German Sparkassenstiftung for International Cooperation

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Terms of reference: Consultancy to Carry out due Diligence and Asset Valuation for the Merger of five (5) Non Umurenge SACCOs Operating in Rulindo District tender at German Sparkassenstiftung Eastern Africa

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Website : https://www.sparkassenstiftung.de/en/about-us

365 Days Ago

Terms of reference: Consultancy to carry out due diligence and asset valuation for the merger of five (5) Non Umurenge SACCOs operating in Rulindo District

1. Background

German Sparkassenstiftung Eastern Africa (DSIK) is a German-based non-profit organization that is active in partnership projects in more than 50 countries worldwide. Among its key principles is the combination of local and international expertise to provide excellent technical advisory to its partner organizations. Among others, German Sparkassenstiftung works with the Ministry of Finance and Economic Planning (MINECOFIN), Ministry of Trade and Industry (MINICOM) and Rwanda Cooperative Agency (RCA). The partnership focusses mainly on the professionalization of the Microfinance sector including SACCOs. German Sparkassenstiftung’s project activities are refinanced by the German Federal Ministry of Economic Cooperation and Development (BMZ).

2. Context

There are five (5) non UMURENGE SACCOs (N-USACCOs) in Rulindo district, Northern Province, namely:

COOPEC CODEMARU located in BUSHOKI sector,
COOPEC CSTCR located in KINIHIRA sector,
COOPEC TRASO located in KINIHIRA sector, COOPEC CSPKI located in TUMBA sector, and
COOPEC ITI located in CYUNGO sector.

Of these five (5) SACCOs operating in Rulindo, CSTCR and COOPEC TRASO predominately serve tea farmers and tea factory workers respectively, while CODEMARU, CSPKI and COOPEC ITI are communitybased saving and credit cooperatives.

For the past years, the above mentioned SACCOs have faced various challenges, which include difficulties complying with the Central Bank’s prudential norms and further regulatory requirements, lack of an appropriate core banking software (CBS), limited financial capacity, increasing competition, limited products and services offered to their members.

The General assembly meetings of all 5 SACCOs approved their merger/amalgamation and form one strong SACCO. The General Assembly meetings elected an Adhoc Committee which is composed of representatives elected from the boards of directors of each of the five SACCOs to take part in the merging process. The merger of five non umurenge SACCOs will result into one strong SACCO while maintaining each SACCO’s office as branches. The merger will enhance the sustainability of the merged SACCO through improving its regulatory compliance and by providing high-quality customer services.

A technical committee composed of BNR, RCA, AMIR, Rulindo District and DSIK will accompany, support and guide the merging process.

It is in this framework that DSIK, on request from the Technical Committee, will support technically and financially the performance of the due diligence of each of the five (5) SACCOs. Including the valuation of each SACCO, the creation of consolidated financial statements of the new SACCO, the development of new policy and procedures manuals, as well as the business planning.

Additionally, as all the SACCOs have different CBS set ups and all five SACCOs will be migrated onto the same platform, it is important to conduct the IT due diligence.

In this respect, DSIK intends to recruit a strong and experienced consultancy/audit firm (referred as “Consultant” in this ToR) to conduct the financial and non-financial due diligence as well as an IT due diligence and development of business requirement documents of the core banking software (CBS) to be used by the new SACCO.

3. Scope of the consultancy service

Conduct the due diligence of each SACCO (both the financial and non-financial due diligence) and come up with a consolidated due diligence report for the new SACCO.
Conduct the IT due diligence and Business Requirement development.

The consultant’s work will mainly focus, but will not be limited to the following:

3.1 Due diligence

For the completeness of this assignment, the consultant will carry out a financial and non-financial due diligence.

3.1.1 Financial due diligence

The purpose of the financial due diligence is to evaluate the true situation of each SACCO’s assets, liabilities, and equity to determine the Net Book Value of each SACCO.

The scope of financial due diligence includes a detailed review and analysis of the following: assets, liabilities, shareholding structure and capital adequacy, off balance sheet, liquidity, cash flow, income & expenses, and business valuation (net worth).

The detailed checks will focus but are not limited to the following:

Area/Accounts	Key points to check
1. Cash	Check the cash control book to ascertain the cash balances at a given date (on the cut-off date), identify the origin of difference, if any, and propose immediate corrections.
	Check if the totals of auxiliary journals have been recorded in cash book control.
2. Bank	Confirm that the book balance for bank balances has been reconciled to the bank statement at the cut-off date;
	Check that the bank statement is in the names of the SACCO;
	Confirm the balances of inventory with the Banks;
	Ghost Vault- Bank transfers: examine the cash control book to ascertain funds transferred, check the corresponding bank statement to examine if the funds from vault reached the bank and confirm the accuracy of the balances.
	Ghost bank-vault transfers: examine the cheques signed, amount withdrawn as per bank statement, auxiliary journals and cash control book to ascertain that all cash reached the SACCO and confirm the accuracy of balances;
	Term deposit: ensure all fixed term deposits have appropriate documentation (contracts, certificate of term deposit or bank’s confirmation letter) and confirm the accuracy of balances;
	Review the reconciliation statement for any anomalies – long outstanding amounts, amounts that are not duly supported, etc
3. Financial investments	Confirm the balance of financial investments in inventory. Review the entire investment portfolio (government securities, placements, bonds etc) and confirm that they have been recorded correctly.
	Confirm that there are no impaired investments;
	Confirm that the interest income has been recognized correctly in the books of account;
	Confirm that title deeds of such investments are intact and legally enforceable.
4. Loan portfolio	Confirm the detailed list of all loan’s outstanding balances as of the cut-off date produced by SACCO (compare the outstanding balance on inventory and outstanding balance on the member’s card for each loan);
	Review documentation (contract) to confirm the amounts and dates of all loans disbursed as well as the terms (disbursement date, disbursement amount, interest rate, maturity date, collateral details, etc.) and their conformity with internal rules and regulations;

	Confirm that the loans were disbursed only to members of the SACCO;
	Identify all loans to related parties;
	Confirm that the repayments deducted from the principal loan balance were actually repaid;
	Confirm that interests have been computed correctly and recorded in the books of account: (Confirm the interest rate calculation method used by the SACCO: reducing balance or flat, test that interest is calculated and recorded correctly in the books of account,
	Confirm that the collateral provided exists and appropriate documentation (title documents, etc) is duly registered with the institution in charge, and in safe custody;
	Examine enforceability for recovery in case the loans become nonperforming;
	Examine whether the loan classification is as per Central Bank regulations and prudential norms;
	Determine the right level of non-performing loans and that the provisions against NPLs are correctly computed in accordance with the Central Bank regulations;
	Review the list of all written off loans and identify any related party loans included therein;
	On the basis of the dates of loan write off, discuss with management to determine whether or not any recovery efforts have been made to recover the written off loans;
	Confirm that management has not accrued any interest on nonperforming loans;
	Identify issues or potential threats that might lead to the degradation of quality assets;
	Assess the SACCO’s exposure on Single Obligor (within the meaning of Central Bank guidelines) and form opinion on the risk potential of such exposure;
	Verify the loan recovery files in courts and their status.
5. Fixed assets	Review and verify all fixed assets and capital work in progress physically to confirm that they exist and are in a functional state;
	Review invoices to confirm the historical cost of the assets;

	Confirm that the assets are properly capitalized in accordance with the capitalization policy;
	Confirm that the assets are legally owned by the SACCO (Check invoices, land title, transfer of ownership, etc)
	Review depreciation method used and re-compute the depreciation charge to confirm that the net book value of the fixed assets in the books of account is correct;
	Estimate the cost of transfer of assets, if the assets are not legally owned by the SACCO;
	Determine the tax and insurance liabilities, if any, associated with the assets;
	For buildings: Independent Real Estate Valuer must be used to ascertain their market values and ascertain that the market value of the asset is in the balance sheet.
6. Receivables and Other assets	Review and confirm the list of all debtors/ receivables/ prepayment and related supporting documents; Ascertain real accounting of stock (see whether no accounting duplication was made in stock and expenses) and check physical stock;
	Review suspense accounts, propose their treatment and establish the responsibility if the suspense amount is not explained by SACCO Management;
	For long outstanding items, ensure that adequate provisions have been made;
7. Deposits	Ghost transactions on deposit accounts: Check on whether or not the amount deposited or withdrawn by members on their accounts entered books of accounts;
	Wrong summation and subtractions: Verify the work done by SACCO staff on the summation of all deposits and withdrawals made by member to ascertain that the balance on the deposit account is correct. Compare the totals obtained with those on the deposit accounts and reports of the SACCO;
	Differences on deposit accounts and members’ passbooks: collect the members’ passbooks to compare the balances on each side. This will assist to discover unauthorized withdrawals and transactions on members’ deposit accounts;
	Ghost deposit accounts: Check the addresses on the deposit cards, account opening books, auxiliary ledgers to ascertain that the

	existing deposit cards have owners. If there is doubt, call the member to bring the passbook;
	Verify and confirm a detailed list of all depositors indicating the customer's name, identification, membership number, account balance and any other information as may be deemed necessary;
	Keen attention on transactions done during weekend days and transactions made on Staff and Directors’ cards and their related parties to confirm their authenticity;
	Care to be placed on security savings because these are sometimes withdrawn before repayment of related loans. (for all security savings);
	Term Deposits: please check on contracts, amount contracted, interest, terms, deposit cards, auxiliary ledgers etc;
	Identify the deposit contribution of the top 20 depositors and the impact on liquidity;
	Dormant accounts: confirm the list and balances of dormant accounts and verify if unauthorized transactions were not done on them;
	Assess the effects of dormant account balances on the SACCO total deposit;
	Reconcile all deposits accounts and passbooks (if possible) for accounts whose inventory show negative balance;
8. Borrowings	Verify the contract between the two parties to ascertain the amount borrowed and repayment period, interest and fees, etc;
	Check on the repayment schedule;
	Check on transfer of payment amount to the lender (bank statements);
	Re-compute all funds paid and outstanding balance;
	Confirm the balance with the counter parties;
	Ensure that the borrowings are in accordance with Central Bank directives and prudential norms;
	Confirm that related expenses are duly and correctly recognized in accordance with Central Bank directives and prudential norms and no expense has been deferred.
9. Payables & Other liabilities	Review and confirm the entire list of liabilities and supporting documents for the SACCO to owe money;
	Review employees’ tax computation and payment to ensure that there are no future liabilities;

	Review employees’ social security computation and payment to ensure that there are no future liabilities; Review any other liability of the SACCCO.
10. Paid up capital	Share capital Confirm the actual number of members, the subscribed and paid up capital (shares); if the share is partially paid indicate the remaining part of the share. Verify and confirm the list/inventory of all shareholders indicating their membership number, National ID number, and telephone contact, subscribed shares, paid up share and remaining part of the shares, if any. Verify and confirm the list of users (non-members): members with current account/savings or term deposits without any share paid so far. Identify customers served by the SACCO that have not contributed the share capital; Quantify the amounts received for share capital for which members are not identified. Additional capital Confirm the actual additional amounts of contributions received from members, the purpose for which the additional funds were received and that they are properly recorded; Capital adequacy Confirm that the capital adequacy ratio has been correctly computed as per the Central Bank regulations; Advise on whether or not the capital is adequate to fund the activities of the SACCO and determine the SACCOs value and share price to be used for members as they merge into one SACCO.
11.Subsidies and Donations	Ascertain who provided the subsidy, how much, what are they supporting documents; If an asset was provided, what are the supporting documents and how that asset was given the value and check on its physical existence and transfer of ownership; Ascertain whether the received funds have reached the SACCO’s account; Differentiate subsidies entered directly in the balance sheet and donations entered in the income statement. Please verify confusion
	of accounting between the two by the SACCO (see whether there was no double recording);
	Compute all subsidies and their amortization.
12. Retained earnings & Income statement	Verify and confirm the computation and classification of income and expenses for at least five consecutive years to cut-off date; as well as the resulting profit or loss;
	Confirm the retained earnings up to the cut-off date;
	Carry out the historical analysis of retained earnings up to the cutoff date;
	Verify respect for the cut-off accounting policy. Transfer of profit/loss of the year to retained earnings or accumulated losses;
	Monthly historical analysis of income statement.

Other tasks to be performed

Business valuations:

The basic aim of the valuation is to determine the SACCOs value and share price to be used for members as they merge into one SACCO. For objectivity and simplicity, the book value approach should be used to determine the market value of each SACCO.

Assets, Liabilities Gap, and Liquidity details

Thoroughly review of the liquidity status of each SACCO in accordance with Central Bank directives, prudential norms, and practices as follows:

Examine that sufficient liquidity is maintained and no major gap is found in the assets and liabilities profile;
Examine that the liquidity level is kept in accordance with Central Bank requirements and suggest adjustments/provisions if any.

Off-Balance Sheet

Thoroughly review off-balance sheet exposure as follows:

Review/Evaluate if there are potential contingent liabilities associated with SACCO Customers;
Assess whether or not off-balance sheet exposure is duly and correctly accounted for and settlements are done in accordance with Central Bank directives and prudent norms and estimate adjustments/ provisions if any;
Assess whether or not contingent liabilities (if any) are duly and correctly accounted for and provided adequately and estimate adjustments/ provisions if any;
To understand the non-funded exposure ratio to a single person/ institutions and associated risk.

3.1.2 Non-financial due diligence

a. Legal due diligence

The legal due diligence will find out if each SACCO was compliant to the regulatory environment that govern Deposit-taking Microfinance Cooperatives in Rwanda. The scope of the legal due diligence includes the review and analysis of litigation, employment issues, legal status, contracts, assets and liabilities, and tax compliance to evaluate whether there are any hidden legal hazards or lawsuits with employees, customers or any other third parties.

b. Operational due diligence

The operational due diligence will focus but is not limited to the following:

Review details of each SACCO branch, their location, number of members and customers, deposit and loan balances, number of staff, number of outlets, etc.
Review internal control and external audit reports (at least 2 recent years) and identify weaknesses that may cause risks to the new SACCO and advise accordingly.

c. Human resource due diligence/Governance effectiveness

The human resource due diligence will focus but is not limited to the following:

List of board members & their qualifications/ experience; board minutes showing regularity of meetings. Check that at least some members have a high school education or higher;
Check that there is an organizational structure with the board reporting to the AGM and management reporting to the board; and that there is an audit committee, credit committee, and other necessary committees in place. Check if members of committees are not placed in any actual, perceived/apparent, or potential conflict of interest;
Examine a copy of the business plan and enquire on the activities therein so far accomplished;
Review the file of members of SACCO’s staff with regard to gender, qualifications, experience, type, and details of the contract, IT ability and work ethic;
Identify vacant positions of staff that need urgent recruitment;
Document the remuneration package for each staff and the resulting SACCO salary structure;
Determine whether or not there is any unpaid leave outstanding;

d. Specific policies and procedures manual review

The review of the policy and procedure manual will focus but is not limited to the following:

Review the policies and procedures of the five (5) SACCOs, with a specific emphasis on the product and services offered.
Summarize the key specific considerations and challenges for the merging process.
Propose recommendations to be considered in the business planning process

3.2 IT Due diligence and business requirements developments

Considering that all 5 SACCOs are using different core banking software (CBS), the consultant will assess the existing software and make recommendations pertaining to its usage at the merged SACCO level.

The main tasks for the IT Expert will concentrate on:

Assess the performance of the current CBS systems used by the five (5) SACCOs (strength and weakness)
Evaluate the CBS functionalities for the operations related to customers management, accounts management, deposits, loans, payments and reporting
Recommend if the new SACCO will go with one of the existing CBS
Propose necessary updates/upgrades of the existing software
Benchmark with other MFIs using the same CBS and make a detailed comparative report
Assess and report the IT requirements for hosting the CBS of the new SACCO (Hardware and Software)
Work closely with the regulator (BNR) on the requirements of CBS
Draft and discuss with the Technical Committee the business requirements document for the new software if recommended.

4. Expected Deliverables

Under this, the consultant will deliver the following:

Inception report indicating the approach/methodology and a plan of Activities/tasks as distributed among the audit team but with a shared responsibility spirit; (To be submitted alongside the Technical & Financial evaluation);
Consolidated audit report (due diligence report) showing the financial position and performance of each SACCO and the resulting newly merged SACCO. The audit report should include but not limited to the following:

Trial balance;
Balance sheet;
Income statement;
Member share and current account balances report;
Loan report and corresponding security savings;
Term deposits report;
Savings accounts balances;
Zero share report with or without current accounts;
Payables report; 10. Receivables report.

Asset (Tangible assets, Intangible assets, financial assets, etc) and Equity Valuation report indicating the Net book value, and member share value in the merged new SACCO as well as the equity distribution in the merged/amalgamated SACCO;
A non-financial due diligence report containing the issues from each SACCO;
Consolidated IT due diligence report for each SACCO (which includes the performance of each CBS, weaknesses and necessary upgrades or new developments)
Draft of business requirements documents for the consolidated SACCO’s CBS

5. Timeframe

It is estimated that the assignment will be conducted over 30 working days starting from the date of signing the contract. This period includes the validation process and approval of the work done by the consultant:

Below is the timeline for the accomplishment of the assignment:

Activity	Deliverables	Timeline
Kick off meeting and agreement on approach and methodology	Inception Report	2 days
Onsite due diligence (financial, non-financial and IT due diligence)	Interim report on the progress on both due diligence activities	15 days
Report writing and consolidation of insights gathered during the on-site due diligence	Financial due diligence report IT due diligence report and BRD Presentation of the due diligence reports to relevant stakeholders	10 days
Incorporation of comments and finalization of the reports	Final reports	3 days

6. Remuneration and payment terms

The amount of remuneration and the terms of payment will be specified in the contract for the provision of services.

The payment terms are listed below:

An advance of 30%, upon request of the consultant after signing the contract and providing the inception report.
70% once the due diligence reports, and BRD for the CBS are approved by the Technical Committee and the Adhoc Committee.

7. Required competences and qualifications.

Proposals are invited from suitably qualified firms. Applicants are required to provide profiles for all proposed team members, clearly stating their roles and responsibilities, level of effort, and including their technical expertise and practical experience (Detailed CVs required). Key qualifications for this work include:

Consultant competences and qualifications (Specific experience of the firm related to the assignment)

At least 5 years’ experience in audit of financial institutions, due diligence, asset valuation and related field preferably in Banks or MFIs (unjustified experience will not be considered);
Demonstrated experience in conducting IT related assessments (preferably in the (micro)financial sector)
Strong understanding of the Microfinance Sector in Rwanda and strong experience (at least 5 years) carrying out audit and consultancy assignment in this sector;
Demonstrated experience and ability to deliver in this area (evidenced by previous assignments);
Being certified as an External Auditor of Microfinance Institutions by the National Bank of Rwanda (will be proven by the list of certified external auditors of MFIs published by BNR).
References of at least three (3) similar assignments in Rwanda for the last 5 years (proven by certificate for good completion);
Good communication and facilitation skills, including Kinyarwanda and English.

Team Composition (Indicative)

Key Personnel	Unit	Qualifications & experience
Audit Manager of the Assignment/TL	TBD	Having at least a bachelor's degree in accounting or finance with a minimum of 10 years’ experience in the audit of Microfinance Institutions. Professional qualification such as CPA/ACCA/CIA is a must; Excellent report writing skills and fluency in English is required. Having participated or led (5) similar assignments in Rwanda for the last 5 years (proven by team composition in those assignments).
Audit team members	TBD	Strong dedicated team with proven subject matter expertise on topics in this assignment and understanding of the local context, Possessing at least a bachelor's degree in accounting or finance with a minimum of 5 years’ experience in the Audit of
		Microfinance Institutions having achieved at least intermediate level of professional qualification such as CPA/ACCA/CIA;
Business Analysts/IT expert	TBD	Having at least a bachelor’s degree in information technology with a minimum of 5 years’ experience in Information Technology Audit. Deep knowledge of core banking software. Having or Pursuing Information Technology professional certification such CISA, CISSP,etc is a must.

8. How to apply

Interested and qualified firms should submit their technical and financial proposals as well as any supporting documents to DSIK. Any other communications regarding this ToRs should be addressed to the same email.

Technical Proposals: Technical proposals should contain the following documents and information:

Certificate of Incorporation or Trading License /Certificate of Registration (This will be considered as: Proof of legal capacity, not be in insolvency, receivership, or bankrupt, not being suspended). Evidence of statutory compliance such as a valid tax clearance certificate
RSSB contribution clearance certificate.
An approach and methodology for performing the services.
A detailed work plan, showing the inputs of all key staff and the achievement of deliverables.
CVs of team (each CV should be max. 4 pages)
A summary of the firm’s experience on similar assignments.
The consultant’s comments or suggestions on the TORs and appreciation of the assignment, the objectives, tasks and deliverables.

Financial Proposals: Financial proposals should contain the breakdown of the team and related cost units per unit daily, tax inclusive. The costs associated with the assignment shall be quoted in Rwandan Francs.

Proposals (both technical and financial separately in a Pdf document) must be submitted electronically to office.kigali@dsik.org with clear subject line: “Consultancy to carry out due diligence and asset valuation for the merger of five (5) Non Umurenge SACCOs operating in Rulindo District and submitted by 1^st December 2023 at 2pm Central African Time (CAT).

Late bids

DSIK shall not consider any bid that arrives after the deadline for submission of bids. Any bid received by DSIK after the deadline for submission of bids shall be declared late, rejected.

9. Evaluation process

The selection of candidates will be performed in two stages.

Stage 1: Stage 1 will be based on the quality of the technical offer and on the financial offer submitted by the firms.

The technical offer will be evaluated based the following criteria:

Technical Evaluation		Weighting
*Qualifications and experience of the proposed* *team*	Quality of the Audit Manager/Head of the Assignment	15
	Quality of the audit team.	15
	Quality of the IT Expert	25
*Sub total*		55
*Methodology & Approach*	Understanding of the ToR	5
*Methodology & Approach*	Adequacy and quality of the proposed technical approach, methodology and work plan in responding to these Terms of Reference.	20
*Subtotal*		25
Financial Evaluation	Value for money (based on fee rates, inputs and total costs of the assignment)	20

Note:

Threshold for the technical qualification: 56/80.
If a consultant is not qualified for the technical offer, the financial offer is returned without any analysis.
The analysis of the financial offer will be conducted on the rate of pay per day (including miscellaneous costs) submitted.
The best evaluated bid will be the firm with the highest combined score (both financial and technical)

Stage 2: In stage 2, a personal meeting will be conducted for the consultants who passed the 1^st stage. This process will be the opportunity for the selected companies to present their understanding of the assignment and discuss the proposed methodology.

Job Info

Job Category: Tenders in Rwanda

Job Type: Full-time

Deadline of this Job: Wednesday, December 06 2023

Duty Station: Kigali

Posted: 24-11-2023

No of Jobs: 1

Start Publishing: 24-11-2023

Stop Publishing (Put date of 2030): 24-11-2066

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