REQUEST FOR PROPOSAL – Terms of Reference (TOR) for Comprehensive Market Scoping Study on Microfinance Institutions in Somalia.January2024

1. About the AECF

The AECF, LLC (Africa Enterprise Challenge Fund) is a leading non-profit development organisation that supports innovative enterprises in the agribusiness and renewable energy sectors with the aim of reducing rural poverty, promoting climate resilient communities, and creating jobs.

We catalyze the private sector by surfacing and commercializing new ideas, business models and technologies designed to increase agricultural productivity, improve farmer incomes, expand clean energy access, reduce greenhouse gas emissions, and improve resilience to the effects of climate change. We finance high risk businesses that struggle to access commercial funding; we are committed to working in frontier markets, fragile contexts, and high-risk economies where few mainstream financing institutions dare to go.

To date, we have supported over 400 businesses in 26 countries in Sub-Saharan Africa, impacted more than 30 million lives, and created over 27,000 direct jobs.

1. AECF in Somalia

The Africa Enterprise Challenge Fund (AECF) has been actively engaged in supporting the private sector in Somalia for several years. Since 2013, AECF has provided technical assistance and seed funds to numerous privately owned enterprises in the country, including microfinance institutions, animal health service providers, renewable energy companies, and various productive sectors.

In 2013, with support from SIDA, AECF invested $5.5m of non-refundable grants in 9 companies in Somalia through its post-conflict funding window. By 2018, these businesses benefited over 140,000 people with increased incomes, created over 200 full-time jobs, and crowded in USD 11m in matching funds, of which 41% were in the form of equity, 10% debt, and 6% re-invested profits (the remainder in-kind equity or other grants). Funded projects cut across agro-processing (NEO trading company), financial services (Kaah Islamic Micro Finance Service-KIMS- and Microdahab MFI), ICT & Media (Bulsho TV), aquaculture (Habo fish and Tuna Canning Factory), and livestock (veterinary service provider professional company) sectors – and all operating in arid and semi-arid lands.

AECF is currently running the Finance for the Inclusive Growth (FIG progamme) funded by the European Union (EU Somalia) with the aim of improving access to finance for marginalized and underserved communities in Somalia (Women, Youth, and producer groups), promoting financial inclusion and livelihood improvement of the target groups. AECF partners with two Microfinance Institutions (IBS bank and MicroDahab MFI), which have disbursed revolving loans totaling US$ $10,328,887 to 8,870 end clients as of October 2023 with the aim of enhancing business ventures and creating jobs.

The pilot phase of the FIG programme will finish in 2024 and AECF has agreed to extend the duration of the programme with a second phase to run to the end of 2025. This will include the provision of similar services but to a new cohort of micro finance institutions. AECF plans to conduct a thorough market scoping study on MFIs in Somalia as the basis for selecting those that will be invited to take part in the next phase of the programme.

2.1 The Financial Sector in Somalia

The financial sector in Somalia is still in its early stages of development, with significant challenges and opportunities for growth. There is a small but growing banking sector, with 13 local private commercial banks and two foreign banks licensed by the Central Bank of Somalia (CBS). Local banks provide various financial services to individuals and businesses, including savings, loans, and money transfer services. In the last decade, mobile money has emerged as a popular alternative to traditional banking services, particularly in rural and remote areas with limited access. Several mobile network operators, including Hormuud Telecom, Amtel, and Somtel offer mobile money services, allowing customers to send and receive money, pay bills, and purchase goods and services using their mobile phones.

The microfinance sector in Somalia is still in its early stages of development. Most banks in Somalia have a microfinance wing, but there are seven stand-alone MFIs across the country. These MFIs primarily operate in urban areas and focus on offering individuals and entrepreneurs (small business owners) microloans and other financial services.

The financial sector in Somalia faces multiple challenges such as a weak regulatory environment, limited access to capital, high levels of physical risk and insecurity, inadequate technology infrastructure, and a need for more awareness and understanding of formal financial services. These challenges can make it difficult for financial institutions to operate effectively for individuals and businesses to access the financial services they need to grow and thrive.

1. Purposes of the Study:
   The primary objectives of the market study are as follows:

• Through desk research and interviews, assess the current landscape of MFIs in Somalia, including their operational challenges and growth opportunities. This should include:
• Provide a comprehensive list of functional MFIs operating in the market, including their key details such as locations, target markets, and years of operation.
• Evaluate the branch network and geographical coverage of each MFI, identifying gaps and potential areas for expansion.
• Analyze the volume and composition of the active loan portfolio and monthly loan applications received by MFIs, identifying trends and customer segments and percentage of portfolio at risk.
• Review the financing products offered by each MFI and assess their relevance and customization to meet the needs of women, youth, producer groups, and other marginalized groups.
• Evaluate the core banking systems (CBS) employed by each MFI, identifying areas for improvement and technological advancements as well as reports generated by the systems.
• Explore additional services provided to clients, such as coaching, business skills training, and technology usage, and assess the impact on client outcomes.
• Understand the interest of MFIs in expanding their operations to remote and coastal villages, identifying the associated challenges and potential strategies.
• Assess MFI’s human resources capacities, policies, and institutional infrastructure of MFIs, including organizational structure, staff qualifications, training programmes, and employee Manuals.
• The assessment will evaluate all 13 registered MFIs (Except FIG1 partners MicroDahab MFI and IBS bank) authorized by the Central Bank of Somalia (CBS), ensuring comprehensive coverage of the sector.

1. Scope of Work:
   The consultancy firm/team will be responsible for performing the following tasks:
   1. Conduct a comprehensive review of the existing literature on MFIs in Somalia, including reports, studies, and market assessments.
   2. Design and administer surveys and interviews with a representative sample of MFIs operating in Somalia, collecting data on challenges, opportunities, branch networks, active portfolio, loan applications, financing products, banking systems, additional services, expansion plans, strengths, and weaknesses, and human resources and policies.
   3. Analyze collected data using appropriate quantitative and qualitative methods and provide insights on the current state of MFIs in Somalia.
   4. Develop a total list of functional MFIs in the market, including their key details, strengths and weaknesses, and an assessment of human resources and policies.
   5. Identify key trends, gaps, and opportunities in the microfinance sector, highlighting the specific needs of women, youth, and producer groups.
   6. Present clear and actionable recommendations for improving the effectiveness, outreach, and impact of MFIs, with a focus on promoting financial inclusion and supporting the target groups.
   7. Provide specific recommendations for technical assistance required to strengthen the MFI staff, end clients, and Institutional policies, including training programmes, capacity-building initiatives, and policy enhancements.

In addition, the study is expected to answer the following questions:

• How does an MFI select end clients? Do MFIs provide equal opportunities to all individuals, irrespective of their connection with MFI staff? Are there specific eligibility criteria that guide the selection process to ensure that financial services reach those who are financially excluded or underserved?
• How do MFIs ensure fairness of vendor selection? Do they employ competitive procedures, such as requests for proposals (RFPs) or requests for quotations (RFQs), to evaluate vendors? What factors are considered during the selection process, such as cost-effectiveness, quality, reputation, and alignment with MFI requirements?
• Lastly, how do MFIs maintain transparency and integrity in their selection processes for both clients and vendors? Are there clear guidelines in place, along with oversight mechanisms, to ensure unbiased and accountable decision-making?

1. Timeline and Deliverables

The market assessment will take place over three months, from February 2024 to April 2024. The following deliverables will be produced:

• Inception report: A report confirming the assessment methodology, data collection tools, and work plan to be submitted within one week of the contract’s signature.
• Draft report: A report presenting the assessment findings and recommendations to be submitted within five weeks of completing the data collection.
• Final report: A report incorporating feedback from the AECF to be submitted within one week of receiving feedback on the draft report.

1. Qualifications

• The consultancy firm/team should have significant experience (minimum of 5 years) in conducting Somalia financial sector assessments/evaluations, or similar evaluations, and research activities.
• Demonstrate a strong track record of conducting similar assessments in the context of Somalia or other fragile economies and have a proven ability to deliver high-quality reports.
• Comprehensive understanding of the Somali private financial sector, with strong knowledge of the Somali microfinance landscape, regulatory frameworks, market dynamics, and challenges faced by MFIs.
• The consultancy firm/team should have a team of experts with the necessary technical expertise to perform the assignment.
• The consultant should be independent and free from any conflicts of interest that may compromise the objectivity of the assessment. They should be able to conduct the assessment objectively and impartially, without any influence from the relevant stakeholders.
• Ability to meet deadlines and deliver high-quality outputs, with attention to detail and accuracy.
• Excellent research and report writing skills, with the ability to present complex information in a clear and concise manner.

1. Reporting

The consultancy firm/team will report to AECF, the FIG programme lead.

1. Pricing

Depending on the contracting mechanism, AECF is obliged by the Kenyan tax authorities to withhold taxes on service contract fees as well as ensure VAT, at 16%, is charged where applicable. Applicants are advised to ensure that they have a clear understanding of their tax position concerning provisions of Kenya tax legislation when developing their proposals.

1. Proposal Submission

• Interested applicants should submit a full proposal as a response to the TOR.
• CVs of all team members
• A proposed methodology for the assessment, including data collection methods and tools.
• A proposed work plan, including timelines and budget breakdown.
• Technical and financial proposals must be submitted separately.

1. Evaluation Criteria

An evaluation committee will be formed by the AECF and shall include employees. All members will be bound by the same standards of confidentiality. The vendor should ensure that they fully respond to all criteria to be comprehensively evaluated. The AECF may request and receive clarification from any vendor when evaluating a proposal. The evaluation committee may invite some or all the vendors to appear before the committee to clarify their proposals. In such an event, the evaluation committee may consider such clarifications in evaluating proposals.

In deciding the final selection of qualified bidders, the technical quality of the proposal will be given a weighting of 70% based on the evaluation criteria. Only the financial proposal of those bidders who qualify technically will be opened. The financial proposal will be allocated a weighting of 30% and the proposals will be ranked in terms of total points scored. The mandatory and desirable criteria against which proposals will be evaluated are identified in the table below.

No.

Criteria for Assessment

Marks

1

Understanding of the terms of reference

10

Detailed description of the service to be provided

5

Understanding of what AECF is expecting from the assignment

5

2

Methodology and work plan

20

Relevance of the methodology proposed to the needs of the assignment

10

Adequacy of the work plan, including key deliverables and capacity to deliver within a realistic timeline based on the consultancy days designated for the task

10

3

Technical experience of staff offered

40

Relevant tertiary level qualification and years of professional experience of the proposed team; and demonstrated Team Leader’s expertise in one of the technical areas as well as expertise and demonstrated experience in designing assessment methodology and data collection tools and demonstrated experience in leading similar assignments.

5

Prior experience in conducting MFIs market assessment activity in Somalia with similar nature and scope; including reference list indicating the scope and magnitude of similar assignments.

10

Experience in conducting assessments of donor-funded programmes including demonstrated experience in assessment report writing.

10

Evidence of similar previous experience, at least 5 years, in the banking and financial inclusion sector in Somalia and East Africa context.

15

4

Financial Proposal

Clarity, relevance, reality to market of value/value for money of cost for the assignment (inclusive of any applicable tax)

30

Total Score

100

1. Disclaimer

   AECF reserves the right to determine the structure of the process, the number of short-listed participants, the right to withdraw from the proposal process, the right to change this timetable at any time without notice and reserves the right to withdraw this tender at any time, without prior notice and without liability to compensate and/or reimburse any party.