TERMS OF REFERENCE FOR CONSULTANTS. 1. Non-Bank Supervision and Regulation Expert/Team Leader (International, 6 person-months, intermittent)

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1 Development of Nonbank Finance and Alternative Financial Instruments for Economic Diversification (KSTA AZE ) TERMS OF REFERENCE FOR CONSULTANTS 1. Non-Bank Supervision and Regulation Expert/Team Leader (International, 6 person-months, intermittent) 1. Scope of Work. The expert will work closely with the Financial Market Supervision Authority (FIMSA) and other members of the consultancy team to assess the enabling environment for delivering non-bank and alternative financial services in manat, assess FIMSA s institutional and organizational capacity to regulate and supervise these services, and draw from international best practice to develop a prioritized and sequenced action plan that recommends areas where reforms are needed. 2. Detailed Tasks. Major responsibilities will include, but not be limited to the following: (i) Support the effective implementation of the overall technical assistance (TA) project. (ii) Undertake an assessment of the current legal and institutional framework for nonbank financial supervision and regulation in Azerbaijan. This review will cover aspects of (i) legal authority to supervise, regulate or take remedial action, etc (current laws and regulations), (ii) consumer and creditor protection, (iii) capital and liquidity regulatory regime, financial disclosure (public and non-public) and corporate governance and transparency; and (iv) human resource and institutional capacity to perform FIMSA-related functions. (iii) Coordinate, consolidate and rationalize inputs from other team members and develop a realistic and achievable reform action plan. This task will include recommending international and regional good practices for non-bank supervision and regulation, two priority regulatory changes to be implemented, and transitional arrangements for the new or amended laws and regulations; (iv) Prepare guidance notes, standard operating procedures and process maps where needed and provide hands-on training in their use to the Prudential Policy and Methodology Division and in the Non-Bank Supervision Division of FIMSA; and (v) Provide advice and training on market regulation matters, including on how to approach supervisee institutions. (i) Assessment reports on the enabling environment, and FIMSA s institutional and organizational capacity to effectively undertake its regulatory and supervisory functions; (ii) A prioritized and sequenced action plan; (iii) Standard operating procedures, guidelines, and process maps prepared; (iv) Financial education and literacy programs delivered; and (v) Training, workshops, and seminars conducted, and evaluation reports prepared. 4. Qualifications and experience. The expert/team leader will have had experience in international consulting in similar assignments and have accumulated at least 10 years of experience with a focus on non-deposit taking finance. She or he must have experience in the development of financial sector policies and regulations and on-site and off-site supervision work. Relevant experience in drafting guidelines, standard operating procedures and process maps is preferred. Previous professional exposure in Central and West Asia is an advantage.

2 2 2. Rural (Agricultural) Finance Expert (International, 3 person-months, continuous) 1. Scope of Work. The expert will work closely with the team leader and FIMSA to improve understanding of the enabling environment for rural economic activities in regions outside Baku, the range of bank and non-bank financial instruments being used to improve intermediation and inclusiveness and draw from international best practice to highlight options for reform. The expert will also assess FIMSA s institutional and organizational capacity to regulate and supervise these services. Key findings and recommendations will be included in the action plan and in designing financial education and literacy programs. 2. Detailed Tasks. Major responsibilities will include, but not be limited to the following: (i) Review and assess the policy, legal, and regulatory environment for bank and nonbank rural financing (current laws and regulations). (ii) Review of the supply and demand data for rural financing. (iii) Review consumer and creditor protection policy and laws. (iv) Identify current financing options and financing constraints at all stages and across all scales of enterprises in the sector. (v) Interview and review existing financial institutions (public and private) to define constraints in product innovation, new financial instruments and mechanisms including but not limited to supply chain financing, leasing, working capital finance, term finance, and ease in buying systems for plant and equipment. (vi) Identify financing needs and current sources of financing and characterize the financing gaps for different sets of actors. (vii) Develop five priority alternative financing instruments and work with FIMSA to address policy and risk issues including the options relating to uncollateralized lending and financial institution guarantee to underwrite or share risk of new products. (viii) Based on all the above tasks, prepare an assessment of levels and characteristics of profitability in the rural economy and identify rural financial innovations that can facilitate sector specific value-addition, that is, from farming to financing to markets. 3. Deliverables (i) Assessment report on bank and non-bank rural financing. a postgraduate degree in agricultural economics, agricultural development or development economics. She or he must possess at least 10 years of relevant work experience in microfinance and not less than 5 years working in the field of small and medium-enterprise financing and/or rural financing in Azerbaijan. The expert shall have experience working with small enterprises farmer groups level to medium and large-scale enterprises, and a proven record of working with the financial sector both public and private institutions. 3. Pawnshop Regulation Expert (International, 2 person-months, continuous) the enabling environment for the pawning sector, as well as FIMSA s institutional and organizational capacity to regulate and supervise pawnshop services and draw from international

3 3 best practice to highlight options for reform. Key findings and recommendations will be included in the action plan and in designing financial education and literacy programs. 2. Detailed Tasks. Major responsibilities will include, but not be limited to the following: (i) Identification of a financial inclusion diagnosis methodology and tools to be used for the assignment, to be agreed with the Asian Development Bank (ADB) and FIMSA. (ii) Review the policy, legal and regulatory environment for pawning and FIMSA s capacity to appropriately supervise and regulate this sector. (iii) Review consumer and creditor protection policy and laws. (iv) Recommend short-medium and long term measures to bring FIMSA s pawn policy, legal, and regulatory framework to international standards. This will entail assisting FIMSA in drafting amendments to the current laws, new regulations, adapting guidelines and standard operating procedures as needed, and providing advice for transitional arrangements for the new or amended laws and regulations. (v) Recommend international and regional good practices for pawning, identification of critical steps for transforming the sector, and prioritization of two regulatory changes to be implemented. (vi) Recommend short-medium and long term measures to improve and expand the range of pawning financial products in manat. (i) Assessment report on the pawning sector. least 10 years of relevant work experience in microfinance and not less than 5 years working in pawnshop regulation and supervision. Relevant experience in leading and organizing quantitative research studies to define national policy, laws and regulations is preferred. Experience in Central and West Asia is an advantage. 4. Credit Union and Cooperatives Expert (International, 2 person-months, continuous) the enabling environment for credit unions and cooperatives, as well as FIMSA s institutional and organizational capacity to regulate and supervise these services and draw from international best practice to highlight options for reform. Key findings and recommendations will be included in the action plan and in designing financial education and literacy programs. 2. Detailed Tasks. The expert will work together with FIMSA and other stakeholders and will have the following major responsibilities including other related tasks as assigned by the ADB and/or FIMSA from time to time: (i) (ii) Assess the policy, legal and regulatory environment for credit union and credit cooperatives financial services. Review the supply and demand data for credit union and credit cooperatives financial services, and potential related financial education and literacy needs.

4 4 (iii) (iv) (v) (vi) Review consumer and creditor protection policy and laws. Recommend action plans that would incorporate regional and international good practices, identify critical success factors for the implementation of proposed amendments/reforms, and prioritize two regulatory changes to be implemented. Assess FIMSA s institutional supervisory capacity, and identify its training capacity needs, including required resources, timeframes, expected benefits and impact of expanded credit union and cooperatives financial services. Recommend short-medium and long term measures to improve and expand the range of credit union and cooperatives financial products. (i) Assessment report on credit union and cooperatives financial services. least 10 years of relevant work experience in microfinance and not less than 5 years working in credit union and cooperatives regulation and supervision. Relevant experience in leading and organizing quantitative research studies to define national policy, laws and regulations is preferred. Experience in Central and West Asia is an advantage. 5. Postal Financial Services Regulation Expert (International, 3 person-months, continuous) the enabling environment for postal financial services, as well as FIMSA s institutional and organizational capacity to regulate and supervise these services and draw from international best practice to highlight options for reform. Key findings and recommendations will be included in the action plan and in designing financial education and literacy programs. 2. Detailed Tasks. The expert will work together with FIMSA and other stakeholders and will have the following major responsibilities including other related tasks as assigned by the ADB and/or FIMSA from time to time: (i) Assess the policy, legal and regulatory environment for postal financial services, focusing in particular on the role that postal services play in serving segments of the population that remain beyond the reach of commercial banks, especially informal micro and small businesses, rural households, small and micro businesses, and small farmers. (ii) Review secondary data on the supply and demand for postal financial services in manat, and potential related financial education and literacy needs. (iii) (iv) (v) (vi) Review consumer and creditor protection policy and laws. Review regional and international good practices in promoting postal financial services and identify critical success factors, including mechanisms to boost demand and recommend options for contextualizing these measures. Work with FIMSA to review and assess the current regulatory and supervisory framework and compare and contrast this against international and regional good practice. Prioritize two regulatory changes to be implemented. Recommend short-medium and long term measures to improve and expand the range of postal financial services and strengthen FIMSA s regulatory and supervisor.

5 5 (i) Assessment report on postal financial services. least 10 years of relevant work experience in financial sector development and not less than 5 years working in postal financial services regulation and supervision. Relevant experience in leading and organizing quantitative research studies to define national policy, laws and regulations is preferred. Experience in Central and West Asia is an advantage. 6. Financial Leasing Expert (International, 2 person-months, continuous) the enabling environment for financial leasing services, as well as FIMSA s institutional and organizational capacity to regulate and supervise these services and draw from international best practice to highlight options for reform. Key findings and recommendations will be included in the action plan and in designing appropriate financial education and literacy programs. 2. Detailed Tasks. The expert will work together with FIMSA and other stakeholders and will have the following major responsibilities including other related tasks as assigned by the ADB and/or FIMSA from time to time. (i) Review the supply and demand data for financial leasing and potential related financial education and literacy needs. (ii) Assess the policy, legal and regulatory environment for financial leasing, focusing in particular on the role that they could play in expanding access to financing in manat to informal micro and small businesses, rural households, small and micro businesses, and small farmers. (iii) (iv) (i) Review consumer and creditor protection policy and laws. Assess FIMSA's regulatory and supervisory framework and identify their capacity needs, including required resources, timeframes, expected benefits and impact of expanded financial leasing services in manat. Recommend action plans that would incorporate regional and international good practices and identify critical success factors for the implementation of proposed amendments/reforms. Prioritize two regulatory changes to be implemented. 3. Deliverables: (i) Assessment report on financial leasing services. least 10 years of relevant work experience in financial sector development and not less than 5 years working in regulating and supervising banking agents. Relevant experience in leading and organizing quantitative research studies to define national policy, laws and regulations is preferred. Experience in Central and West Asia is an advantage.

6 6 7. Financial Inclusion Specialist (National, 6 person-months, continuous) the enabling environment for rural financing, pawning, credit unions and cooperatives, postal financial services and financial leasing, as well as FIMSA s institutional and organizational capacity to regulate and supervise these services and draw from international best practice to highlight options for reform. Key findings and recommendations will be included in the action plan and in designing financial education and literacy programs. 2. Detailed Tasks. The consultant will carry out the following tasks, in close coordination with the non-bank supervision and regulation expert: (i) Assist the team leader and international consultants in all aspects of the terms of reference as required. (ii) Support the rural (agricultural) finance expert to prepare an assessment of levels and characteristics of profitability in the rural economy and identify rural financial innovations that can facilitate sector specific value-addition. (iii) Collect and analyze required data and information, and make these available in English in an organized, readable form. (iv) Assist in the preparation of guidelines, standard operating procedures, training materials, and delivery of workshops, including translation of documents and interpretation. (v) Undertake other tasks necessary for implementation of the TA as may be reasonably required by ADB s project officer. 3. Deliverables: (i) Inputs into the preparation of assessment reports for (a) the enabling environment, and FIMSA s institutional and organizational capacity to effectively undertake its regulatory and supervisory functions, (b) rural financing, (c) the pawning sector, (d) credit union and cooperative financial services, (e) postal financial services, and (f) financial leasing services. (ii) Inputs into the assessment of the enabling environment for consumer and creditor protection. (iii) Inputs to the overall prioritized and sequenced action plan. (iv) Inputs to the development of financial education and literacy programs. 4. Qualifications and experience. The specialist will be a national consultant possessing a degree in business administration, economics, or a related discipline. She or he must possess at least 8 years of professional experience in financial inclusion and not less than 4 years working in microfinance in Azerbaijan. The specialist must have an excellent command of English.