Remedial / Delinquency Management for Microfinance Operations

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Remedial / DelinquencyManagement for
Microfinance Operations

• A Presentation for the
• Regional Roundtable Conference
• Luzon-Visayas MABS Participating Banks
• Pan Pacific Hotel-Manila
• 05 September 2003

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Costs of Loan Delinquency

• Postponed or lost income
• Slower portfolio rotation lower asset
  productivity
• Lower staff morale
• Higher costs of fighting delinquency
• Diminished program image
• Higher likelihood of default
• Increased costs of loan loss reserves

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Cause of Loan Delinquency

• Loan delinquency is often the result of poorly
  designed loan products and delivery mechanisms.
• Thus the challenges in a repayment crisis are
• Amending the current loan product and credit
  delivery system for better performance
• Rehabilitating substandard loan accounts back to
  current status and
• Minimize losses from doubtful accounts.

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Essential Elements of Managing Loan Delinquency

• The credit must be valued by the clients
• Clients must be screened carefully
• Field staff and clients must understand that late
  payments are not acceptable
• MFIs need accurate information systems
• Delinquency needs effective follow-up procedures
  and
• The consequences of loan default must be
  unappealing to the clients.

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Remedial Process Flow

Account Review
Capacity Analysis
Strategy Implementation
Strategy Formulation
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Specific Objectives Remedial ManagementProcess
Flow
Normal Management

Account Review
Capability Analysis

• Determine Cause
• Loan Product defects
• Program rollout defects

Evaluate Weaknesses
Evaluate Alternatives
Possible Support
Categorize Accounts
Strategy Formulation
Strategy Implementation

• What ought to be done
• How to achieve it
• Timeframe
• Commitments

• Monitoring
• Reporting
• Revisions
• Shift Gears

Repayment Crisis
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Steps to Take in a Delinquency Crisis (1)Account
Review

• Review credit policies and operations
• Evaluate loan officers adherence to sound
  methodology
• Determine extent of repayment crisis
• Assess performance of loan officers
• Categorize loans from poorest to most
  collectible and
• Assess the MIS.

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Steps to Take in a Delinquency Crisis
(2)Capacity Analysis

• Review performance of newer versus older loans
• Review manpower requirements for undertaking
  rehabilitation of accounts
• Review staff skills and
• Identify alternatives for each type of remedial
  account.

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Steps to Take in a Delinquency Crisis
(3)Strategy Formulation

• Design a performance based incentive scheme
• Design a remedial management plan
• Set-up a monitoring system and assign a task
  leader
• Undertake staff training and orientation
• Articulate the plan
• Lay out the reviewed policies and information
  requirements and
• Set time bounded targets and accountabilities.

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Steps to Take in a Delinquency Crisis
(4)Strategy Implementation

• Promote strong growth both in amounts and number
  of clients
• Weed-out clients who have had poor records as
  they pay their loans
• Remove loan officers who continue to perform
  poorly or who drag down the entire concept
• Judiciously refinance/restructure meritorious
  cases
• Write-off the major number of accounts that are
  more than 6 months past due and
• Regular reporting of accomplishments and
  challenges to management.

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Essential Elements in Preventing Delinquency

• Instill credit discipline as part of
  institutional culture for both employees and
  clients
• Sound Credit Methodology and
• Effective information system

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Adages in Remedial Management

• Loan rarely become losses overnight
• A bad loan is always worse than you think it is
• Remedial measures must be fast
• What you measure is what you get.

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• Thank you .