SMEP - Mombasa, Kenya

Meet Small and Micro Enterprise Program (SMEP)

Small and Micro Enterprise Program (SMEP) is an initiative of the National Council Churches of Kenya (NCCK) whose main objective is to alleviate poverty by empowering those who are economically marginalized. It is a not-for-profit microfinance institution (MFI) which was registered as a company limited by guarantee in April, 1999.

The institution had total assets of USD 9.5mn (2007) and is in the second league of MFIs in the country behind the big institutions like Equity Bank, K-Rep, KWFT, and Faulu. SMEP is in the process of transforming into a deposit taking MFI (DTM) in accordance with the provisions of the Microfinance Act, 2006 and comply with the Microfinance Regulations, 2008 and the Central Bank of Kenya (CBK) guidelines.

Project Objectives

The objective of the project was to analyze the status of Risk Management at SMEP Microfinance. A series of short and long term changes for each institution shall be recommended, which will ensure that the risk management is at an appropriate level for the institution at each stage of future growth. The analysis helped to answer the following questions:

  • What is the current Risk Profile of the MFI?
  • Is the current Risk Management set-up sufficient for the Institution’s current business?
  • Are the aspects of Risk Management sufficiently reflected in the future growth plans?
  • What suggestions can be made to improve the Risk Management for the institution going forward? This will include quick wins that can be implemented with little effort as well as long-term solutions. These improvements will cover the areas of Risk Culture, Risk Policies and Structure, Risk Reports.
  • Is the institution investable and what pre-conditions should be linked with a potential loan exposure?

Set up of Project

The project was conducted in three phases:

Phase 1: Information request
SMEP received a “day one letter” with a questionnaire in which we ask for a series of data, existing policies, and descriptions in order to analyze the current status of Risk Management. The information was analyzed and as series of external sources was researched as well.

Phase 2: Interviews and visit to SMEP
In this phase, one PPP consultant (expert) visited the institution, carrying out internal interviews with the key personnel of the institution. The purpose was to fully understand the processes the institution is applying, the products, and risks.

Phase 3: Analysis and Report Writing
Based on the written information provided, the own research, and the conducted interviews, the Risk Management function was analyzed and a final report was written. Preliminary results were presented in Nairobi on July 9th as well as in a meeting with Grameen Foundation USA in August of 2009.

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Risk Management Assessment

  • Risk Management RM is one of the core competencies of any Financial Institution (FI). For Microfinance Institutions (MFIs), the appropriate identification, measurement, and management of sources of risk like interest rate risk, Credit Risk, Liquidity Risk, or Operational risk becomes an essential function.
  • This is even more important as MFIs grow, offer more products, and open up to market based funding.  
  • The RM function needs to be flexible to grow along with the institution and needs to be as complete as necessary to enable the MFIs to manage its risk.
  • Neither an oversized RM function nor an incomplete set-up is helpful. Aside from the internal need for RM more and more investors demand a sound practice in an MFI before considering an investment.

Risk Management Clients