EDUFINANCE STAFF TRAINING Introduction & Overview | 1 Education Finance Technical Assistance
INTRODUCTION BACKGROUND The Education Finance (‘EduFinance’) group of Opportunity International provides technical assistance to financial institutions to build profitable education lending portfolios. EduFinance’s priorities are to: 1. Expand education loan portfolios 2. Make education loans profitable 3. Improve education loan portfolio quality 4. Increase children’s access to quality education
ABOUT EDUFINANCE STAFF TRAINING EduFinance provides a modular approach to training. The financial institution will decide which staff participate in training and which modules they will be trained in. The modules are designed to build on one another but can also be attended individually. The intention is for staff to participate in modules that target their function in the financial institution. The modular approach to training design was chosen for sustainability reasons as well as to make the training user friendly. Specific modules can also be taken out of the training package for refresher sessions in the future.
EDUFINANCE STAFF TRAINING PARTICIPANTS The goal is to train the following groups of employees with listed training objectives: • Train loan officers on acquiring clients, analysing clients and appraising clients’ business, follow-up and monitoring loans, and handling cases in arrears • Train desk officers in providing EduFinance information to prospective clients • Train branch managers in understanding typical EduFinance portfolio risks (also applicable for the credit committee) For all participants to benefit optimally from trainings, the participants need to fulfil minimum requirements: • One to two years of practical experience in evaluating and extending micro loans in a microfinance institution/bank; or • Having successfully participated in basic micro loan training; and • Having acquired some experience in customer service
OUTCOMES The EduFinance Staff Training modules are designed to provide staff involved with the financial institution’s education finance portfolio with in-depth training that is appropriate to their role. Having completed the EduFinance Staff Training, the financial institution’s staff will be equipped with the knowledge to enable the successful launch, growth and risk management of the financial institution’s education finance portfolio.
Introduction & Overview | 2
MODULE OVERVIEW MODULE 01. Social Aspects of EduFinance and Customer Protection This module builds the bridge between the following issues related to EduFinance: - The importance and structure of various education systems - Financing of education from the perspective of problems and solutions - The impact of education loans The module also covers the importance of knowing your customer well and avoiding overindebtedness of clients.
MODULE 02. EduFinance Products & Client Journey This module provides an overview of the main characteristics of education finance products as they align with client demand and uses, and the typical client profiles for each product. The chapter closes by outlining the client journey for both school fee loans and school improvement loans.
MODULE 03. Sales & Customer Service for Education Loans This module covers specific techniques and technical knowledge needed to sell EduFinance products. It outlines client acquisition opportunities for both school improvement and school fee loans, walks through approaches to closing a sale, and concludes with techniques on handling client objections and the overall client relationship management process.
MODULE 04. Communication In this module different theories on communication and processes are presented. Gaining a full awareness of communication will help improve client relationships and support overall professional development of an effective salesperson.
MODULE 05. Engaging with Your Client This case study module will lead into exercises covering techniques learned and put them into the specific setting of EduFinance products. Participants will learn and practice how to “step into customers’ shoes” and practice ways to actively approach both existing and new clients.
MODULE 06. Evaluation of School Fee Loans This module will start with a reminder of general appraisal concepts of micro loans before covering the specific requirements for appraising school fee loans. This includes documentation required to analyse the requested amount and proof of child enrolment in the identified school. It also includes background of the client’s business or employer to assess the basis of repayment. The module covers the calculation of borrower’s repayment capacity based on cash flow and surplus.
MODULE 07. Evaluation of School Improvement Loans This module will cover the specific requirements for EduFinance school improvement loans. It includes the documents required to corroborate the requested amount, a school safety inspection, and the registration of a school. The training will also cover evaluation and appraisal of school Introduction & Overview | 3
;
MODULE 01. SOCIAL ASPECTS OF EDUFINANCE AND CUSTOMER PROTECTION
Module 01. Social Aspects of EduFinance & Customer Protection
1. SOCIAL ASPECTS OF EDUFINANCE & CUSTOMER PROTECTION This module provides an overview on the social aspects of financing education. The chapter begins with key challenges to accessing education, as well as the solutions school owners and parents develop to face these challenges. This is followed by a review of the initiatives Opportunity International EduFinance (‘EduFinance’) has developed to remove barriers to accessing education. Finally, the chapter concludes with an introduction to the concepts of Know Your Customer (KYC), as well as the Customer Protection Principles (CPP).
1.1. IMPORTANCE OF EDUCATION Before highlighting the importance of education, it is necessary to first understand an education system and the framework conditions that define it. The overview below highlights several examples of education systems in various countries, starting at the pre-primary level and including tertiary and technical training tracks.
EDUCATION SYSTEM EXAMPLES COUNTRY
UGANDA
GHANA
NIGERIA
COLOMBIA
SCHOOL YEAR START
February
September
September
January+
COMPULSORY
No
Yes
Yes
Yes
Kindergarten / Pre-Primary
2-3 years
2 years
2-3 years
4 years
Primary
7 years
6 years
6 years
5 years
EXAM
Primary Level Exam (PLE)
No Exam or Certificate
4 years
3 years
No Exam: School Level Certificate* 3 years
No Exam: Certificado de Educación Primaria* 4 years
Ordinary-Level Exam (O-Level)
Basic Education Certificate (BECE)
Upper Secondary: 2 years
Senior High School (SHS): 3 years West African Senior School Certificate Examination (WASSCE)
Basic Education Certificate Exam (BECE) Senior Secondary: 3 years
Certificate of Basic Baccalaureate Studies Upper Secondary: 2 years
Senior Secondary Certificate Examination (SSCE)
Baccalaureate (Credentials vary by Track)
Lower / Junior / Basic Secondary EXAM Upper / Senior Secondary
EXAM
Advanced-Level Exams (A-Level)
TRACK 1 Tertiary / University
Option after A-Level
Option after WASSCE
Option after SSCE
Option after Baccalaureate
Option after Primary Level Exam
Option after Basic Education Certificate
Option after Basic Education Certificate
Technical Track included in Upper Secondary
TRACK 2
Technical & Vocational Education & Training (TVET)
3 years (lower TVET) & 2 years (upper TVET)
SHS elective: 3 years Technical & Vocational Institute (TVI): Two 2-year cycles (4yr total) +Colombia has two academic tracks; majority of schools start in January *Based on continuous assessments
National Technical/ Commercial Certificates: 3 years
Diploma awarded by National Apprenticeship Service (SENA)
Module 01 | 2
Module 01. Social Aspects of EduFinance & Customer Protection
Each system has the basic levels of pre-primary, primary, secondary, tertiary and technical & vocational education & training (TVET) options, but each system varies by number of years, examinations and certifications, course requirements, and transition requirements. In many countries, public/government schools are free of charge and the attendance of a minimum number of years is obligatory by law. Schools, including private schools, need to be registered with the responsible authorities for student completion to be approved. Unfortunately, many education systems have challenges experienced by all key stakeholders, including schools leaders, teachers, parents and children, as well as governments. For instance, school material is often out-of-date, teaching approaches can be inadequate, classrooms are overcrowded, furniture is insufficient or broken, sanitary facilities are inadequate, and ICT is not available. These challenges lead to a difficult teaching and learning environment for teachers and students alike. Education systems are often defined by their ‘poor quality’, which leads to high drop-out rates and grade repetition. The challenges are frequently more serious in rural areas, where insufficient infrastructure leads to challenges for students to reach their school. Drop out is also driven by the financial situation of parents not able to pay school fees on time. Lack of government funding for education Reduces Increases means many needed • Child labor • Opportunities improvements go • Child abuse • Gender equality unaddressed. However, • Fertility rates • Skilled worker as one solution to development • Child marriage rates alleviate the burden on • Community development • Poverty the public school system, governments consider liberalizing the education sector to allow social/private investors to set-up schools and finance education.
BENEFITS OF EDUCATION
The impacts of an under-resourced, overburdened education system are significant at all levels – limiting student future earnings potential, family livelihoods, and community development all the way to reducing the national economic growth potential. And yet, such challenges can be addressed through investment in education. In the brochure “Financial Solutions for Sending and Keeping All Children in School - A Sustainable and Scalable Blueprint for Marginalized Communities,” Opportunity International describes the benefits of education as follows:1 Investment in education is one of the few decisive ways to loosen the grip of poverty. Education is, in fact, the single largest determinant of future economic status and selfreliance, and it is key to empowering communities and spurring economic growth. Studies
1
https://opportunity.org/content/News/Publications/Knowledge%20Exchange/Financial-Solutions-For- Sending-And-Keeping-AllChildren-In-School.pdf
Module 01 | 3
Module 01. Social Aspects of EduFinance & Customer Protection
show that increasing access to education can help boost earnings while reducing crime, child marriage, and the incidence of HIV/AIDS. Despite the high value of education, 263 million children worldwide are not in school. In Africa, one in four primary school-age children works or stays at home rather than attending school.
1.2. REASONS FOR FINANCING EDUCATION NEEDS In poor resourced regions, there are generally five key challenges to education: • High cost of education • Distance of schools to students • Low quality of education • High risk of death or disability of parents • Low applicability of education to employability These key challenges highlight the need for tailored education finance that can address and mitigate barriers to education access. Parents may face many issues when trying to send all of their children to school, often driven by competing priorities for scare family resources. Challenges with education quality – from teacher absenteeism to overcrowded classrooms and poor school infrastructure – impacts the decisions parents make about their children’s education. To come up with the funds needed for education, parents have several options: • Use family income or savings • Borrow money from relatives or friends • Borrow money from street sharks • Sell personal items for cash • Request remittances (or financial gifts) from family members However, if parents have access to a school fee loans, they can have greater freedom to make the best decision for their children’s education while avoiding higher risk and costs. School fee loans ensure that parents that run a small business do not have to divert a business loan or revenues to pay for school fees when there is cash flow volatility in the household and competing priorities at the same time. This allows them to reinvest capital and grow their business while still keeping their children in school. While school fee loans do not address affordability issues of education for parents, they do provide essential cash flow smoothing support when fee due dates may not align with the household cash flows.
1.3. AFFORDABLE PRIVATE SCHOOL EDUCATION ECOSYSTEM The education ecosystem can be defined as a large community of several stakeholders (school community, financial institution, suppliers) linked together through transaction and services. The efficient flow of services and transactions between each stakeholder creates synergies and cycles. The school is usually the backbone of this ecosystem but cannot work without the rest of the stakeholders. A financial institution can provide the financial means for a school to expand its activity or increase its quality of education, and at the same time support the other stakeholders
Module 01 | 4
Module 01. Social Aspects of EduFinance & Customer Protection
(parents, teachers) to access education and services. Suppliers can provide equipment and services to the school while accessing financing from the financial institution.
Analysing the education sector through an ecosystem lens also highlights clear opportunities for a financial institution in terms of client acquisition, as presented below:
Module 01 | 5
MODULE 02. EDUFINANCE PRODUCTS & CLIENT JOURNEY
Module 02. EduFinance Products & Client Journey
2. EDUFINANCE PRODUCTS & CLIENT JOURNEY Opportunity EduFinance uses standard microfinance approaches to develop products that help students overcome the challenges they face in accessing and finishing school, and schools overcome challenges in offering quality education. EduFinance designs lending, savings and insurance products. EduFinance also offers training and resources to affordable private schools to support their improvements in business management and education quality provided to students. This module gives an overview of the main characteristics of education finance products developed by Opportunity EduFinance, as well as the typical clients for each product. The chapter closes by outlining the client journey for both school fee loans and school improvement loans.
2.1. EDUFINANCE PRODUCT SPECIFICATIONS - SCHOOL FEE LOANS (SFL) This section covers EduFinance school fee loans in detail. This loan type is available for individuals as well as members of group lending schemes. There are multiple types of fees that a parent/guardian may need to pay in order to enrol children in school, regardless of whether their children attend a government or private school. Typical expenses include tuition fees, transportation, boarding, meals, school materials, uniforms and other school-related expenses. The target group for a school fee loan is a parent or guardian of a child at any level of education, from pre-primary to secondary, as well as university, vocational, nursing school, teachers’ colleges, etc. The client must be a permanent resident, and if the applicant is also the student, they must be above 18 years of age with verifiable regular sources of income. Each loan has set terms, fees and requirements. The table below outlines the typical individual school fee loan product characteristics:
Module 02 | 2
Module 02. EduFinance Products & Client Journey
SCHOOL FEE LOAN: Individual Product Characteristics Amount
$100 – 1000**
Depending on need, repayment capacity, collateral, and loan repayment history
Term
1 – 12 months
Depending on the start and length of the school term
Interest Rate
2%
Declining balance
Fee(s)
Customized
Application, loan set-up, stamp duty, credit reference, insurance, monitoring, late payment, early settlement
Repayment
Monthly
Both interest and principle
Collateral/ Securities
Customized
Other
Fixed deposits, chattels, motor vehicle log books, guarantors The previous loan fully services with clean repayment history
* Product Terms should be customized according to country setting and regulations ** Current EduFinance partners SFL individual average is $165
Key information needed from the client to determine the loan amount and instalments are: • The client’s needs • Their capacity to repay (cashflow, surplus) • The value of the collateral offered • Loan repayment history with the institution, or standing in the community Good practice is to base loan decisions on a client’s repayment capacity. Additionally, it is beneficial if the client has a proof of ownership of the business premises or home, as this shows how much surplus has been accumulated. It is also useful to know how the loan amount will be spent, to avoid non-productive use of the money. A school invoice can provide this clarity. Finally, a complete loan application form is needed as a reference. The term (or duration) of a loan is linked to a schools’ academic calendar (i.e. term dates). However, school fee loans are normally not longer than 12 months. Repayments are usually made on a monthly basis, with the option of a short grace period. Interest charged for individual school fee loans is preferably calculated on a declining basis, rather than a flat rate. Collateral/securities provided by a client is preferably a combination of at least two elements of the following: fixed deposits, chattels, logbooks or guarantors. Before or during the loan cycle, the client also needs to provide evidence of the students’ admission to the school. To get a full picture, it would be additionally useful to have evidence of educational cost. To ensure that the amount is used for education, the easiest approach would be to ask the client to authorise that the amount is directly disbursed to the school account. Finally, the involved loan officer prepares short quarterly
Module 02 | 3
Module 02. EduFinance Products & Client Journey
monitoring reports, which may be as simple as stating that the client’s business still operates. The described process is considered to be the solid approach with the highest chance of loan recovery. Similar requirements exist for school fee loans provided through group lending schemes: SCHOOL FEE LOAN: Group Product Characteristics Amount
$30-100 per child
Depending on need, repayment capacity, collateral and loan repayment history
Term
3 – 12 months
Depending on the start and length of the school term
Interest Rate
Customized
Flat
Fee(s)
Customized
Application, loan set-up, credit reference, insurance, late payment, early settlement
Repayment
Weekly / Fortnightly
Collateral/ Securities
Customized
Other
Loan security fund, group guarantee, fixed deposits, chattels, motor vehicle log books, guarantors The clients borrow in groups after undergoing thorough orientation and financial literacy training
* Product Terms should be customized according to country setting and regulations
As opposed to the individual school fee loans, for many institutions the minimum term for group loans is 3 months rather than 1 month, while the maximum loan duration remains the same at 12 months. Repayments are made on the basis of weekly or fortnightly instalments, with usually flat interest rates. Collateral/securities: In its basic form, group loans only require a group guarantee and do not require collateral. However, some financial institutions still demand individual group members to provide collateral. In this case, usually a combination of at least two elements of the following is provided: fixed deposits, chattels, logbooks or guarantors. Before or during the loan cycle, the client also needs to provide evidence of the students’ admission to the school. To get a full picture, it would be additionally useful to have evidence of educational cost. To ensure that the amount is used for education, the easiest approach would be to disburse the loan amount to the client. The client then gives authorization to disburse the amount to the school account. Finally, the involved loan officer prepares weekly/fortnightly/monthly monitoring reports. The described process is considered to be the solid approach, with the highest chance of loan recovery.
Module 02 | 4
Module 02. EduFinance Products & Client Journey
2.2. EDUFINANCE PRODUCT SPECIFICATIONS – SCHOOL IMPROVEMENT LOAN This section covers EduFinance school improvement loans in detail. Owners of private schools and learning institutions may require financing for a variety of reasons. Often, loans are used for the acquisition of land, construction activities for classrooms, washrooms or dormitories, buses for student transport, school furniture, canteen food, equipment such as computers or laboratory tools, school materials, teacher training, staff salaries or other purposes related to improving the school’s quality.
The target group for a school improvement loans is an owner of a low to medium-income private schools, a school network and other learning institutions. Schools may serve one or more student levels, including pre-primary, primary, secondary and vocational schools. Each school improvement loan has a set of terms, fees, and requirements that need to be fulfilled for a loan application to be approved. The below table outlines typical school improvement loan product characteristics:
SCHOOL IMPROVEMENT LOAN: Product Characteristics Amount
$7,000 - 30,000**
Term
3 – 60 months
Interest Rate
Customized
Fee(s)
Customized
Repayment
Customized
Collateral/ Securities
Customized
Other
Depending on need, repayment capacity, collateral, and loan repayment history Depending on loan purpose, usually around 24-36 months Declining balance Application, loan set-up, stamp duty, credit reference, insurance, monitoring, late payment, etc. Grace period based on school calendar/cash flow and loan purpose; often during holiday period Guarantors/corporate guarantee; guarantor must have reliable character and verifiable income; chattels, land property, debenture if the borrower is a company The school must have operated for at least 1 year (2 years preferred); school owner must have experience for at least two years. In the case of a SIL for construction or spot improvement, a disbursement by milestones (once completed) of the project is recommended. If the loan purpose is asset financing, loan proceeds should be disbursed to the vendor/supplier. Module 02 | 5
Module 02. EduFinance Products & Client Journey
JOURNEY: School Fee Loan Client Journey
Awareness
Information Collecting
Decision Making
Repayment
• Getting information • Payment options • Search for experience • Visit Financial Institution
• Learn about loan requirements • Recieve loan officer • Decide to proceed • Submit loan request • Provide documentation • Receive Loan offer
• Clarification • Sign loan contract • Receive loan amount
• Save to repay • Make repayments • Meet loan officer • Ask for time/restructuring • Continue repayment
Financial Institution Journey
Marketing & Comms
Information Providing
• Target channels to market EduFin • Visit school, community events, etc to promote EduFin products
• Inform client of requirements • Instalment calculation • Collect documents
Evaluation & Credit Appraisal
• Visit client • Appraisal of documents • Evaluat cash flows • Prepare loan file • Credit committee & loan approval
Follow Up & Monitoring
• Monitoring & regular client visits • Evaluate unwillingness or incapacity to repay • Re-evaluate or restructure loan • Offer new loan
Module 02 | 10
MODULE 03. SALES & CUSTOMER SERVICE FOR EDUCATION LOANS
Module 03. Sales & Customer Service for Education Loans
3. SALES & CUSTOMER SERVICE FOR EDUCATION LOANS Customer service is one of the important elements to the success of many businesses. With changing trends, product and services diversification and client empowerment, clients have gained a more powerful position compared to the past, when client service was often not given high priority by organisations. Customer service is directly linked to sales. One definition of sales is “to convince of value.” From this definition, it is clear that sales is more than the simple exchange of products or services. It is about convincing the client of the value of a product or service. This can be challenging, as it is the client who decides what is of value to them. For a salesperson to effectively demonstrate value, there needs to be a relationship between the two parties involved. Trust needs to be established to build this relationship with the client, so that the client feels comfortable sharing information that can inform the salesperson of the client’s specific needs or interests. To successfully build this relationship, businesses need to understand the importance and details of the client experience, regardless of the sales channel. This module provides insight into different attributes and techniques that can help a salesperson – and an organization - to be successful by considering the full client experience.
3.1.
SALESPERSON
There are a number of skills and attributes that a good salesperson should develop to improve their performance. These can be split into 3 categories:
ATTITUDE
Attitude is the key factor in determining the success of a salesperson. This is the component that an individual has the most control over. The most critical elements of attitude are: • Determination • Resilience • Motivation • Confidence
KNOWLEDGE
SKILLS
Skills can be learned by a salesperson to improve their effectiveness and increase their success rate. The most important skills are: • Communication • Emotional intelligence • Active listening
Module 03 | 2
Module 03. Sales & Customer Service for Education Loans
Knowledge can be obtained. It takes time to obtain accurate knowledge of: • Market • Product • Client These three attributes do not guarantee success as a salesperson. However, it is a good starting point for a professional salesperson to review their performance in these key sales elements. It is also important that a good salesperson believes in the products and services they sell. If this is not the case, clients and prospects often sense this and the salesperson will lack authenticity. In such scenario trust will be difficult to establish, and the sales process will become more difficult. Additionally, it is critical that a salesperson develops a strategy to determine their target market. A good salesperson does not speculatively target random prospects, but rather studies their market. A good salesperson approaches only those clients who are in their target market and who can give meaningful returns, consistent with the overall financial institution strategy.
3.2. SALES TECHNIQUES A good salesperson should have a ‘toolkit’ of different sales techniques that can be utilized for different clients and situations. Below is a list of common sale techniques, and how they are normally used: Transactional Selling • This is typically the ‘one-off’ sale where the objective is to win an order. • Generally, there is no repeat business generated. An example is buying a vehicle from an individual. • This type of selling is generally not appropriate to the banking sector where the focus should be on developing a relationship with the client. Relationship Selling • The salesperson develops a relationship with the client in anticipation of repeat business from the client. • It often begins with a small ‘one-off’ sale and grows into larger repeat business as the relationship develops. • Finance is partly relationship selling. A good example of a relationship business is a restaurant, but also providing a credit to a school has elements of Relationship Selling. Consultative Selling • This is the category most suitable for banking professionals. • The salesperson gets even closer to the client to understand them as individuals, their company, their sector, their opportunities and their challenges. • The salesperson asks open questions and actively listens to the client. • The focus is on delivering client solutions and not just selling banking products or services.
Module 03 | 3
MODULE 04. COMMUNICATION
Module 04. Communication
4. COMMUNICATION Communication is the exchange of information between people. The messages we receive and those we send are processed before being responded to – the responses are influenced by each other. A person communicates something in a way they find appropriate in a particular situation. The person receiving the information is unconsciously understanding both the verbal and non-verbal response filtered through their own interpretation.1 In this module, different theories on communication and processes are described, some of which we might not be fully aware of. Gaining awareness of our communication, including what it is influenced by and how it can influence, helps to improve relationships with clients and supports someone’s professional development.
4.1. PARAMETERS OF COMMUNICATION We use three different parameters – or signals - at the same time to communicate: • Verbal - words, phrasing, language • Para-Verbal Signals - tone varied by speed, pitch or volume • Non-Verbal Signal - body language and other visual effect Research that isolated and measured the impact of these three communication signals had surprising results: − The content of what we actually say only has an impact of 10% on other people − How we use our voice and body language to say things makes up 90% of the impact our communication has on others Being aware of the impact of how we use our voice and body language, while carefully choosing our words, leads to clarity and unambiguity in our communication. This limits the room for misunderstandings.2 The three signals mentioned above can be split into seven specific power factors of communication: 1. First impression One’s posture and appearance play an important role in the first impression made on other people, which is made in a breathtakingly short 1/6 of a second. 2. Eye contact and smiling Real contact happens after 1-2 seconds of looking. If one smiles during that contact, the chances of establishing a relationship with a client or colleague increases. 3. Body language The impact one has on people is heavily influenced, positively or negatively, by body language. Gestures and facial expressions are not only noticed by others, but also impacts the speaker’s behaviour. Consider how you feel if you smile and are in an upright position, contrasted with how you feel with a sad face and heavy shoulders. 1 2
ADG: Kommunikation & Prozessteuerung”, 2015 Ibid
Module 04 | 2
Module 04. Communication
4. Appearance Smart and adequate clothing imply competence and leadership abilities. Particularly in the finance sector, adequate appearance often triggers people to trust you. Being under or overdressed, on the other hand, does not help in building trust. 5. Appreciation / Being on an equal level The people we speak to will be much more attentive and feel more comfortable in sharing information if we show them appreciation and respect. 6. Voice If we speak with a monotone voice, people listening will quickly get distracted. By using variation in our voice, the speaker can appear lively and engaging and keep the listeners’ attention. 7. Rhetoric Carefully chose your words. Try to avoid using too many filling words such as ‘maybe,’ ‘actually,’ ‘well,’ ‘you know,’ ‘as I said,’ etc.3
4.2. DIFFERENT LEVELS OF COMMUNICATION AND THEIR INTERPRETATION Sender-Receiver Model Every message a person sends to someone else is codified by how the sender thinks the receiver will perceive the message. However, the receiver decodes the message received according to the way she thinks the sender sent it. The picture describes this sender-receiver model of human communication. The person on the left thinks in ‘red.’ However, they send a message to a green-thinking person, so they code their message as to how they believe greenthinking works. The other person however, usually thinking in green, receives the message from the red-thinking person and decodes it as to how they believe red-thinking people would decode it. Sometimes this causes ‘purple’ messages that lead to misunderstandings. If we are aware of this functioning of our communication, we can avoid a number of misunderstandings or simply talk about things more openly. This is especially useful when we think we are in a “purple” situation. It is therefore important to check periodically during a conversation if the discussion partners are still aligned. For instance, the salesperson may want to pause to ask “Did I understand correctly that you…” or “Can you please rephrase that? I am not sure if I fully understood.”
3
BAW, Monitor, 2009
Module 04 | 3
MODULE 05. ENGAGING WITH YOUR CLIENT
Module 05. Engaging with Your Client
5. ENGAGING WITH YOUR CLIENT This module builds on the learning and skills developed from Modules 2-4, which covered EduFinance products, sales and customer services, and communications. Formatted as a case study with multiple roles, participants in this module will: • Apply and deepen knowledge acquired about EduFinance products and target clients • Practice approaching clients and marketing EduFinance products in role plays • Practice how to obtain the right information about their clients The following presents the Trainer’s Guide to the case study, presenting the context for each section, the task for participants in various roles, and notes for the trainer on the goals for each section, along with normal time allocations.
5.1. CASE STUDY INTRODUCTION To begin the case study, the trainer hands out the numbered sheets to all or some of the participants, depending on which role they are playing and which step of the case they are in. As the case builds on both new and existing knowledge – such as participant’s past interactions with a school owners and parents in their work - it is important the participants do not receive all the information from the beginning. The key is that they have to interact with the client in order to obtain the information they need. Either a participant or the trainer may play the role of the client. After each step, a brief plenary discussion should be carried out to analyse what happened. This also helps to make sure that all participants have the information they need to continue with the next step.
5.2. PART 1 OF THE CASE STUDY - CONTEXT Lucy Kabucho is a middle-aged woman living in a rural area of Uganda with her 3 children (Joseph, Godwin and Rachel) and her husband, Simon: - Lucy runs a small shop outside her house, from which she sells food and groceries - Simon works for a construction company and is usually not at home during the week - The twins, Joseph and Godwin, have just finished primary school and are supposed to go to secondary school when the new term begins, while Rachel is still in primary school While the children were growing up, it was always important to Lucy that her children get the chance to go to school. Through talking to her neighbours’ and their children, Lucy found out that the public school serving the area was not good. Too many children are put in one class, teachers regularly don’t turn up to class and often fail to verify students’ attendance. Additionally, an alarmingly high number of students have to repeat a grade because they failed their exams. Even with her own income and her husband’s salary combined, Lucy and Simon can barely pay the quarterly fee due in full to send their children to Mkanya Private Secondary School - a private school near their house. They explored the option of borrowing some money from their family to send
Module 05 | 2
Module 05. Engaging with Your Client
Joseph and Godwin to the private school. Unfortunately, their family was unable to support them, troubled with similar financial problems. From her neighbour, Lucy heard that there is a local microfinance institution that gives out loans to pay for school fees. She has no idea how this could work but was willing to explore the option. Time allocated for Introduction and Part 1: 15 min
5.3. PART 2 OF THE CASE STUDY - FIRST VISIT TO MFI The following week Lucy went to visit this MFI to ask about this loan. DIRECTIONS: Each group selects one member to be part of the “desk officer team” that is going to carry out the first interview with Lucy. The trainer or another participant will play the role of Lucy. PARTICIPANT TASK: You are a desk officer at XYZ MFI and Lucy approaches you as she walks into your branch. She is interested in receiving a loan to be able to pay for her sons’ school fees. How do you proceed? NOTE for the Trainer: The goal of this client interview is that the participants: • Give Lucy general information about the “school fee loan” product • Find out as much as they can about Lucy and her background, including her repayment capacity • Make an appointment with a loan officer for a loan appraisal meeting • Inform Lucy about what kind of documentation she could/should bring along to the appointment Time allocated for Part 2: 30 min.
5.4. PART 3 OF THE CASE STUDY – LOAN APPRAISAL APPOINTMENT WITH LOAN OFFICER The next day Lucy returns to the MFI for the appointment with the loan officer. As suggested by the desk officer she met with the previous day, she brought along some documents – but most of them are out of date or not in order, so she was not so sure what they really wanted to have them for. As Simon was home from work today, he came along to the MFI not really understanding what Lucy was trying to do there. Background Information - Lucy and Simon have never been to a microfinance institution before. Usually they manage well via their own income. Only on very limited occasions - for example, when they bought a cow - had they borrowed money on a short-term basis from the local money lender. They prefer not to have to do it again, as it was very expensive and they didn’t have a good experience dealing with the money lender. Lucy has a little stall, on the side of the street in their front yard. Simon is a construction worker and is usually not at home, as the company he works for sends him to many different places across the country. Sometimes he is away for weeks in a row, depending on the assignment. Module 05 | 3
MODULE 06. EVALUATION OF SCHOOL FEE LOANS
Module 06. Evaluation of School Fee Loans
6. EVALUATION OF SCHOOL FEE LOANS Accurate evaluation of a potential client’s needs for a school fee loan and ability to repay is essential to both mitigate risk of default for the financial institution and protect the client from over indebtedness. This module builds on Module 2 regarding the characteristics and typical clients for school fee loans. In this chapter we will review the loan evaluation process for such loans in detail, including calculation of repayment capacity to determine a loan amount. The set-up is based on EduFinance’s experience and is considered to be a good set of practices. However, for each financial institution the circumstances are different, and therefore the operational set-up may also differ per institution.
6.1. SCHOOL FEE LOAN – PRODUCT CHARACTERISTICS REVIEW As discussed in Module 2, the school fee loan is a valuable product for parents, guardians and students that are seeking credit to cover school related fees at any level, from pre-primary through university or vocational training schools. School fee loans can be used for school related expenses at both a private and public school. Loan uses may include tuition fees, cost of learning materials, uniforms, transportation and boarding. The school fee loan is available for individuals as well as members of group lending schemes. The table below reviews the product characteristics for both types: SCHOOL FEE LOAN: Individual & Group Product Characteristics
Amount Term* Interest Rate Fee(s) Repayment
Collateral/*** Securities
Other
INDIVIDUAL
GROUP
$100 – 1000**
$30-100 per child
1 – 12 months
3 – 12 months
2%
Customized
Customized
Customized
Monthly
Weekly / Fortnightly
2+
2+
DETAILS Depending on need, repayment capacity, collateral, and loan repayment history Depending on the start and length of the school term Individual - declining balance Group – usually flat interest Application, loan set-up, stamp duty, credit reference, insurance, monitoring, late payment, early settlement Both interest and principle At least a combination of two: fixed deposits, chattels, motor vehicle log books, land titles, guarantors + Group only: loan security fund, group guarantee The previous loan fully serviced with clean repayment history
* Product Terms should be customized according to country setting and regulations ** Current EduFinance partners SFL individual average is $165 ***Based on EduFinance partners lending SFL, collateral might not be required and only guarantors are recommended.
Module 06 | 2
MODULE 07. EVALUATION OF SCHOOL IMPROVEMENT LOANS
Module 07. Evaluation of School Improvement Loans
7. EVALUATION OF SCHOOL IMPROVEMENT LOANS Evaluation of a school owner’s ability to repay a loan requires an understanding of an educational institutions typical cash flow, school fee payment rates and timing, and a clear understanding of the project cost for which the loan is required. Because school improvement loans are typically multiyear and of SME level amounts, a decent estimation of a school’s repayment capacity is essential. This helps ensure a school owner can repay their loan without jeopardizing the operations of the school. This module builds on Module 2 regarding typical clients for school improvement loans. During the current chapter we will review an example of a private school system and requirements for opening a new private school. This is followed by the steps for a school improvement loan evaluation, including a calculation of loan repayment capacity.
7.1. SCHOOL IMPROVEMENT LOAN – PRODUCT CHARACTERISTICS REVIEW As discussed in Module 2, the school improvement loan provides private school owners or networks, or other educational institutions funding for capital improvements and working capital. The typical target group for school improvement loans are owners of private schools serving the low to medium income population. They need funding to strengthen their position in the market by enlarging or upgrading their facilities and equipment. Private education is playing an increasingly important role in the education sector in developing markets. This is particularly the case in the secondary, higher and vocational levels as public schools are often overcrowded and provide lowquality education due to resource and capacity constraints. School improvement loans may be used for a variety of purposes, including acquisition of land, construction activities, purchase of assets such as buses or equipment, student food, staff salaries or marketing. The table below reviews the product characteristics for a typical school improvement loan, based on EduFinance’s experience in several countries. SCHOOL IMPROVEMENT LOAN: Product Characteristics Amount
$7,000 30,000**
Depending on need, repayment capacity, collateral, and loan repayment history
Term
3 – 60 months
Depending on loan purpose
Interest Rate
Customized
Declining balance
Fee(s)
Customized
Repayment
Customized
Collateral***/ Securities
Customized
Application, loan set-up, stamp duty, credit reference, insurance, monitoring, late payment, etc. Grace period based on school calendar/cash flow and loan purpose; should be within first month of term Guarantors/corporate guarantee; Guarantor must have reliable character and verifiable income;
2
Module 07. Evaluation of School Improvement Loans
Other
Chattels, land property, debenture if the borrower is a company The school must have operated for at least 1 year (2 years preferred); school owner must have experience for at least two years
* Product Terms should be customized according to country setting and regulations ** Wide range depending on need and institution: $7k for spot improvements to $30k for large construction. Current EduFinance partners SIL individual average is $22k. ***Based on a financial institution’s risk policy, a solid guarantor might sometimes replace collateral if the latter is not possible.
If a guarantor is accepted in lieu of additional collateral, this guarantor should be subjected to a detailed financial assessment in case he will have to repay the loan on behalf of the school. The guarantor should also act as financial advisor and mentor to the client. An alternative option for a client without other collateral is to build up savings to demonstrate the capacity to reimburse to the financial institution. This would also make the deposit available to be eligible for the loan if collateral not available.
7.2. SETTING UP A PRIVATE SCHOOL Each country has specific regulations related to private school set-up, registration and operations. These are critical for a financial institution to understand when offering school improvement loans. The table below outlines key requirements for private school registration in two countries.
PRIVATE SCHOOL REGISTRATION REQUIREMENTS • • •
• • •
UGANDA Proprietor in Good Standing; no criminal record; adequate finances 2+ recommendation letters Lease of the premises at least 5 years for Secondary & 8 years for Primary schools Development plan required & proof that >10% of plan funds are available District/Municipal Inspection Report License granted for 2 years
• • • • • •
KENYA Institution business name registration Title/Deed/Allotment Letter or Valid Lease for 8+ years Certified copies of all teachers/manager professional & academic certificates Registration of teachers with authorities Full School Inspection Report Public Health/Sanitary Inspection Report
*The above represent a sample of requirements and are not an exhaustive list
The private school registration process and required documentation differs widely by country. ‘Ministries of Education’ are generally the oversight authority that approves registrations. In some cases this is done on a regional level, while in others a separate business registration is needed for schools. In some countries this process is straightforward, while elsewhere registering private schools can be time consuming. In many places schools operate outside the regulated system. The license period
3
MODULE 08. MONITORING & DELINQUENCY MANAGEMENT
Module 08. Monitoring & Delinquency Management
8. MONITORING & DELINQUENCY MANAGEMENT This module covers monitoring and delinquency management of school fee and school improvement loans. It begins with a reminder of the needs for both types of products and the main principles in evaluating them. The module then provides an overview of an institution’s general procedures and practices in monitoring loans and managing arrears, followed by a section on specifics for monitoring education loans.
8.1. REVIEW OF SCHOOL FEE LOANS & SCHOOL IMPROVEMENT LOANS As discussed in previous modules, the graphics below highlight the needs parents and school owners have for school fee loans and school improvement loans.
School Fees Loan
School Improvement Loan
Once a potential client requests a loan, the loan officer conducts a due diligence of the client in line with a financial institution’s loan evaluation principles. The goal of the due diligence is to determine the client’s willingness and capacity to repay. For a school fee loan applicant, the loan officer must remember the key differences between a school fee loan and a general productive loan. Because a school fee loan does not generate income, the client must reimburse the loan with existing business or salary income. It is therefore important to ensure that income covers both household income expenses and the prospective school fee loan instalments. For a school improvement loan, the loan officer must have a full understanding of the typical cash flows and risks of a school to determine which are relevant for the loan applicant. The loan officer should also understand the proposed investment plan to evaluate how the investment will impact income and expenses of the school over time.
Module 08 | 2
Module 08. Monitoring & Delinquency Management
8.2. LOAN MONITORING PROCEDURES A loan officer needs to be up to date on the loan monitoring procedures and practices that apply to its financial institution. Please read through them carefully. The following section summarizes the main items for monitoring loans that apply to many institutions: Key Issues in Loan Monitoring
Loan monitoring is important at all stages of a live loan. After a loan is disbursed into a client’s account, it is important to follow up on the usage of the funds and to make sure that no major part of the loan amount is diverted to other needs. If a disbursement is made in several tranches linked to milestones, for example progress in construction, monitoring visits are crucial to determine when a milestone has been reached and when the next tranche can be disbursed. Monitoring visits also need to include checking up on collateral (especially movable assets) to make sure it has not been sold or changed in any way that diminishes its collateral value. Furthermore, during monitoring visits and through interaction with clients, potential challenges for the client’s business can be identified ahead of time and corrective measures can be implemented. For instance, if the investment in a new classroom takes more time or is more costly than foreseen, maybe a temporary overdraft facility is needed. Also, in the case of a school fee loan, changes in the family context can be identified and their potential impact on the loan analysed. For example, the hospitalization or death of a family member, additions to the family or family members moving out may all have implications for loan repayment. Children’s school attendance should also be monitored through appropriate means in line with the financial institution’s child protection policy.
Module 08 | 3