Capacity Assessment Report for Midnimo Micofinance

CAPACITY ASSESSMENT REPORT

MIDNIMO MICROFINANCE INSTITUTION COMPANY (MMIC)

Assessment date: 4th -7th July, 2021

WVS/DRC assessment team with Midnimo staff at MMIC office in Baidoa city 7th July, 2021
Reporting date: 15th July, 2021

Introduction of assessment

World Vision and DRC team conducted a capacity assessment for MIDNIMO Microfinance Institution
Company (MMIC) in Baidoa from 4th -7th July, 2021. The team used WV capacity assessment tool
covering HR, Governance, Leadership, operations and Financial Management related topics. The team
had meetings with BOD members, staff of the MMIC and also interviewed religious leader, chairman
of SWS chamber of commerce, Director General of Ministry of Finance and 6 beneficiaries to better
understand more about the service, capacity of firm and perception among different people in Baidao.
In addition, there was a due diligence exercise to make sure all staff and leaders are not involved in a
terrorist activity, political affiliation or sanctions imposed by government or any other party.

Overview of MIDNIMO microfinance.

MIDNIMO microfinance was borne out of 50 Village Saving Associations (VSLAs) created by DRC
in 2013. Out of the 50 VSLAs, only four VSLA groups remained functional. In early 2017 District
revolving fund committee (DRFC) was created and consisted of Representative from the Two-long
serving VSLAs and a host community member who later become District bank committee (DBC),
the District Bank committee together with DRC opened an account from Dahabshil Bank
where 36,000USD was deposited

The DBC, after vetting and verification of VSLA members, they used to s them to Dahabshil bank to
withdraw their cash. These was free loan mechanism where they return money after specified period.
Dahabshil complained on the number of clients that were queuing and creating congestion. Therefore,
they requested the DBC to stop sending clients to them and close their account. Then, the DBC
mobilized private companies like Daldhis and Nafis to bull funds to create a microfinance company
where It is members comprises of 2 members from host private companies and three DBC members
of which one was from the host community. After the creation of MIDNIMO the private companies
contributed 110,000 USD, and DBC contributed 36000USD and DRC on behalf of the VSLA further
supported MIDNIMO with 104000 USD cash making the total startup capital to 250,000 USD.
However, the shares dividends were not clear as per the different money contributed by the private
companies and DRC. The largest shares (52%) goes to Mr. Adan Abdulahi Moalim who is from
the private sector and the second largest share (29%) goes to Mohamed Ali Adan 29%
who is again from the private sector, while members of the DBC ( Ibrahim, Abubakar
and Abdulalhi ) each had 11% shares. As per the contribution from the private companies should
have a total of 47% while the DBC (VSLA) should have 52% of the shares. Therefore, there
is need to correct shares of the company and a certain ownership.

LEGAL STATUS AND GOVERANCE OF MIDNIMO MICROFINANCE INSTITITION
COMPANY

MIDNIMO Microfinance Institution Company has been legally registered by the Ministry of Commerce
and Industry at Federal Government of Somalia. It is a member of chamber of commerce at SWS.
The MMIC has a constitution and updated vision and mission. It was translated into Somali language.
The profile needs some improvement, especially the nature of the firm. It details that the firm is a
nonprofit organization which contradicts the essence of MIDNIMO Microfinance Institution Company.
The firm is a profit-oriented company that supports poor people marginalized groups, VSLA groups,
farmers, pastoral communities, and SMEs through microfinance services and they charge a small rate
of 8%. Other banks like SALAAM BANK, DAHABSHIIL, and AMAL BANK provide the service of
microfinance, but they overcharge from 12 USD to 16 USD with a lot of conditions before the client
receives the loan.

The Board of Directors are the owners of the company. They are five in number- 5 male and 0
Female. They were not elected by a general assembly. They came directly to the position as they
invested their money. They meet when there is a loan request from VSLA to approve or reject. They
meet twice each month, and sometimes they hold ad-hoc meetings. They have general manager who
is a member of BOD. They have 4 staff; Credit office, Date entry, Finance officer and Customer officer
who are University graduates. MMIC’s office is located in the heart of the Baidoa city near to serve
the people that live there. They are also planning to expand this micro-finance services to other
locations of SWS and Somalia regions at large.

Loan Origination Process ( Murabaha) at MMIC

1. The client expresses interest in obtaining a loan and visits the MMIC office for orientation
and advice.

2. The client completes the application form known as the client information sheet.
3. The customer provides a business plan
4. The MMIC staff completes the credit application form.
5. Two BOD members will visit the site for verification.
6. The General Manager collects the verification report+ business plan along with the filled

forms (client information and credit application form) and presents them to the BOD
members for approval. In case the business plan is approved, MMIC staff will prepare a loan
information sheet otherwise, the process will end here.
7. Request for grantor from the client
8. The MMIC’s General Manager will organize a meeting with the appraisal committee consist
of all MMIC’s BOD members + DRC's focal point to discuss the grantor and finally agree on
the viability of this business. They generate meeting minutes to capture the decisions and
deliberations of the meeting for the record.
9. MMIC will send a request to a public notary office to prepare an official agreement between
the requester and MMIC about this loan.
10. Disbursement of goods/commodities
11. Client registration by using Murabaha online system

Financial situation of MMIC to date- May-2021

Capital amount = 247800 USD
Profit from Jan 2020 to May, 2021= 28180.08 USD
Cash on hand …………………………61,896.36 USD
Loan (Murabaha)…………………..167543.74 USD
Number of client…………………….273 members (Female =35.22% Male= 64.8%)
Active clients (July, 2021)……….130 members

MMIC uses quick book software to generate financial report, however finance staff needs training on
quick book and financial management skills. Read the capacity improvement plan in 1st Annex.

Sharia compliance

During the assessment one of the most prominent shiekhs in Baidabo was asked about the Halalness
of the current microfinance practices of MIDNIMO Microfinance Institution Company. The sheikh
noted that microfinancing is one of the ways communities can evade poverty and economically grow.
He also mentioned how he played a role in connecting some members of his family to MIDNIMO
microfinance “I connected my sister to MIDNIMO microfinance and now she is taking loans on the third time
from MIDNIMO, her business has grown and flourished”. The sheikh iterated that MIDNIMO is the only
microfinance institute who is fully complaint to sharia laws. “The company step by step follow the
sharia and this made me trust their financial dealing”. The sheikh further explained how MMIC follow
the different sharia based financial model and iterated how they do Murabaha financing, the striking
difference of MIDNIMO from other banks that give finance is that MIDNIMO has got a large store
where they transfer goods from the seller and later on transfer to the client, this is the exact procedure
for murabah. Although MIDNIMO has no sharia advisory board they regularly ask question on matters
pertain sharia compliance to their products. The sheikh recommended that MIDNIMO (MMIC) should
organize a regular advisory board who can monitor their dealings as well as vet new products for
compliance.

Linkages to ministry for finance and chamber of commers

In KII interview with the DG, it was found out that MIDNIMO is well known and acknowledged their
contribution in regional economic growth. “It because of MIDNIMO that new business exists in
Baidabo and the rise of new entrepreneurs” said by the DG. They support many women owned small
business in Baidabo. Apart from major banks, MIDNIMO is the sole MFI that exist in Southwest state
of Somalia. With evidence from the ministry for finance, MIDNIMO is a complaint micro-finance
institute to their regulation and policies and loyal taxpayer to the government. The Dg reiterated that
currently the ministries is only mandated for revenue collection but expects expand their portfolio
and cover institutional developments. As per the Dgs explanation for a company to register, they
should have norms and regulation that govern the company, they should have public notary
certification declaring shareholders entity, percentage of shares and startup capital, and they should
provide their bank statements for at least three months. Since their mandate is limited to revenue
collection, they do not admit complaints and offer any guidance relating to standards. It was also
established that, the ministry has no plans, regulation, and strategies to support microfinance institutes
in south west state of Somalia.

MIDNIMO is an active member of the chamber of commerce and participates events, meeting and pay
their annually member ship fee. The chamber of commerce supports small business to restore their
capital in terms of calamities like fire out breaks, support business to repair roads, recover during
losses. As per the chairman of the chamber of commerce, there are no stand-alone Microfinance
institution like MIDNIMO in South west states of somalia. He further highlighted that there no plans
for policies and support for microfinance companies.

Clients’ perspective of MIDNIMO

MIDNIMO has so far 189 from 90 VSLA groups, the clients are on different scale of loans, they achieve
100% recovery rate and a deliquesce rate of 98%. In a focus group discussion, it was found out that
MIDNIMO microfinance were attractive to both large, medium, small, and new businesses. Some of
the mentioned attraction include:

Cheap profits: MIDNIMO charges 8% to clients as profit compared to other microfinance like Amal
and Dahabshil who charges in between 12%-20% based on the scale of the loans.

Cheaper requirement: MIDNIMO paper requirements for the client is affordable and cost less than
a 100 dollar where other Microfinance companies paper requirement costs is close to 300 dollars

There are few grants required by MIDNIMO: MIDNIMO focus and targets sectors that other
microfinance see as a risk to invest. The sectors focused by MIDNIMO include: Small livestock traders,
farmer, vegetable traders, hawkers, meat and milk sellers and small shop entrepreneurs.

The clients also reported that through the MIDNIMO they were able to access finance and invest in
their already meager startups, they were able to expand their business which directly improved their
living condition. The clients highlighted the various ways access to finance contributed their day-to-
day life.

Most of the participants acknowledge that they were able to take their children to schools due to
their capacity to pay school fees. They were able to increase the number of meals per day in their
houses from twice a day to thrice a day. They were able to take their children to schools. They also
mentioned of repairing their housing and installing electricity.

Areas of Strength

1. MMIC is fully registered in both South West and Federal Government of Somalia and it has
good record on Microfinance services to the poor community members in Baidoa since Jan,
2020.

2. There was a positive feedback from government officials, religious leaders and direct
beneficiaries interviewed during the assessment

3. There are great number of manuals in HR. Finance, Money Laundering, Marketing, Strategic
plans and online system

4. MMIC has passed the registration conditions/requirements from Central Bank of Somalia
and they are expecting official certification letter in this month or early next month of
August, 2021.

5. They created a clear system and process of loan issuance that reduces the risk of loss or
misuse where they added grantor, public notary agreement, physical verification and follow
up visit done by the BOD members and staff together

6. They provide loans with small rate of 8% and easier conditions compared to other existing
banks: Dahabshiil, Salaam, and Amal banks.

Areas of improvement

• All documents; manuals, Policies are written in English. Staff and BOD have limited
understanding about the available documents at MMIC

• There is no strong internal system in place to track loan and generate analytical report
• Ownership of MMIC is not clear as stipulated in signed agreement with businessmen and VSLA

group representatives. There was no sub-agreement between VSLA members and their
representatives to show
• Some policies are still missing like Procurement Policy, Security Policy, Safeguarding Policies

1. Due Diligence Result – “ PASS”

2. Capacity Assessment Result – 51.5 %

COMPREHENSIVE PARTNERSHIP ASSESSMENT SUMMARY –
MIDNIMO MICROFINANCE INSTITITION COMPANY ( MMIC)- July-2021

Category Number of Full CPA Capacity Major Capacity gaps noted (to be Are the gaps a
Questions Assessment documented in CIP[Capacity major risk or not?
A. Identity & Max Improvement Plan])
Constituency 3 score 58.3% (Yes/No)
Documented in CIP
B. Governance and 12 Ownership of the firm is not clearly No
Leadership documented on the agreement to
7 28 53.6% Yes
C. Finance Mgt HR & show shares of VSLA groups and
Security 33 132 47.7% private company owners. NO
D. Operations Documented in CIP Yes
E. Participation & 12 48 54.2% No
Protection No monitoring system is place. No
F. Working with 5 20 60.0% There is internal controls at MMIC No
Partners
G. External Relations 3 12 66.7% Documented in CIP
5 20 45.0%
Total Documented in CIP
68 272 51.5% Documented in CIP
Key:
Weak Adequ Strong
Inadequate capacity capacity ate capacity
Below 25% 25% to
capacit >75%
49% y

50% to
74%

Assessor’s Recommendation

• To ascertain ownership there is need of agreement between the VSLA representative and
VSLA members indicating individual share.

• The company should fall under the realm of public private partnership and part of the
government should be introduced to the company to at least have an oversight on the ways
things are conducted and protect the donor fund.

• Implementation of capacity improvement plan (See Annex 1) is critical for filling gaps and
providing MMIC with the appropriate support.

• MIDNIMO (MMIC) should organize a regular advisory board who can monitor their dealings
as well as vet new products for compliance.

Names and signatories of assessors

1. Mubarik Mohamoud Ahmed – WVS- Technical Specialist- Partnering
2. Abdirahman Bare Dubad…….WVS- ILRI Technical Advisor
3. Abdikadir Mohamed Bulle….. DRC- Acting Area manager of Baidoa office

Annex 1

MIDNIMO MICOFINANCE INSTITITION COMPANY ( MMIC)

Capacity Improvement Plan ( CIP) 7th july,2021

Category Interventions July

Identity and 1. MIDNIMO Board of directors are 5 20th J
Constitency members with 100% male. They will add new 2021
Female member from Hormuud VSLA group.
All 4 VSLA representatives: Ibrahim, 31.07.
Abdubakar, Raha will sign an agreement with
their respective VSLA groups with public
notary stamp. Then, they send it to Midnimo'
s office to update the shareholders.

Renewing registration certificate from
Ministry of Commerce SWS state-

Translation of companies polices; finance, loan
issuance procedure into Somalia.

1. The company will give equal chance both contin
gender to reach a target of 50% of each (
Governance and Female/Male)
Leadership
Create Sharia advisory group ( Minimum 3
Sheiks)attached with the company

Financial Mgt, HR and Development of Board Policy
Security Development of finance operation guidelines
including procedures of loan issuance

Development of record retion policy
Development of procurement policy and
procurement bidding process

August Sept Oct Nov Dec Responsible Status
July,
person(S)

ibrahim Mohamed

Isaxaq, Abukar Ahmed
Hussien with support
from General Manager-
Mohamed

.2021 General Manager-
30.08.2021 Mohamed Ali

nue SOMREP- Danniel
Kanyarere
20.08.2021
General Manager-
Mohamed Ali

General Manager-
Mohamed Ali &
SomRep team
SOMREP Technical
SOMREP Technical

SOMREP Technical
SOMREP Technical

Train company staff on MFI financial management
including quick book, documentation, record
keeping, monitoring, analysis and reporting

Participation and Reviews for all existing manuals and policies
Protection
Develop internal control system manual
Communication
Train staff to use blocked party screening (PBS for
vendors)
There is a need to develop clear guidelines for
salary scale, recruitment procedures for new staff.
Develop security policy, management security
incidents, provide training to staff

Hire a security focal point at the Midnimo office

Develop safeguarding policy
Develop risk management policy
Print Staff ID cards

Develop consent form for clients

Organize community trainng to staff ( Digital
marketing)

Sept, Oct, SOMREP Technical
2021 2021
SOMREP Technical
Oct, SOMREP Technical
2021 SOMREP Technical
SOMREP Technical

SOMREP Technical

SOMREP Technical
SOMREP Technical
SOMREP Technical
SOMREP Technical
SOMREP Technical
SOMREP Technical
team/Midmino