Risk and Due Diligence
Last updated June 2019
As of 6th June 2019, Deki operates on a sponsorship based model where Sponsors donate to their chosen community group. The donation is converted into micro loans and distributed to the community by Deki’s Field Partner. As the micro-loan gets repaid to the Field Partners in-country, it then gets re-distributed back into the community as new micro-loans to support local entrepreneurs and their businesses once again.
Sponsoring a community group via Deki involves three levels of risk:
1. Community Group Member (Entrepreneur) Risk:
Our Field Partners screen every entrepreneur included in the community group. We aim to ensure that they are honourably borrowing and that they can feasibly manage the micro-loan. However, Deki works in some of the world’s most marginalised communities so there are a number of reasons why an entrepreneur may not be able to repay the loan:
· Health e.g. HIV/AIDS, malaria
· Natural disasters e.g. floods, tsunami or earthquakes
· Business issues e.g. crop failure due to drought
· Personal emergencies such as death of family member
· Other issues.
Deki always gives the entrepreneurs the chance to defer their payments if circumstances arise where they are unable to repay their loans in a particular month. The length of time that a loan can be deferred is at the discretion of our Field Partners.
2. Field Partner Risk:
Deki works with Field Partners who administer the sponsorships as loans. It is the Field Partner’s responsibility to ensure all money is distributed and collected appropriately. Although Deki is very thorough in selecting Field Partners (see below), there are a number of risks associated with using them as an intermediary.
· Bankruptcy (e.g. the Field Partner may go out of business and be unable to collect repayments)
· Fraud (e.g. staff members at the Field Partner may embezzle funds)
· Operational difficulties (e.g. the Field Partner may have some cash-flow or other challenges).
3. Economic Risk:
Deki works internationally so there will be wider risks to consider.
From time to time the areas we work in may become unstable and make it difficult for our Field Partners and entrepreneurs to work effectively. For example they may flee an area due to civil unrest or natural disasters.
Deki’s Field Partners are already well-established grassroots organisations who participate in microfinance. They must have clear social objectives and a proven track record. Developing a Partnership with Deki is a multistep process normally extending over several months. The process consists of the following steps:
1. Initial contact:
- We accept unsolicited contact from potential Field Partners via the Deki website
- We identify potential Field Partners of interest via third party recommendations such as other NGOs, international development networks or common interest groups
- We actively seek out potential Field Partners in specific geographical areas as well as organisations working with specific target groups (i.e. rural farmers, women, people with disabilities, etc).
2. First-stage Field Partner online application:
- Legal registration and key contact data
- CVs, bios or resumes of key personnel
- Management structure
- Confirmation that they work with Deki beneficiary groups
- Organisational mission and strategic plan for delivery
- Specific financial/portfolio information
- Detail on training programmes and other support provided
3. Second-stage Field Partner online application:
- Provision of annual accounts
- Previous funder evaluations
- Details of policies and procedures, including safeguarding, whistle-blowing and beneficiary feed-back mechanisms.
4. Review of online application and completion of Due Diligence process:
Deki’s due diligence process is in place to ensure greater protection of funds. Using benchmarks in microfinance programme performance, Deki assesses a Partner’s financial stability and their capacity to grow sustainably. Once established, Deki evaluates the Field Partners’ entire beneficiary support process, from identification, business training and social support to loan disbursement, repayment collection and completion of each loan. Deki maps out how their risk register, policies and processes are applied, to safeguard both the communities they work with and Deki sponsors’ funds.
Following a successful completion of all three stages of the application process, and prior to sending sponsorship funds, Deki visits the Partner to see their operation in action and takes Partners through how to use the Deki monitoring processes. At this point Deki also checks that members of the community groups are given the right information, and the right support from the very beginning of their Partnership with Deki.
All Deki Partners’ performance is monitored and measured, ensuring that the right risk management processes are in place, assessing what support Partners need. Partners then enter a probation period, allowing time to get systems in place to meet Deki’s key performance measures:
- Timely collection of due repayments and monitoring current arrears levels
- Monthly audit checks on loan records, in particular checking loan disbursal and repayment collection receipts
- Collection of impact data, at four stages in the Deki community group members’ loan cycle
- Quarterly meetings via Skype and producing Partnership reports, detailing the support provided for Deki community group members and also training provided to field officers, to help them do their job
- Responding to all Deki communications within 4 working days
Ensuring that all community groups put forward meet our beneficiary criteria - those who are financially excluded; those who are most marginalised, including people with disabilities, orphans, women, etc.
Deki works on a monthly funding cycle with our Field Partners. This means loan information flows back and forth between our organisations on a regular basis, and is reconciled at the end of each month to ensure each Field Partner is adhering to their terms of contract. In line with this monthly cycle, Deki maintains regular checks on:
· Loan applications and disbursal
· Loan repayments
· Clients in arrears
· Environmental or external factors affecting members of the community groups and Field Partners.
- Each Field Partners attends a quarterly meetings via Skype and submits a quarterly Partnership report, detailing the support provided for community groups and also training provided to field officers, to help them do their job.
- Review of staffing processes, eg. training provided to staff, changes in staffing, resource allocation, etc.
- Review of last quarter’s client support evaluations, management accounts, due diligence and safeguarding
- Review of impact data and outcome indicators , eg. changes in entrepreneurs business income, ability to save and changes in gender empowerment.
- Deki representatives aim to visit each Field Partners twice a year*. During these field visits, our representative performs several monitoring and evaluation activities, including: Data Verification Audit - so as to verify that loans actually reach the specified member of the community group and that all data is accurate, Deki will randomly visit several members of the community group.
*Deki fundraises for these field visits, as they are a considerable expense to Deki.
- Financial audits on Field Partner accounts ensuring records between the Deki system and our Field Partners systems align
- Procurement of annual accounts viewing internal policies and procedures and advise on ways of strengthening them to reduce institutional risk. Bank Statement Reviews: From time to time Deki may monitor our Field Partners’ bank statements in order to verify the flow of funds match data entered onto the Deki database
- Business plan milestone evaluation
- Where annual performance has been good, Field Partners are progressed onto the next level, or tier. Each new tier brings access to higher individual loan amounts and more loan capital, but only where they have continually met the key performance measures, as above.
© 2019 Deki