latrine Business Owner and Sales Agents When: Beginning of each week To collect reports Pay Sales Agents Conduct weekly sales meetings (recognize results, training, etc.) Step 10 What: Service Visit Where: Village Who: Sales Agent, Client, VCL When: As needed To address use and maintenance issues To potentially start a new sales cycle in that village 8

9 2. Sales Agent and CO Time Structure Half-day spent on Group s (Steps 3-4) with COs Step 3 Group Sales Step 4 Loan Assessments and Approvals Half-day spent on Preparation and Follow-up (Steps 2, 5-7, 9-10) NOT with COs Step 2 Village Introduction Step 5 Village Chief Signoff Step 6 Latrine Delivery Step 7 Latrine Receipt Submission Step 9 Weekly Sales Step 10 Service Visit 2. All Sales Agents (paired with a CO) should do 1 Group (Steps 3-4) in a day 3. All COs must stay at the Group for the entire duration (Steps 3-4) and can NOT leave for any reason (i.e. cash collection at another village, too busy, etc.) 4. Any orders (Step 3) that can NOT be assessed (Step 4) for any reason immediately after the Group should be canceled and the customer will be informed before leaving the village 5. The remaining Sales Agent s time will be spent doing Preparation and Follow-up (Steps 2, 5-7, 9-10) If there are many clients interested in a latrine loan, a half-day spent on Group s (steps 3-4) may not be enough time for COs to finish loan assessments and approvals. In this case, a follow-up visit the village within 1-2 days should be scheduled to complete any outstanding loan assessments and approvals. 3. Sales Schedule The below schedule represents a sample for each latrine business but variations will exist depending on actual situations. Latrine Business #1 Notes: Monday Tuesday Wednesday Thursday Friday Sales Agent #1 Sales Agent #2 Morning Morning Group Meet (CO #1) Prep & Follow-up Group Meet (CO #1) Prep & Follow-up Group Meet (CO #2) Group Meet (CO #3) Afternoon Afternoon Prep & Follow-up Group Meet (CO #2) Prep & Follow-up Group Meet (CO #3) Prep & Follow-up Prep & Follow-up 1) It is important to minimize the number of different COs working with each Sales Agent 2) The daily order (Group Meet first, Prep & Follow second) is not important, just the general structure 9

10 DISSEMINATION FRAMEWORK All publications of either party shall provide due credit and acknowledgement with regard to the other party, and shall represent their respective roles in good faith. Joint publications The parties prefer joint publication and agree to work together in good faith towards this end. Release of joint publications requires the written approval from both parties, in advance. Further, the parties agree not to make other publication in advance that pre-empts in purpose or scope the respective Joint Publications described below. Schedule of joint publications Timeframe: commencing anytime after September 30, Purpose: provide a clear description of the business models, pilots performance and lessons learned, effects of the installment sales scheme, and conclusions and future plans, so as to advance progress in the sector overall. Scope: inclusive of scope for Joint Publications above, with additional scope as contemplated in the table and notes immediately below. The parties may jointly elect to adjust the scope. Scope of Joint Publication Objectives of installment sales program Methods Program attributes Program costs Performance Clients Customer feedback Impact Sustainability (see Note 1 below) Final reporting of M&E Remarks Basics such as goal to increase consumer affordability in order to facilitate sustainability and access to sanitation products. General approach used by PATH, ide, KREDIT MFI, et al during process. Summary of installment sales program and consumer response. Costs incurred by ide, PATH, KREDIT MFI to implement installment sales program. Net unit sales volumes for latrines installment sales program, and customer uptake rates. Broad profile of customer base, including summary-level demographics of households that buy latrines through installment sales. Thrust of feedback from clients, in relation to installment sales program. Will address impact of the pilot program on the consumer environment. Will address the ability of pilot initiatives to create a commercially viable market and optimal direct sales distribution model for latrine products. As defined in scope. Notes on scope of Joint Publication 1. From the inception of this collaboration all parties will aim to disseminate results and to prioritize a joint approach to publication, building on the strong spirit of collaboration and trust existing between the parties. Some reporting will address certain topics of a potentially business sensitive nature for KREDIT MFI. These include loan performance, margin and cost analysis.

11 PATH undertakes to approach publication of such information and analysis with special attention to the business interests of KREDIT MFI. Examples of intended modes of publication for such information and analysis are provided below, followed by examples of unintended modes of publication. Because publication entails the unconstrained release of information to third parties and/or the general public, PATH, ide and KREDIT MFI necessarily lose control over further dissemination of the published information. Therefore, and for the avoidance of doubt, the actual modes of publication/dissemination may differ from that intended by the parties. i. Intended modes of publication; examples: a. Aggregated with results from other sanitation marketing efforts. b. With reduced precision, such as in the form of range values (e.g., 10 to 20%). c. Posting on the parties websites or those of organizations in the sanitation community. d. Sharing at forums of sanitation and/or social enterprise practitioners, including the dissemination of posters, PowerPoint slides, and/or white papers. ii. Unintended modes of publication; examples: a. Broad, high-profile publication of detailed analysis, where broad publication refers to publication in a major journal or news media, and detailed analysis refers to more precise and/or KREDIT MFI-specific figures than described under Intended modes above. Sole publications The parties provide for sole publication only in the event that their good faith efforts to publish jointly are unsuccessful. Either party may make sole publication only after December 31, The publishing party shall provide for review by the non-publishing party and agrees to consider their comments in good faith. Upon request of the non-publishing party, the publishing party agrees to remove the name and/or Confidential Information of the non-publishing party. Information and results listed under the Scope of the Joint Publications and not expressly excluded from sole publication shall be considered non-confidential for purposes of disclosure and publication as of September 30, 2012.

12 BUDGET AND PAYMENT SCHEDULE PATH shall make payment to KREDIT MFI in accordance with the following schedule: Payment Schedule Upon execution of this agreement Up to $10,000 in loan guarantees, based on actual loan defaults *All figures in USD December 31, 2012 accompanying PATH s receipt and approval of the expected deliverables from KREDIT MFI and review of CO sales meeting participation. March 31, 2013 accompanying PATH s receipt and approval of the expected deliverables from KREDIT MFI and review of CO sales meeting participation. June 30, 2013 accompanying PATH s receipt and approval of the expected deliverables from KREDIT MFI and review of CO sales meeting participation June 30, 2013 based upon review of loan repayments by outside accounting firm. PATH will compensate all actual defaults to date + allow for payment of any expected defaults based upon projecting defaults for loans currently under repayment at date of review. Consider the following example: 1% of loans totalling $500 are found to be in default as of date of review. $10,000 of loans remain in repayment as of review date. Under this example, PATH would pay $500 plus $100 (1% default rate X $10,000 balance of loans outstanding) for a total of $600 to KREDIT MFI. No further payments would be made.