LOAN POLICY

POSTA NA SIMU SAVINGS AND CREDIT

COOPERATIVE SOCIETY LIMITED
 Table of Contents
Page

1. Executive summary 3
2. General Policy 4
3. Eligibility Rule 4
4. Loan Committee Policies 5
5. Loan evaluation 5
6. Financial counseling 6
7. Establish credit worthiness 6
8. Loan to new Members 8
9. Loan to Board Members & Society Officers 8
10. Employee loan 8
11. Loan Approval Authority 8
12. Security for Loan 8
13. Purpose of Loan 9
14. Period of Loan 9
15. Rate of Interest 9
16. Qualification of Loan 9
17. Power of Discretion 10
18. Approval of Specific Loan product 10
19. The Loan committee rights 10
20. Repayments of Loan 11
21. Loan Re-negotiation or extensions 11
22. Early repayments 11
23. Terms 11
24. Delinquency 12
25. Loan information 12
26. Appeal of Disapproval loan 12
27. Loan referrals to Loan committee 13
28. Fine & Penalty 13
29. Policy Amendments 13

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 LOAN POLICY
1. EXCUTIVE SUMMARY

The Loan Policy aims to establish a criterion by analyzing the basic principles of SACCO’s best
practices. It must be used in accordance with these principles when members apply for loan
application. Profitability is the factor that will ensure the prosperity and continuity of the Posta na
Simu Saccos. The loan policy is designed to minimize the risk of losses.

It shall be the guidelines policy of the Posta na Simu Savings and Credit Cooperative Society Ltd.
to grant loans for provident and productive purposes, in the spirit of co-operativism, to eligible
members of the Society, based primarily on the character and integrity of the individual and
secured by whatever security may be deemed necessary.

All loans will be granted within the limits and restrictions of the Co-operatives Societies Act and
the Bylaws of Society accompanying Regulations. This is because the Society must be able to
continue and improving the lending activities and must be based on a profitable basis.

The Board of Directors must approve any exceptions to this Policy. Any amendments to the Loan
Policy shall be duly reflected in the minutes of the Board of Directors and advice of all changes
shall be circulated to all members. These changes shall be immediately included in the Loan
Policy Manual in order to ensure that the Policy Guidelines are complete and current

The management should ensure the Society reviews its policy regularly and appropriately. The
board has ultimate responsibility for the loan policy and needs to ensure the Society considers all
relevant factors in any review. They can use others the Board, the supervisory committee, the
Loan committee – to help and advise them, which is what some of the Society we looked at did.

In general, we expect this to be one of the tasks of the supervisory committee. The supervisory
committee ensures the Society follows systems and controls put in place by the board and that
these achieve their purposes. It reports any concerns back to the board.

Summary
A good loan policy is one that works well in the Society and reflects the risk your board is
prepared to take by laying down suitable limits and practices. It will be reviewed regularly and be
comprehensive and clear, so the person that approves your loans can understand it and can apply
it to cover the different situations the Society will face. A good lending policy will not prevent
some loans going bad – when lending to higher-risk borrowers, Society face a risk that some
borrowers will default on loans or go into arrears. But a good lending policy will provide the best
possible chance of the Society continuing to stay in business and serve our members.

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2. General Policies

The Loan Committee is charged with the responsibility of granting loans to members within the
loan policy established by the Board of Directors which is inspired by strict and defined criteria in
order to avoid the misuse of member’s funds and determination of Society image and reputation.
The process of assessment of borrower’s repayment capacity must be effective and the collection
methods, in the event a loan proves risky must undergo close scrutiny pressure and social
relationship before disbursing a loan.

3. Eligibility Rules:

A person is eligible to apply for a loan after being accepted as a member can borrow after six
months of being a member and making a contribution to shares by paying 40 shares. Also the
member must make a contribution to Savings every month, even though he/she might be repaying
a loan.
The Board of Directors may delegate authority to approve loans to a Loans Officer.
The Loan Committee has the responsibility to recommend changes in whole or in part and from
time to time in the loan policies to the Board of Directors when it is considered necessary in the
interest of the members. At all times, the Loan Committee operates within the parameters
established by the Board of Directors.
Subject to the availability of Funds, it shall be the Policy of the Posta na Simu Saccos to grant
loans for Provident and Productive Purposes, to eligible members of the Society based primarily
on the character and integrity of the individual and secured by whatever security is deemed
necessary under the Co-operatives Societies Act and Regulations, as well as the prevailing Loan
Policy.
No applicant for a loan shall be discriminated against because of race, colour, creed, sex, religion,
political affiliation or personal reasons.
All loans will be granted within the limits and restrictions of the Co-operative Societies Act and
Regulations, the Society's By-Laws and the prevailing Loan Policy.
• The Loan Committee is charged with the responsibility of granting loans to members within
the Loan Policy established by the Board of Directors.
• The Board of Directors may, by resolution delegate to the Manager or another employee of
the Society to approve loans to members.
• Any persons authorized by the Board to approve loans; shall submit to the Loan Committee a
Written Report at the next meeting immediately following the Date of Approval.
• Only members of the Posta na Simu Saccos are eligible to borrow. Each borrower must
submit a completed Application Form, and all other required information.
• Subject to the limitations established by the Board of Directors, the Loan Committee shall
analyze the Credit Worthiness of such applicants, and shall consider the following factors in
evaluating applications for loans:
• Any member who is applying for a loan, extension/refinancing or a new loan in excess of his
Savings in Shares and Deposits may be interviewed by the Loan Committee.
• Character - the member's record of participation in the services of the Society.
• Capacity - the amount and regularity of income to be used for repayment of loans.
• Credit History of the applicant as verified by credit reporting services or individual ratings.
• Types and levels of collateral.

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 • Maximum amount loaned to any one member shall not exceed 10% of the Society's
unimpaired Capital and Surplus.
• Smaller, short-term and medium term borrowing needs of members will be given priority.

To maintain the Solvency (Liquid Reserve Ratio) of the Society’s Management must restrict
lending when the sum of Cash Reserves in relation to total Shares, Deposits and Loans payable
falls below 10%.

4. Loan Committee Policies

The role of the loan committee, as appointed by the AGM representatives of the Society, is to
retain the ultimate responsibility for approval or refusal to grant loans to other members. The
Loan Committee will delegate authority to approve loans to the Loan Officers they appoint in
accordance with the limits established in these Loan Policies.

The Loan Committee is comprised of three appointed representatives Board members and
additional alternate members such as Society Manager. All will be appointed by the Board of
Directors as needed. Alternate members serve in the absence of the regular members. The Loan
Committee will meet each normal Society business day at approximately noon to deliberate on
loan applications which are beyond the scope of delegated authority of the Loan Officers or loans
which have been submitted to them by the Loan Officers. On all loans referred to the Loan
Committee, the Loan Officer will make written recommendations for approval or disapproval.

After analyzing the application, the Loan Committee will approve, reject (giving a specific
reason) or defer the application for additional information. The application with Loan Committee
comments and decision will be returned to the appropriate Loan Officer, who will inform the
member of the Loan Committee decision. Members who have their application rejected by the
Loan Committee may request a personal interview with the Committee to discuss the application.

5. Loan Evaluation

This policy intends to provide general directions and guidelines that shall be adhered to in order to
ensure Member's savings and deposits are adequately protected; and The Society's Investment in
members' loans are of a high quality;

Only members of the Posta na Simu Saccos are eligible to borrow. Each borrower must submit a
completed application form. It is extremely important that the appropriate category of loan at the
top of the form be checked. The member must determine if he/she is applying for individual or
joint loan, or if they will be relying on the income of another as the basis of repayment.

Subject to the limitations established by the Board of Directors, the Loan Committee shall analyze
the credit worthiness of each applicant, and shall consider the following factors in evaluating
eligible applicants for loans:-

(a) The borrower must be a member of the Society for 6 months prior to being eligible to
apply for a loan
(b) The member’s record of participation in the services of the Society.

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 (c) Any member, who has caused the Society a loss (through default of payment or
bankruptcy) and has not reaffirmed their loan, will not be eligible to borrow any amount
other than their regular shares.
(d) Once approved a loan must be taken within 30 days of application or you must reapply.
(e) The amount and regularity of income to be used for repayment of loans
(f) The types and levels of collateral.
(g) Be a Tanzanian citizen at least 18 years of age
(h) Of sound mind
(i) Not limited in civil actions by court order and not involved in criminal actions
(j) Does not participate in social vices such as gambling, drug abuse etc.
(k) Complies with the Posta na Simu Saccos by laws
(l) Group must be 3 to 5 people; family or business must be identified and proven.
(m) Group business must have been running permanently for at least not less than one year

6. Financial Counseling

Loan Officers will attempt to identify members whose financial statement might indicate a
dangerous pattern of increasing indebtedness or excessive obligation. Debit consolidation loans or
loans to pay bills are many times a good indication of such conditions.

The financial statement (Salary Slip, Members statement, Members ledger etc) and loan folder of
such a member should be given to the Loan Supervisor. The Loan Supervisor will contact the
member to determine if they are interested in receiving assistance from the Society in resolving
their personal financial problems. If the member wishes, the Loan Supervisor will set up an
appointment for a counseling session.

The counseling should include:

• Analyze the member's income in relation to his/her monthly payment obligation.
• Assist members involved in creating a reasonable family budget.
• Suggest possible techniques for reducing debt or making more efficient use of income.
• Provide a debt consolidation loan if in the best interest of the member and within the
guidelines of sound loan judgment.
• Attempt to determine cause or causes of financial condition and when necessary refer to
outside assistance consumer credit counseling, marriage, drug or alcohol abuse counseling,
etc.

The Loan Supervisor or Loan Committee will limit counseling to personal financial matters only.

7. Establishing Credit Worthiness

In order to comply with the Loan policy, Cooperative Act and Bylaw, the member's secured or
unsecured credit limit will be based solely on credit worthiness. In establishing this limit, the
following elements of the member's credit worthiness were taken into consideration:

Capacity: The individual's ability to repay based on the income in relation to payment
obligations.

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Character: The individual's attitude toward repayment of loan and to determine the member's
capacity for additional debt, by computation the member's income in relation to his
payment obligations. This computation will be performed on the reverse of the
Salary Slip attached to the application form

Definitions Total Gross Monthly Income: If a member is applying for individual loan, this
item will include his/her gross monthly income before any deductions for taxes,
etc. Additional income of a recurring nature each month will also be included here.
Other income could include income from a part-time job, income from rental
property, and monthly income from investments.

The loan officer should request the member to substantiate the other income with
documentation of the certainty of the possible continuance of such income. If a
member is applying for joint credit, the gross recurring other income of the joint
borrower will be included with the gross income of the member borrower. The
income of a member borrower or joint borrower can only be considered once by
the credit union.

Total Debts: This item will include all recurring monthly payments or debt for which the
member is either primarily or jointly responsible. Such payments could include
mortgage or rent payments, on loans at the Society, banks, savings & loans or
finance companies. Monthly payments for which the joint borrower is either
primarily or jointly responsible will also be listed. However, a husband and wife
will not list a debt twice if the wife is jointly responsible with the husband for that
debt when she is applying as the joint borrower.
The monthly installment on every loan cannot exceed 1/3 of the borrower’s net
proven monthly salary or net income; otherwise the loan amount has to be reduced.
The term extended according to the Loan policy specifications and limits or the
loan application rejected.
Obligations: These will include other recurring monthly payments for which the member
borrower or joint borrower is responsible. Such obligations would include
allowance.

Balance Left This figure will actually determine the secured or unsecured loan limit for the
member borrower. The Loan Officer will refer to the Loan Committee members
with the following situations:
• A balance left over of under one third
• Employment period less than six months with current employer.
• Current garnishment.
• Pending legal proceedings.
• A previous delinquent account at the credit union.
• A history of over drafting the savings account operations.
• Any loan rejection within the past year will go to the Loan Committee.
• Other significant derogatory credit information.
• Any member who requests a credit limit greater than that authorized by Policy
must submit a new credit application and be referred to the Loan Committee.

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8. Loans to New Members

Any employee of the company with less than six months employment with the company may be
approved for a maximum signature limit of TZS. 300,000.00. The Society employees with less
than three months employment with the Society may be approved for a maximum signature limit
of TZS.600,000.00.

9. Loans to Board Member and Society Officers

All loan applications for any Board Member and Society Senior Officers must be referred to the
Board meeting for approval. The officer must not be present in the meeting while the application
is being considered.

(a) The Loan Committee or Loan Officer may approve loans to officials up to the official's
impaired savings balance. The Credit Committee for approval or rejection must receive all
loan applications in excess of these limits. By-Law
(b) An official shall not act on his own application or on an application where that person has
agreed to act as a guarantor or co-maker or on an application for the next to kin, or where
the applicant is a family member or relative. By-Law.
(c) The official will not be present while the application is being considered. By-Law
(d) Where loans to meet domestic expenses (light, telephone, and rent) are consistently
requested, counseling will be necessary before applications are processed. A budget must
be submitted.
(e) Cheques for approved loans should be paid to creditors/suppliers on behalf of the
applicants by the Society.

10. Employee Loans

All employee loan applications will be processed through the Manager and submitted to Loan
Committee for review.

11. Loan Approval Authority

The Board of Directors may approve the authority level to approve the loan with their categories
as follows:
Level III Loan Committee up to
Level IV Board

12. Security for Loans

One or more of the following must normally secure loans:

• Borrowers own Savings and/or Deposits; once the Savings have been used as Security, they
cannot be withdrawn unless the Outstanding Balance is less than the Savings. The Difference
can then be withdrawn.
• Collateral
• Guarantors who has or are willing to deposit the Tangible Security as specified in
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 • Land Title; Titles to land purchased must be offered as security. These must be lodged with
the Society during repayments of the loan. Registered titles that are free of mortgages or
other encumbrances will be used as security. A valuation by the Society’s valuer is required
to ascertain current market value of property. The amount of security accepted by the Society
should not exceed 75% of that valuation
• Legal Mortgage on property.
• Card of Motor Vehicles up to five (5)years old;
• Life Insurance Policy 90% of Cash Surrender Value must be certified in writing by the
Insurance Company. A member is required to hold adequate Insurance on any property
offered as Security for a loan, and must furnish proof of such Insurance. If a member fails to
renew the required Insurance on such property, the Society shall pay such Insurance and
charge the Premium cost of such Insurance to the account of that member.
• Shares, Stocks and/or Bonds Certificates that can be traded;
• Others: 1.
2.
3.
The Loan Committee should ensure that there are no prior liens, security interests or assignments
of the securities being offered.

13. Purpose of Loan

Loans will be granted for Provident and Productive purposes per the suggested categories. By-
Law

14. Period of Loan

Every Category of loan will have a specific maximum repayment term and shall be clearly related
to the borrower's income and ability to repay.

15. Rate of Interest

The Board of Directors shall determine the Rate of Interest charged on loans from time to time.
The current rate of interest is 2% per month on the reducing balance.

16. Qualifications for Loans

(1) All loan applicants must be bonafide members of the Society.

(2) All new members must complete a minimum time requirement of membership,
with the Society to qualify for a loan in excess of their Savings unless approved
by the Board under special circumstances.
(3) A member who has been required to clear arrears resulting from
Delinquency must observe a waiting period of three months after completion of such
payment before a new loan may be approved for that member.
(4) A loan shall not be granted to a still member (that is, a member who is not making
Contributions to savings) over and above his/her savings value, unless that member makes
contributions to savings for the last three (3) consecutive months. (By-Law)
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17. Power of Discretion

The decision to grant any loan shall remain within the discretion of the Board or relevant
committee of the Society. All decisions shall be dictated by prudence and due regard to the
interest of the Society.

18. Approvals of specific Loans product.

The Loan Committee shall approve all loans. The loan is granted for productive and /or provident
purposes only. Loans for Board members and Staff in excess of their Shares shall be referred to
the Board Meetings for approval.

19. The loan Committee rights

The Loan Committee reserves the right:

• To interview all applicants and guarantors;
• To refuse securities offered; and
• To reject the guarantor/s suggested by the applicant.

Loans Officers

(a) The Manager may approve loans of up to TZS.600,000/= .

(b) A written report of all loans approved by the Manager must be submitted to the Loan
Committee at the next meeting immediately following the date of approval by the
Manager for confirmation.
(c) The Loan Committee Shall normally sign application forms for loans approved by the
Manager.

Emergency Loans
An emergency loan not exceeding TZS.600,000/= may be granted to members who are at
the time repaying loans and who for some reason are in need of further financial
assistance. The loan must be repaid within Six (6) months and bear an interest of 2% per
annum on reducing balance.

Small Loans
A small loan from TZS 1,000,000/= to TZS.3,000,000/= may be granted to members who
are at the time repaying loans and who for some reason are in need of further financial
assistance. The loan must be repaid within Twelve (12) months and bear an interest of
2.% per annum on reducing balance.

Education Loans
A Education loan not exceeding TZS 1,500,000/= may be granted to members who are at
the time repaying loans and who for some reason are in need of further financial
assistance. The loan must be repaid within Twelve (12) months bear an interest of 2% per
annum.

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 Development Loans

A loan taken three times of the member’s savings may be granted to members who are at
the time repaying loans and who for some reason are in need of further financial
assistance. The loan must be repaid within Thirty Six (36) months bear an interest of 2%
per annum. The amount taken should not exceed TZS 25,000,000/=.

Repayments of Loan

(1) Borrowers shall make payments by authorizing deductions from their salaries or standing
orders with a local commercial bank.
(2) Transfers from Savings to make loan payments shall only be allowed if the borrower's
Savings are in excess of the loan balance and outstanding interest.
(3) Loans shall be repaid by installments no less frequent than monthly and all loans may be
repaid in whole or in part on any day the Society is open for business.

Loan Re-negotiation or Extension

No rescheduling is allowed for the repayment of Loans. Also no suspension or deferral of

payment will be authorized. If exceptionally in the event of force-majeure e.g. environmental,
health problems etc and /or of circumstances beyond the control of the borrower happened, the
requests for re-negotiation, extension and temporary reduction of payments are to be submitted to
the Loan Committee. All such request requires an up to date review of all members'
circumstances, including a complete and detailed loan application and a full credit investigation.
During the loan analysis, repayment capacity was assessed and evaluated. The borrower is then
capable of meeting his loan payment obligation

The Loan Committee will then make its recommendation to the Board for a final decision to be
made upon a specific written recommendation from the Loan committee and the Board can
authorized the extension or renegotiations of a member’s loan without hindering his future
possibility of applying for a new loan. In that case the cost of the Loan and Interest will be
adjusted to reflect the new extended term.

22. Early Repayment

Loans granted by the Posta na Simu Saccos can be repaid in advance after a minimum period
equivalent to half of the maximum term. The disbarment date will be used as the starting date.
For example the maximum term of repayment for the loan is 12 months hence early repayment
will be allowed only after six month following disbursement date. Only in the event of full
repayment is the interest calculation adjusted.

23. Terms

All loans including re-negotiations, must comply with the maximum amount and maximum term
stipulated in this policy. No more than two extensions may be granted over the term or any loan,
and the total extension period shall not exceed one year.

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Security documents must be re-drawn or modified and amending financing statements registered,
or an extension agreement executed as necessary. Where guarantor(s) or (co-makers) secure a
loan in whole or in part, all parties to the loan must sign the re-negotiation or security document
as necessary.

Delinquency

Where a delinquent account is to be considered for re-negotiation, interest accrued to date must be
paid.
A loan must not be refinanced or re-negotiated solely for the purpose of removing the loan from
the delinquency classification.
A loan becomes delinquent immediately after a payment is missed.
The Society shall send reminder notices to the member requesting payment and or written
explanation.

The Society shall, after three consecutive payments have been missed takes one or more steps:

(a) Send reminder notices to the member requesting payment and or written explanation.
(b) Notify the co-maker(s), guarantor(s) with a view to having them settle the balance.
(c) Take possession of and/or realize securities by employing a bailiff if necessary.
(d) Refer the account to a lawyer, bailiff or debt collector. All expenses incurred by the

Society in collecting delinquent payments must be borne by the borrower(s). Legal and
collection fees or other charges in connection with the delinquency will be added to the borrower's
loan account. (By-Law)

Loan Information

(a) If a member experiences difficulty in paying any installments of a loan, that member
should contact the Society's office in writing immediately.
(b) Every effort should be made to examine the member's problem with a view to working out
a convenient repayment schedule.
(c) All members whose loan applications have been rejected by the Loan Committee have
the right to appeal to the Board of Directors.
(d) A loan bond must be signed by the members before any loan is advanced.
(e) A minimum savings of TZS.20,000/= per month is required during loan repayments.
(b) All legal and/or appraisal fees incurred in processing the application for a loan or the
granting a loan or in collecting the loan shall be borne by the applicant.

Appeals of Disapproved Loans

Members who have their application refused by the Loan Committee may request a personal
interview to discuss the application. The member must request the interview in writing, outlining
the additional information he wishes to present to the Loan Committee which would alter their
judgment to approve the member's application.

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The letter will be presented to the Loan Officer who originally interviewed the member.
The Loan Committee will evaluate the letter to determine if a meeting with the member would be
profitable to him/her

Loan Referrals to Loan Committee

A Loan Officer will refer a loan application to the Loan Committee when:
• The Loan Officer's approval authority is restricted due to Board of Director or Loan
Committee policies.
• The Loan Officer believes the application should be rejected on the basis of credit
worthiness.
• When a Loan Officer refers a loan application to the Loan Committee, the form entitled Loan
Officer Referral to Loan Committee" will be completed indicating the Loan Officer's
recommendation, and the reason for referring the application to the Loan Committee.
• The Loan Committee will consider the Loan Officer's recommendation, analyze the current
application and other pertinent information, and then take action to approve, reject or defer the
application. If the application is rejected, the Loan Committee will note the action on the
application form entitled "Statement of Refusal to Grant Loan".
• If an application is deferred for additional information, the Loan Committee will note the
specific information required on the bottom of the "Loan Officer Referral to Loan Committee"
• The interviewing Loan Officer will normally have the responsibility of informing the
member of the Loan Committee's decision. It is important to note that a Loan Officer or other
staff members may refuse to accept or disapprove a loan application if that individual is not
within the field of membership or noncompliance with policy.

Fine and Penalty

A late payment from the fifth day (Calendar day of payment) incurs a fixed penalty of TZS one
thousand (1,000/=). This fine is progressive at the rate of TZS. One thousands (1,000/=) for every
additional of five days (5) calendar days of arrears.
Example:
1) 5 days = 1,000/=
2) 10 days = 2,000/=
3) 15 days = 3,000/=
4) 20 days = 4,000/=
5) 25 days = 5,000/=
6) 30 days = 6,000/=
Fines and penalties are there for discourage late installments and poor repayments behaviors. A
late payment results in more and concern for the SACCOS, putting the savers money at risk hence
penalties and fines must be significant and progressive.

Policy Amendments

This Loan Policy is subject to change by the Board of Directors in whole or in part, from time to
time when it is considered necessary in the interest of the Society and the members.

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