List all the funding sources that are required for the sustainability of this solution
PML would attract debt and equity funding partners to implement the initiative in PNG and would seek partnerships with financial institutions in PNG for the funding support. The debt support to develop the loan portfolio of USD 25 Million in three years will require the on-lending funds support for approx. 19,000 clients. PML with its USD 13.6 Million deposits still finds it difficult in mobilizing the short term, low cost funds to meet the financial requirement of the project and would seek partnerships from the financial institutions and funding organizations like IFC and Ausaid. The ongoing support from BASIX India’s technical support and IFC support will form base for further developing the funding strategy of PML for this particular proposed project.
Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?
The targets for the proposed solution have been drawn as follow
i. 695 groups of 20 members each which effectively mean 13,889 clients
ii. At USD 1,800 loan size for each client, the overall loan disbursed will be 25 Million for three years time period.
The capacity to graduate from dependence on public finance for PML is huge due to these factors
i. Existing experience to handle large size financial services (Credit, Savings): PML already has staff with the knowledge of land titles, deeds etc. Their knowledge can be leveraged to successfully handle the product. PML can also leverage the expertise of staff built over the years for making assessment of income of the clients. Currently SME loans form volume USD 1.7 Million and 56% of the loan portfolio. Majority of the loans have been made to PMV or trade stores. Housing loans could potentially lead to a diversified portfolio.
ii. Assuming the 75% of cumulative disbursement as loan portfolio outstanding stands at USD 18.75 Million with 5% Portfolio at Risk and at 20% flat+ 1% processing fees, the project will be very sustainable after the proposed third year.
Eligible borrowers All, preference will be given to Those on the 3rd loan cycle with PML, Oil Palm farmers, including Staff ( minimum 2 years service & with good performance)
Nativity 5 years
Facility Term loan
Tenure minimum of 1 year and maximum of 5 years
Funding caps Min: USD 3,800
Max: USD 38,000
Funding eligibility 80% of the cost of the home, or estimated cost of construction
Loan eligibility Installment should not exceed 50% of the assessed monthly
Equity 20% of the loan amount as cash equity deposited with PML
Collateral Security cover 1. One Guarantor with Net worth equal to Loan amount.
2. Property: 125%
Cash Collateral (inclusive of interest): 100%
Interest 20% flat per annum
Processing fees 1% of the loan amount
Documents to be submitted for Processing of loans 1. Application form
2. 3 recent Pay slips or Financial statements
3.Copy of state lease title or Transfer Instrument
4. Valuation report
5.Copy of Insurance or Insurance quotation
6.Discharge of Mortgage
7.Land Rental receipts
9. Building board approval.
10.Contract for Sale
11.Title search for existing house
Both the points suggest a well grounded and sustainable finance model to free herself from any dependence on public finance in three years time.
Demonstrate how your proposed solution will survive a potential loss of its largest private funding source
Strong Risk containment measures that PML will take to contain any inherent risks involved in the operations are as below:
Site visit and personal discussion Mandatory. to be done by Branch manager
Character references 2 references mandatory
Valuation of security PML choice of agent will be used for Property valuation
Primary security Mortgage of the house
Documents to be obtained after approval of loan Title deeds search report
Demand promissory note
Mortgage title (original)
Registration of Mortgage
Photograph of the property together with the applicant
Copy of settlement statement
The current membership of PML is already more than 65,000 which suggest a well grounded and successful operations running in PNG.
Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation
The success of the project would depend on forming partnerships with two types of organizations.
1. Technical Assistance Consulting Agency: BASIX Consulting and Training Services presently provides its consulting services to PML on a long term basis and would continue as partner agency for the technical assistance on the propose project. BASIX Consulting (part of the BASIX Group of companies) offers technical assistance to MFIs and Livelihood Promoting Organizations in India and abroad for the past 14 years.
2. Financial Partners: The investing partners in equity and debt will provide the required strategic guidance and would represent in the Board to drive the initiative with more accountability and bring more transparency in the governance. The debt funds are required as on-lending fund to support “as-on when required” basis to limit the cost and also free the burden of overloading the responsibility to disburse to the clients. The partnership would seek their expertise in bringing the bridge loans and bring fresh ideas on risk management.
Are there non-financial issues that could threaten the sustainability of your proposed solution?
While BASIX Consulting is hired to train the field staff and the middle management to provide the required HR strength to the organization, it still remains a challenge for the organization to get the educated and qualified staff for the organization at all level. It would require more training and consequently more engagement with specialized consulting agency like BASIX Consulting.
Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically
In the micro shop construction segment, the competition is very limited, thus people have very little choice in terms of the cost and type of shops and locations that they prefer to live in. People are being forced to erect temporary structures in the squatter settlements on the fringes of the towns. While these structures are inadequate, they have been the only locations for people to pursue their business activities, in the absence of alternatives. The proposed solution will target approx 19,000 clients in different geographies representing different segments of the society. The initiative will bring in the required entrepreneurship in the country and will drive the SME sector at a high growth trajectory. The successful model is replicable and will be taken further to other Pacific Island countries such as Samoa Islands, Soloman Islands, Vanuatu, New Caledonia, Timor Leste and others.