South asia city partners convening dakar role of guarantee fund

Structuring of the Fecal Sludge Market Role of Emptier Guarantee Fund South Asian Partners Convening Dakar, Senegal (14th-18th Nov 2016) By: AK, Bhusan, Chary, Jessica, Kavita, Luan, Michiel, Paramita, Pragyan, Sujaya Group 1B Initial thoughts Progressive step for promoting FSM Markets / for inclusive markets Highly relevant for many urban areas/states/countries /sectors What is a guarantee fund? • “A sum of money pledged contingent indemnity for loss” as a • “Money that a stock exchange keeps in order to pay investors if a company on its list is unable to pay” Source : Money markets PSFSM – Context • The program aims at : – Providing poor people with a quality mechanical emptying services at a lowest possible cost – Help increase mechanical emptier’s incomes • The program has four components : Infrastructure, FS recycling, research /restructuring markets and communication component – Establishing guarantee fund (EGF) is one of the progressive initiatives to decrease financial burden for operators under RR component EGF - Context – Old fleet of trucks – unfit for the business/ environmental and safety problem – High operating cost – maintenance and fuel costs (50 %) – Companies’ in FSM markets are poor – Available option – own resources /borrow at a high rate (91 % own resources ) – Difficulty in accessing bank credit – conditions – Slow uptake for deploying new trucks /repair of old fleet Why an EGF? Objectives: • Market development to meet emerging demands by providing access to loans – new fleet /repairs • Reduce the cost of service – by lowering the O & M costs • Risk mitigation for credit agencies Design of EGF ONAS 200 million CFA Truck Owner Insurance NBED 600 million CFA Steering Committee AAAS • Self Regulation • Financial discipline Fund Flow – Process Truck Owner/to be owner - Documentation -Member of Association AAAS - Processes application -recommends to Steering Committee Steering Committee Key documents: •Last three years – Financial Statements •Projected trading account •12 month cash flow statement •Financing plan •Bank account NBED - Screening - Disbursement -Recovery EGF : Understanding Operations • Total Fund : 800 m CFA – 600 m CFA – Bank – 200 m CFA – Cash collateral • Risk coverage – 25 % from EGF and 50 % from insurance • Fixed interest rate of 7.5 % (6.5 % banks + % towards insurance) • Loan tenure – years with a grace of months • 29 beneficiary (13 no in year + 16 no in Year 2) out of 36 applications • Average loan amount - 20-25 m CFA per beneficiary for new truck (second hand) / m CFA for upgrading • Late payment - Less than three per cent Emptiers • Operating since 1976 • When was the association formed : 2006 • Why association : problem with authority, problem with police control, dispute themselves • Association promotes – only mechanical • Why did they not approach bank ? • Income per trip – 25,000 CFA • Expenditure per trip – 10-15,000 CFA • Average 60-70,000 CFA /day • One million CFA – net • 900,000 – 1 m every month net income Lessons from Dakar, Senegal – Impact • Strategic fit within the overall programme – PSFSM • Helped in developing the FSM market – increase in fleet to meet emerging demand (over 30 no.s) • Promoted mechanical emptying • Lowered interest rates and increased income of the operators (12-13 % to 7.5 %) • Self regulation through FSM association Owner of a private emptier company – Mbbaye Kane • Before the program, there were lots of challenges Emptiers were not organized • Did not know about the point system for emptier companies • Did not understand the loan structure • He is a fan of the call center and association as it helps him get more clients • To become member of the association, there is a one-time registration fee of 20000 CFA • He would not be able to afford new truck or repairs without this program This ONAS program fixed a lot of issues The program made it possible for us receive new trucks I pay every month for 5 years and am able to make the payment Association of Sanitation Actors in Senegal (AAAS) • They formed the association in 2007, for several reasons – They had problems with authorities – They had problems with police (corruption) – Disputes amongst themselves for whom who get the market There were middlemen • • • • They have been promoting mechanical ever since first truck in 2002 Saved for the first set of trucks themselves It took a long time Aware of the guarantee fund With the guarantee fund, they were able to grow their fleet with 30 extra trucks within 1.5 years Not sure if they could provide the 10% collateral, as desired by the bank Traditional banks almost killed us They require collateral that we cannot provide and charge high interest rates BNDE Bank • The guarantee fund has 29 beneficiaries, loan term of years, grace period of months, monthly installment of 358 K CFA, interest rate 7.5% • Average loan size 20 M CFA, current total portfolio 600M • Started with 13 beneficiaries in Sept 2015, additional 16 in early 2016 • Less than 3% NPR • Would like to roll-out nationally • Are also doing this for toilets and truck lorries I would recommend to ask equity from beneficiary, around 10%, to have them participate more Also, more financial education for Steering Committee and beneficiary would be good Lessons from Dakar, Senegal • Promoted financial discipline and professionalized the sector (bank accounts/tax/Balance sheet etc) • For long term sustainability – equity contribution may be considered • Increasing financial literacy of Steering Committee /beneficiary members • Potential for scale and replicability Replicability • EGF like financial instrument is a good way to formalize informal markets • Provide access to financial services for the poor/marginalized • Applicable for other sectors that heavily rely on groups of marginalized people Thank you Group 1B ... ever since first truck in 2002 Saved for the first set of trucks themselves It took a long time Aware of the guarantee fund With the guarantee fund, they were able to grow their fleet with 30 extra... cannot provide and charge high interest rates BNDE Bank • The guarantee fund has 29 beneficiaries, loan term of years, grace period of months, monthly installment of 358 K CFA, interest rate 7.5% • Average loan... component – Establishing guarantee fund (EGF) is one of the progressive initiatives to decrease financial burden for operators under RR component EGF - Context – Old fleet of trucks – unfit for