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Home : Reports and Publications : Audit & Evaluation : Evaluation of the WEI – October 2004

3.0 Evaluation Findings (cont'd)

3.2 Evaluation Issue – Service Delivery

 

Findings

The issue of service delivery was addressed through the review of documents, interviews with key informants and focus group sessions.  The evaluation concluded that:

• The management modalities used by WD to manage the WEI files vary.   WD staff have provided valuable facilitation to increase partnerships between the WEI organizations and other members of the WCBSN (CSBCs, FEDOs, CFDCs).
• The governance structure of the WEI organizations through Boards of Directors is appropriate; 
• WD needs to ensure adequate monitoring of the WEI organizations to ensure appropriate levels of risk to WD;
• The WEI organizations utilize a variety of mechanisms that they consider to be effective to reach potential clients about the services offered by the WEI organizations.  At the same time, there is a need for ongoing effort to effectively reach rural, immigrant and aboriginal potential clients.
• Focus group participants expressed high levels of satisfaction with the WEI organizations service delivery;
• Audited systems are in place in all WEI organizations to manage assets and to assess loan loss ratios/risk; 
• Professional practices are in place to attempt to recover loans;
• If the present situation of low interest rates on loans continues, high loan loss ratios will lead to a continuous draw down on the existing loan funds; and
• At the present rate of loan disbursement, some of the WEI organizations will deplete their loan funds as early as 2006. 

WD Management of the WEI Files

WD manages the Women’s Enterprise Initiative through staff assignment for the WEI organization file within the region.  These files contain all reports submitted by the WEI organization.  All WD representatives agreed that it was not the role of WD to actively manage the WEI organization, but the degree of involvement varies significantly.   Some WEI file managers are very involved in activities of the organization, for example attending Board meetings as ex-officio members and providing support and information to office staff.  Others appear to be totally non-involved and have very little knowledge of the substantive work that the organization undertakes or any of the issues that it faces.  There are no guidelines outlining the level of involvement expected from WD staff handling the WEI files.   

The evaluation found that it was difficult to assess the relative value of these differing styles, since each WEI organization was accustomed to the approach with which they are familiar.  It can be said that increased involvement of WD staff assisted in facilitating partnership opportunities (i.e. meetings, luncheons, informal get-togethers) between WCBSN members, particularly in the case of the CFDCs, FEDOs and WEI organizations.  Some WD representatives have taken a leadership role to bring Board Members and Executive Directors from members of the WCBSN together for networking/familiarization events.  Other WD representatives have not undertaken this activity.  It should be noted that office co-location also contributed to strengthened WCBSN partnerships in most cases.

In the course of the evaluation WEI organizations (WESBC, WES) stated that late payments of their Contribution Agreement allotments by WD places them in difficult circumstances, requiring at times draw-downs on their loan funds in order to pay operating expenses. This practice is considered risky, both from an auditing as well as a public accountability standpoint. 

As stated in previous sections, the evaluation analyzed the Women’s Enterprise Initiative as a discrete program, with no intention to compare the WEI organizations.  The evaluation found no evidence to suggest that there should be differential levels of funding between the four WEI organizations.  The 1998 WEI Evaluation made the following recommendation with regard to funding needs:

That future program funding be based on the existing formula, but with additional funds available to be provided based on annual business planning for special projects or demonstrated client demand. This funding approach would allow a base level of funding to all provincial initiatives. It would also provide a ‘special fund’ to be allocated to provincial programs that have greater demand, or that develop unique initiatives with the opportunity for improved program effectiveness.

WEI Organization Marketing

The evaluation found through interviews with WEI organization staff and Board Members that the WEI organizations are very aware of the need to continuously increase their profile within their region, in order to attract new clients, meet the needs of their target groups and to continue to be considered relevant.  Key informants indicated that WEI organizations receive referrals from financial institutions that are familiar with the organization.  Focus group participants for the most part had heard of the WEI organization through word of mouth from friends, family or other agencies.

The evaluation research identified various mechanisms that the WEI organizations are using to market their organizations.  These include:

• Sponsoring awards/speakers through other community entrepreneur oriented organizations such as the Chamber of Commerce and the Women’s Business Network;
• Promoting activities in partnership with other WCBSN members (e.g. sponsoring community speakers in partnership with a CFDC, partnering with CBSCs to offer joint workshops/courses);
• Hiring a communications consultant to develop a communications strategy and program;
• Developing TV/radio spots and newspaper ads.  WES is also showing longer infomercials highlighting the organization in more detail;
• Obtaining reciprocal memberships in other organizations (this applies to WES) and taking part in organizational activities to promote the WEI organization; and
• Partnering with educational institutions (secondary, tertiary) for class presentations about women and entrepreneurship as well as providing entrepreneurship training materials in some cases.

The WEI organizations reported that they considered these means to be effective, although they identified gaps in reaching potential client groups, particularly new immigrants and rural women.  

WEI Organization Reach

• Rural women
  Staff and representatives of the Boards of the WEI organizations identified a significant gap in the WEI organizations ability to serve rural women.  The WEI organizations identified the high cost (primarily travel costs) associated with servicing this clientele as a significant barrier.  While increasing use of web-based programming provides increased access for some, (see Technology Case Study which follows), WD staff, WEI organization representatives and focus group participants did not see technology as entirely meeting their business needs.  It was reported that rural women as well as urban women desire personal contact and face to face meetings.
  
  Technology may provide part of a solution, except that many rural areas continue to face technology access and connection speed issues.  Attempts are continuing to serve this clientele more broadly, for example, through telephone consultations, internet offerings and partnering for community events. WEC has instituted a weekly outreach requirement for all staff, intended to lead to increased organization visibility within the community and programs in rural areas.
  
  Partnerships may assist in improving service to rural women, and will require innovative approaches and positive collaboration.  As indicated in Section 3.1 Relevance, in some instances partnerships have been formed between the WEI organizations and CFDCs in their province.  The development of a strategy focused on optimum means through which to provide services to rural women would serve the interests of both the WEIs and the CFDCs.  This might include the delivery of gender sensitization workshops for CFDC staff.

• New immigrants
  Women immigrants to Canada interested in starting or expanding a business are recognized by the WEI organizations as a target group for marketing information and services. Key informants identified cultural knowledge/sensitivities and language requirements as the barriers to serving this group.  As a result of information obtained during focus group session, the evaluation recommends that information about the WEI organizations be included in new immigrant arrival information packages and that the WEI organizations offer familiarization sessions to agencies serving new immigrants. 

• Aboriginal women entrepreneurs
  The issue of increasing WEI services to aboriginal female entrepreneurs was raised by key informants.  They report a strong interest in working with this group, but recognize that there are specialized programs for Aboriginal entrepreneurs.  There may be opportunities for WEI organizations to offer gender sensitivity training for aboriginal program staff who may potentially be involved with women entrepreneurs.

Governance of the WEI organizations

The evaluation found that the governance of the WEI organizations is appropriate, based on the current composition of the Boards of Directors.  Key informant interviews with Board members, WD staff and WEI organization staff indicated that the Board members appropriately represented the interests of women entrepreneurs in the region, as well as those with lending institution/finance experience. 

In line with appropriate governance, WD should maintain an adequate level of monitoring to ensure that no undue risks to WD occur from issues that may arise from WEI organization management.  

Service Delivery and Client Satisfaction

These findings of the evaluation concerning service delivery and client satisfaction are consistent with the high levels of satisfaction with WEI organization services indicated in the 2002 Impact Study.  This is based on opinions received from focus group participants. Focus group sessions overall indicated a high level of satisfaction with the information, advice, training and start-up loans offered by the WEI organizations. A significant number of the focus group participants had used more than one WEI organization service, including additional loans.

In terms of alternative delivery mechanisms, technology options were also explored.  The following Technology Mini Case Study provides additional detail:

Service Gaps

A significant number of expansion/growth clients in the focus groups indicated that they require a more sophisticated level of information to meet their needs, and do not know where to access this type of resource.  This demand is verified by the Pan-West Program Performance figures which indicate that in the period between April 1999 and March 2004, 346 loans were made for new business start-ups, 303 loans were made to support business expansions, and 64 loans were provided to purchase existing businesses.  Focus group participants expressed the opinion that they would like WEI organizations to provide business expansion type support, although WD representatives consider that this level of information may in fact be available and that WEI clients should be referred elsewhere. An example cited was the increased offerings of the BDC to women entrepreneurs.

In response to growth/expansion client needs, initiatives are underway in some of the WEI organizations to provide a more “sophisticated” level of support to growth clients.  AWE indicated that due to the in-depth knowledge of present staff concerning specialized resources within the banking system, they would be able to direct their growth clients appropriately.    They also acknowledged that without personal knowledge, these resources would be difficult for clients to find.  WEC through its “In Time” program is addressing this issue by providing funding and references for clients who needs specialized advice (e.g. legal, financial, property leasing, assets).  Increased levels of partnerships with other agencies may also address some of the needs for more advanced support.  This could include programs with existing WCBSN members such as the CBSCs, or other agencies such as the Business Development Bank.

Capital Asset Management

The WEI organizations are high risk lenders, primarily because client collateral and other securities are not always a pre-requisite for lending.  The evaluation found that the WEI organizations have instigated appropriate measures to properly manage their capital assets:

• All of the WEI organizations have annual financial audits performed to ensure appropriate asset management;
• The Board of Directors maintains control over lending policies and provides lending expertise and direction;
• The organizations have established loan procedures and due diligence processes.  Examples of these are²⁹:
• Assistance with the development of a business plan through the involvement of a WEI organization business advisor;
• Subsequent meetings between a potential client and a Loan Officer;
• Credit check and property registration procedures are completed;
• If required, proof of ownership, business registration, etc. are requested;
• Recommendations prepared by the Loan Officer for the appropriate level of WEI organization authority, including loan review committees;
• The client is advised of the decision.  If approved, next steps are outlined regarding the preparation of legal documents, loan disbursement and collection of fees/costs;
• Client services such as business advising, accounting, training and mentoring are available to the client at all times; and 
• Contact is maintained with the client by phone on a periodic basis.  If resources permit, on site visit are completed.
• Loan aftercare procedures are in place; and
• Loan recovery practices are followed.

The WEI organizations through sharing of best practices have developed a risk assessment questionnaire.  WESBC identified this as the “Self-adjusting Risk Index” (SARI), containing 70 questions developed in-house to assess client financial and managerial experience. 

Loan Aftercare and Loan Recovery Practices

The evaluation determined that each WEI organization considers themselves responsible lenders using taxpayers’ money.  They have instigated levels of loan aftercare and recovery practices to maintain their loan funds.  Loan aftercare and recovery practices include:

• Negotiating extended loan repayment schedules or reducing payments for clients in trouble;
• On-going business counselling, analysis of cashflow and financial statements, assisting the client in finding a mentor or linking them with another woman who operates a similar business in a non-competing area.
• Assisting clients with difficulties in identifying professional resources (e.g. lawyers);
• Undertaking more drastic measures such as advising the credit bureau of the client’s circumstances; and 
• Seizing assets, initiating auctions to recoup funds.

The evaluation determined that these loan recovery practices are appropriate.

Loan loss ratios

The average loan loss ratios over the life of the WE initiative (starting for WEC in 1994) as reported by the auditors are approximately 9% except for WESBC where the average loan loss over the life of the WE Initiative currently stands at approximately 19%. WEI organizations state that as a high risk lender, their loan loss ratios are considered by their auditors and their Boards to be well within acceptable limits.  The term “high risk lender” as indicated elsewhere in the report is applied because of the WEI organization policy of not requiring collateral when providing loans. 

It was reported that the loan loss ratios are influenced by factors such as provincial economic upswings and downturns, WEI organization lending decisions and personal circumstances of the client (divorce, death, etc.). Loan loss ratios can also be misleading if not linked to the volume of loans in default, which are constantly changing as payments are received or missed.  WEC reported that they incurred high loan losses in their early years due to one large loan that “went bad” although their recent loan loss figures are low.  WESBC is currently conducting an analysis of loan losses to identify any patterns/trends and to identify lessons learned. 

The evaluation considers that the loan loss ratios should be utilized to track lending issues rather than as static or comparative figures across WEI organizations.  The important considerations in using these loan loss ratio figures are to:

1. ensure that loan funds are appropriately managed; and
2. ensure that WEI organizations continue to manage their staff effectively and efficiently.

In interviews, WD personnel did not indicate what loan loss limits were considered acceptable except to state that these ratios were considered to be important indicators of the success of the initiative.  High loan loss ratios for WD implies that the WEI organizations are not appropriately managing the loan approval process.  A policy or guidelines concerning acceptable loan/loss ratios should be developed by WD to clarify goals and objectives of the loan management activities for the WEI organizations.

Depletion of Loan Funds

Of particular interest for the sustainability of the WE Initiative, a projection provided by WES indicated that if the current low interest rates continue (the present interest rates are not high enough to cover the loan loss ratios), and taking into account loan repayments at former higher rates, their loan capital will decrease to zero by 2008.  AWE has stated that their loan fund will be depleted by 2006.  This is confirmed by WESBC stating that this could happen earlier, depending on the loan fund disbursement rates.  Without additional loan funds, the only money available for lending would be the monthly repayments received from then current outstanding loans. 

This is an important finding of the evaluation and has obvious implications for the future of the WEI organizations.  According to WD sources, the loan fund as established in 1994/95 was to revolve in perpetuity to be repaid at such time as it was no longer required.  The expectation was that WEI loan loss rates would be 5% (or less) with loan fund earnings high enough not to erode the loan fund capital.  WD anticipated that the WEI organizations could approach WD for continuing operating support or might develop other sources of revenue.  The issue should be addressed through replenishment of funds in line with the statement of the Prime Minister in 2003.  WD should also communicate its expectations concerning loan loss ratios, poorly performing loan ratios and expected loan volumes to the WEI organizations.  Since this is a financial issue, further information on the specific operation of each loan fund can be obtained through proper channels from each of the WEI organizations.

One of the questions asked during the evaluation was whether the current level of WEI staff knowledge/experience in dealing with lending results is correlated with loan-loss rates.  The evaluation found that there are a number of checks and balances in the decisions surrounding loan approvals: staff recommendations are generally reviewed by the Loans Manager who may also request input from the Executive Director/Board members/finance committees.  For smaller loans (for example, loans under $35,000 in the case of AWE), in some cases the Loans Manager has the authority to approve the loan.  At the same time, the ability of the WEI organizations to attract senior professional staff is dependent on the salary scales offered, a large component of the operational funding received through WD.

Acceptable Levels of Risk

The due diligence process instituted by the WEI organizations assesses client risk in the following categories and factors (derived from WES documents):

• Management Skills
• Financial Plan
• Market Attractiveness
• Inventory/Assets
• Owner/entrepreneur Attributes
• Business Strengths
• Equity/Security

Another factor to take into consideration in the current operation of the WEI organizations’ loan practices is that the organization benefits from engaging with former bank employees, either through their board representatives or as members of their staff.  This provides an oversight function as well as the enforcement of good business practices for the most part.   Supported by stringent and enforced loan recovery methods, the WEI organization clients are properly assessed to save them loss of property in the future.  For example, the Program Performance figures (page 24) indicate that over 1500 applications were formally registered as received with 875 loans approved, illustrating the loan approval process in operation.  These figures do not take into account WEI organization clients who, upon receiving additional training and business planning/counselling, decided to either resubmit at a future date or reconsider their business proposition.

At the same time, interview information indicates that there is a natural tendency to provide optimistic loans in good times, making these loans less viable should the regional economy take a downturn.  This would be the case for every regional lender, and should be a component of the performance measurement and reporting analysis done by WD on a long term basis in order to track trends and lending issues.

Loan Limits

The evaluation found that there is a variance of opinion as to an increase in WEI organizations loan limits.  WES, WEC and AWE are suggesting that the loan limits be raised to $250,000 from the current $100,000.  The assumption is that the organizations would also ramp up their services to serve more established businesses, since the start-ups typically served by the WEI organizations do not require $250,000 at the outset.  The rationale for this is that the larger loans would fill the gap between the WEI limit and the new program the BDC is offering to women starting at $250,000. Venture capital kicks in at funding levels generally ranging between $250,000 and $2million³⁰. The opinion was expressed that as the Chartered banks are becoming more cautious in their lending, an increased limit would also provide an opportunity for more partnering with traditional lenders and other financial organizations. 

WESBC stated during the interviews conducted for the evaluation that the loan limit should not be higher than $125,000, given the other lending sources available and the risk to the organization that such high loan limits might incur.  At the same time, WESBC believes there is a demand for larger loans particularly from clients in large urban centres where the costs of starting or expanding a business is higher, or in the case of manufacturing ventures where significant capital assets are required.  In these cases, WESBC believes it would be helpful if the WEI organizations had some flexibility to address these needs.  WD representatives expressed the opinion that $125,000 is the appropriate limit, to mesh with the other WCBSN partners.

Summary

WD through the Women’s Enterprise Initiative is the primary support of the WEI organizations.  There are issues surrounding the management of the WEI files by WD in terms of timeliness of payments and consistency of management messages and approaches.  The WEI organizations are making conscious efforts to publicly acknowledge the support received from WD. 

Since their inception, as demonstrated by Program Performance statistics, the WEI organizations through their lending programs serve both start-up clients, those who are purchasing existing businesses and those who are expanding, with start-ups and expansions comprising the largest part of their lending.  The organizations continue to serve women entrepreneurs exploring business ideas as well as those who move on to start-up a business.  The WEI organizations are assessing avenues to offer additional services to expansion clients, including targeted programs and partnerships with other organizations.

Of particular interest for the sustainability of the WE Initiative, a projection provided by WES indicated that if the current low interest rates continue (the present interest rates are not high enough to cover the loan loss ratios), and taking into account loan repayments at former higher rates, their loan capital will decrease to zero by 2008.  AWE states that their loan fund will be depleted in 2006.  As the organizations mature, their practices reflect their growing experience base, leading to the opportunity for standardized approaches based on a sharing of lessons learned by the four WEI organizations within the region. 

 

• ²⁹ information provided WES
• ³⁰ The Wired Women website states that “they [venture capital providers] generally make their decision on the strength of the management team and the viability of the business model within the current market”

 
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