• Project: Technical Assistance for Papua New Guinea’s Credit Guarantee Corporation for SMEs
• Duty Station: Home-based
• Contract Duration: 14 MAR 2022 – 30 MAY 2022
• Consultant Level: Level 6
• Total Fees: USD 30,000
• NOTE: Applicants will be assessed on a rolling basis

 

GGGI is supporting BPNG prepare for the CGC’s launch in March/April 2022. To this end, the Consultant’s assignments are as follows:

Output 1. Design a range of loan guarantee products for the agricultural sector to be rolled out in 2022

Output 2. Develop a medium-term investment strategy for the CGC

(Note. The term “investment strategy” above should be interpreted broadly, i.e. how the CGC should allocate its resources in the short and medium-term to strengthen its performance; it does not refer to how it will generate investment income).

Please refer to the next section (“Deliverables and Payment Schedule”) for details of each output.

 

Output 1. Design a range loan guarantee products for the agricultural sector to be rolled out in 2022

Based on the Consultant’s understanding of PNG’s agricultural sector (especially the value chain for cash crops), the CGC’s business plan, the general availability of credit and financial services in the country, and other reference materials, the Consultant shall propose a range of loan guarantee products for agribusinesses, cooperatives, individuals, and other potential borrowers in the agricultural sector.

In the Guarantee Products section, the Consultant shall describe – for each guarantee product – the following (among others as deemed necessary by the Consultant):

• Target segment within the agricultural sector,
• Eligibility criteria (particularly the CGC’s minimum collateral requirements),
• Purpose, size, tenor of the loan(s) to be guaranteed,
• Guarantee coverage (with recommendations on adjustments over time, if applicable),
• Guarantee fee (one-time and/or recurring),
• Recommended steps and conditions for the lender to call on the guarantee (e.g., trigger event, pay-out procedures, responsibility for recovery, etc.), and
• Expected demand for the product during the years forecasted in the financial model (see below).

The Consultant shall take extra care in preparing the Methodology section which should include, among others:

• Pricing model for the guarantees (e.g., a formula guided by the need to ensure the CGC’s long-term viability that incorporates loan amount, cost of equity, borrower’s underlying credit risk or probability of default, borrower’s operational risk, CGC’s expenses and profit margin/sustainability, etc., OR a formula based on NPV of guarantees, OR other method as deemed practicable by the Consultant).
• Credit risk model used to estimate defaults (and the resulting expenses for the CGC as the guarantees are called). While the standard approach would be to conduct a migration analysis through a transition matrix, please consider the potential need for other approaches in the event that local financial institutions do not provide historical data (e.g. estimating PD by generating a loan loss distribution curve using Monte-Carlo or other method as deemed practicable by the Consultant).
• Financial model (income statement, balance sheet, and cash flow statement) with relevant line items linked to the pricing model and credit risk model (e.g., in the income statement, revenue from guarantee fees should be linked to the pricing model, guarantee expenses to the credit risk model, etc.).
• All three models should be submitted as separate tabs in a single excel file with (1) a cover page/instructions, (2) assumptions, and (3) input cells so that the CGC staff can use the excel file to develop future guarantee products and assess their impact on CGC’s financials.

The Consultant will also prepare a Limitations section dedicated to explaining the shortcomings of the model(s) (and guarantee products developed therefrom) and offer recommendations as to how the CGC could improve upon it in future versions.

 

Output 2: Develop a medium-term investment strategy for the CGC

While the CGC’s mandate is to foster the growth of PNG’s MSMEs, its future goals also include (1) increasing its capitalization and (2) strengthening its support for MSMEs in “green” sectors through “green” guarantee products.

1. Increasing capitalization by attracting climate/development finance

It is not unusual for credit guarantee funds/corporations in developing countries to have development finance institutions (either national or international, such as KfW or IFC) as shareholders. These institutions either provide seed capital at the very beginning – usually also having financed the feasibility study and preparatory activities leading to the CGC’s establishment – or in the third or fourth year of the CGC’s operations after observing their performance. Another emerging source of capital with the growing emphasis on climate change is the Green Climate Fund and its Accredited Entities.

The Consultant shall present a strategy as to how the CGC could attract financing from these entities in the medium-term. While it is up to the Consultant as to how the strategy would be structured, we recommend the following:

• Common requirements to receive funds. Development finance institutions (DFIs), climate funds, and bilateral donors require that certain conditions be met before a beneficiary organization may receive their funds. These conditions pertain to the beneficiary’s internal rules on HR, procurement, financial management, gender/inclusion, results monitoring and evaluation, whistleblower provisions, ESS, rules regarding financing of terrorism or money laundering, etc., and the availability of counter-guarantees. Generally, these requirements tend to be almost identical; therefore, the Consultant may choose a representative organization and its requirements in preparing the report, tailoring it as needed to PNG’s CGC (e.g., GCF’s AMA).
• Impact reporting. A common metric to gauge a CGC’s performance is the leverage ratio (e.g., outstanding guarantees/total equity). However, given the various preferences of potential investors, it would be advantageous to show other impact indicators such as:
  • Climate change mitigation (GHG emissions reduced)
  • Climate change adaptation (No. of beneficiaries)
  • Gender/inclusiveness-related numbers
  • Green finance (Value in PGK of goods/services/projects financed – those that are aligned with PNG’s green taxonomy)
  • Contribution to SDGs (preferably using quantitative indicators)
  • Etc.

 And for CGC’s Non-Financial Services:

• No. and/or value of additional loans originated (via the Loan Referral Platform)
• No. of MSMEs that received advisory services (via the Loan Referral Platform)
• Etc.

The Consultant shall select 4-5 indicators with adequate rationale (e.g., potential investors in the CGC emphasize these indicators) and outline how CGC could ensure the figures are reliable (e.g., third-party validators or in-house methods).

• Examples of projects through which CGC could mobilize development/climate finance. The CGC could attract development/climate finance in the form of equity investment by showing strong performance in indicators described above. However, the CGC could also mobilize development/climate finance on a project-by-project basis, i.e., by submitting a funding proposal for a project in which its guarantee plays a critical role. The Consultant shall provide examples of three representative projects, either actual or hypothetical. The examples should include (1) Context/Problem statement, (2) CGC’s role, (3) Result/Impact, and (4) Risks/Other. Please refer the following points to get a sense of what we are looking for:
  • World Bank projects in a country with a socioeconomic condition similar to PNG in which credit guarantees were used (for example, in Honduras, the World Bank implemented a project where one component involved training residents of a certain region to start a small business in light manufacturing whereas another component was a credit guarantee facility to support their access to credit, i.e., generating demand for and supply of credit through a single project; in this case the CGC could propose a similar project in partnership with the relevant government department while assuming the role of the aforementioned credit guarantee facility).
  • GuarantCo’s activities in a country with a socioeconomic condition similar to PNG. CGC’s role in a prospective proposal could be modeled based on GuarantCo’s.
  • Others such as the GCF, IFC, or examples from CGCs in developing countries.

2. Strengthening its support for “green” MSMEs through “green” guarantee products

The Government of PNG is dedicated to achieving its vision of sustainable development and, with it, fostering the growth of MSMEs in green sectors. To determine what, exactly, is meant by “green”, BPNG is current drafting a green taxonomy in consultation with local financial institutions and other stakeholders.

The Consultant shall propose a future lineup of 3-4 green guarantee products and describe the main features of each, as well as recommending the optimal strategy to roll out each product. For example, these could be partial loan guarantees for taxi companies seeking to replace their fleet with EVs, energy efficiency companies (ESCOs), solar PV developers, etc.

  

#	Output	Date	Payment (% of total)
1	Guarantee products report + model (draft)	01 Apr 2022	USD   5,000 (20%)
Guarantee products report + model (final)	29 Apr 2022	USD 10,000 (30%)
2	Medium-term investment strategy (draft)	10 May 2022	USD   5,000 (20%)
Medium-term investment strategy (final)	30 May 2022	USD 10,000 (30%)
Total	USD 30,000 (100%)

 

The description of required expert may be split into following parts:

• A Master’s degree in Business Administration, Finance, Economics, Engineering, Mathematics, Statistics, or a related field.
• At least 15 years of experience in the financial sector.
• In-depth understanding of the theory and practice of credit risk management, development of guarantee/lending products, and the business models/financials of MSMEs in developing countries, particularly of those in the agricultural sector.
• Strong quantitative modeling skills and demonstrated ability to produce user-friendly tools.
• Familiarity with climate/development finance and climate change adaptation/mitigation projects.
• Excellent English writing and communication skills.
• Please provide an updated CV.
• Candidates will be selected based on initial screening of CVs followed by an interview.
• Results will be announced no later than two weeks following the advertisement date.