“Operating in Near-Crisis Environments: Political Instability and Conflict, Refugees, Natural Disaster”

Essma ben HamidaCo-Founder, Executive DirectorEnda inter-arabeAmman, November 2013

Enda inter-arabe in the aftermath of the Tunisian

Revolution

Tunisia 2011: “Arab Spring”

condition

Si

nce i

ndependence

Bourguiba - 1st enlightened Arab President: - In 1956 introduced Family Code: vastly improves women’s rights and condition- Followed by Ben Ali: no freedom of speech, corruption…but security, stability, economic growth

2011 Rev

olution: Leads

to Islamist gov

ernme

nt

Spread of crime- Burning- Looting- MurderDamage includes factories but also cafes, small shops, even micro-enterprises in poor neighbourhoods- Rise of religious fundamentalismDesire to limit individual freedoms, especially for women

Effect on econo

my & e

mploy

ment

At least 30 000 jobs lost Investors head out of the country (e.g. to Morocco)Unemployment reaches 800 000; no signs of improvementTunisia’s rating falls to dramatic levels

The revolution and its aftermath

Revolution:multiple risks for enda

Reputation: As soon as Ben Ali fell: “Enda belongs to Leila (his wife)”! Truth campaign quickly bore fruit.

Behavioural change: Some staff want to “revolutionize” Enda: first trade union formed adopts aggressive, unconstructive approach Performance worsens: growth rate, income, productivity, liquidity, PAR decline. cost of funds, inflation rise…Other factors improve: recruitment, innovative products, demand…

Agressivity: Some clients’ became aggressive stress for field staff; psychologist recruited

Rise of Islamism: interest contested but little impact. Fears for women’s rights

Enda Inter-Arabe

Impact of revolution - Credit

2008 2009 2010 2011 2012 20130

20

40

60

80

100

Portfolio (M TND)

Portfeuille

2008 2009 2010 2011 2012 20130

1

2

3

4

5

6

0.550.9

0.425

4.9

3.15 3.3

PAR

PAR

Revolu

tion

2008 2009 2010 2011 2012 20130

10

20

30

40

50

60

70

80

90

100

Refin Total Financement  étranger Financement Local

2008 2009 2010 2011 2012 2013

0%20%40%60%80%

100%

% financement étranger % financement local

Revolu

tion

2008 2009 2010 2011 2012 20130

1,000

2,000

3,000

4,000

5,000

6,000

5,222

4,304 4,4324,027 3,752

4,563

TMM

Cost of funds 6.5%

Cost of funds 10%

Impact of revolution - financial

Branches by risk

66% of our branches

destabilized by the revolution and

its aftermath

Distribution of risk in branches caused by political instability in

2012

Risk Level

Chronology of Risk Management

Prior to Revolution

During the Revolution

After the Revolution

Ris

ks F

ace

d

• Increase in PAR• Risk of fraud

• Reputational risk• Security risk

• Security risk including terrorism

• Credit risk• Liquidity risk• Political risk

Syst

em

s put

in

pla

ce

• Regular follow up on PAR and arreers

• Internal control and audit

• Crisis committee• Strengthen communication with clients

• products more flexible

• Security guards in branches

• safety instruction manual to all branches

• Emergency procedures

• Global Risk management Department

• Risk policies, Risk committee at Board level)

• Tools to manage liquidity (d/d and h/h), scoring

• New tools to manage risk

• Continuity Plan• Use of media (enda achievements)

Credit Risk

• Strengthen controls during loan application process• New position at branch level to reinforce loan application

committee • Collections department to follow up on outstanding loans (field

and HQ)• Detect good profiles (scoring system)• Adapt collections strategy• Systems/tools to prevent credit risk: scoring of loan

disbursement, generational analysis, etc…• Diversify portfolio but still focussing on the poorest areas and

people:▫ Roll out agricultural product (Mawssem) developed with WWB support▫ develop innovative product for start ups by youth (Bidaya) support

from Swiss ▫ cooperation▫ Geographical diversification : new branches opened in both urban and

very poorRural areas

Operational Risk1• Reinforce security for branches and staff:

▫ Close branches in times of local upheavals (usually one or two days)

▫ Adapt working hours according to circumstances▫ Adopt specific procedures to protect loan officers and funds in

the field▫ Collect regularly promissary notes from branches and store in

safe place • Revise and improve procedures and control measures (risk

mapping) by branch and area and product• Procedures and action plan to manage crises and handle

disruption of activity:▫ Safety Instructions Manual▫ Emergency Procedures▫ Business continuity planning

Operational Risk2

• Psychological listening sessions with clients and staff• Training sessions in non-violent communication (staff)• Salaries increased, bonus system for loan officers adjusted• Loans rescheduling • Disaster loan to help clients refinance loans and restart

projects• Greater flexibility in products• Regular back up (information system)

Financial and Market Risk• Liquidity crisis in Tunisian banks sharp fall in

refinancing▫ Reduce the maximum amount of housing loans▫ Reduce the number of clients receiving education loans ▫ Slow the pace of loan disbursement, reduce growth despite

demand• Rigorous follow up on treasury:

▫ Short-term planning of treasury flows▫ Use collected cash to supply current accounts ▫ Monitor contractual commitments on key financial ratios

• Cost of funds soar from 6 % to 10 and 11%: impact on enda’s income

• Control running costs: ▫ No increase in loan size for good clients▫ Pace of new openings for 2012 and 2013 reduced

Main lesson: don’t wait for disasters to occur, be

prepared• Need for a good risk management strategy, not wait for

disasters• Need for a risk management department• Need for tight security measures for branches in risky

areas• Need for a business continuity Plan• Stay close to clients, communicate regularly• Train staff, communicate with them, stay close to them,

give them incentives despite declining productivity and increasing PAR (loyalty to the institution and clients)

• Use media and communicate on microfinance and your MFI

• Call on partners, networks and friends of MF (they react!) • a crisis always leads to an opportunity!

Thank you for your attention.