ADVANCE SMART MICROFINANCE

MANAGERS COACHING

LOAN RECOVERY & DELINQUENCY

MANAGEMENT
 Loan Recovery
 This is the collection of the Loans that have fallen due,
client has not paid the installment and all loans that
are overdue.
 This is post mortem due to the failures of the appraisal
process.
 The client selection, loan application, loan appraisal
and loan monitoring are key facets of Default
prevention.
 A default is when the client has failed to service
his/her loan as per the Loan agreement.
 Causes of Default - Internal
SKILLS & MORALE OF
STAFF
Image and Philosophy of
Organisation

MIS

CREDIT PRODUCTS &

METHODOLOGY
 Causes of Default - External
Natural disasters Government
policies

Bank & its

clients

Economic Individual crisis

conditions

+
 Cause of Default
• Un able to generate instalments as required-
Instalment to net is bigger than capacity.
• Unwillingness to pay.
• Due to uncontrollable factors; illness, death,
incapacitation
• Confusion on when to pay (Public Holidays
day) Etc
 Default prevention Tips
• Precautionary at disbursement: Relation Officer
and Manager talking to client on the need to pay in
time.
• Maintaining a close contact with the client.
• Making informal reminders to clients like getting in
touch with clients shortly before due date.
• Explaining the dangers of default.
• Using referees to talk to the applicant.
• Using other staff members to follow up.
 Default prevention Tips – cont’
• A Good and trusted relationship with clients
will be a sure way of forcing clients to pay.
• Keeping informed about your clients.
• Caring about your clients (participating in
some social functions)
• Letting them know the dangers of default if
file is sent to the Debt Collection Unit.
Delinquency Management
 Delinquency Management
 These are the steps and procedures that a
Bank or Financial institution puts in place to
manage the recovery of loans in default.
 It is default loan management.
 It starts at the point of Loan origination up to
the write off stage.
 Key Delinquency policies
• All loan payments, whether on time or late,
are made through the cashiers at branches;
• The LO is not allowed to collect cash;
• For clients who are in default by one day, a
phone call may be of help.
• More than one day then physical visits are a
must.
 Key Delinquency policies
• Clients cannot receive a new loan if the
previous loan has not been paid off in full first;
• Certain defaulting loans can be rescheduled or
refinanced.
 Key Delinquency policies
• Rescheduling = extension of existing loan.
• The repayment schedules for all rescheduled
loans remains unchanged in the system.
– Must track in Excel spreadsheets.
 Key Delinquency policies
• Refinancing = replacement of existing loan
with alternative borrowings;
• All loans that replace existing loans must be
created in the system as refinances loans with
new repayment schedules.
 Role of Loan Officer
What are you expected to do when a client
fails to pay?
• Determine the reason of default.
• Visit the client with 2 days.
• The Loan officer should discuss the reasons for
delay.
• Agree with the borrower the exact date when
the missed instalments shall be paid.
 Role of Loan Officer – cont’
• Make clients to sign the visit report form or a
chit to confirm the visit.
• One of the major LO tasks is to encourage
clients to make on-time loan repayments;
• Ask client to show willingness to pay through
the reimbursement of small amounts on a
regular basis.
 Role of Loan Officer – cont
• The Loan Officer should consider the
following before follow up:
1. Total number of days late;

2. Total amount overdue;

3. Number of installments overdue;

4. Client’s attitude during the visit;

5. Reason given for defaulting;

 Role of Loan Officer – cont
6. Credit history of the client;
7. Type of Business;
8. Family circumstances;
9. Default rate of the area the client lives and /
or operated his / her business.
10. How long has the client been a member of
Opportunity Bank;
 Role of Branch Manager
• Branch Manager has to ensure that:
– A good daily planning for delinquency
management is in place. Planning should be
compared with actual activity!
– Delinquency visits are done according to
guidelines.
– He/she participates in tracking activities in the
field when applicable.
 Role of Branch Manager

– Tracking sheets and notification letters are used.

– Forward highly Delinquent loans to the Debt
Recovery Unit.
 Demand Notes
 These are letters written to clients in default.
 They are time bound.
 Need proper and strict follow up.
 In most cases written in three phases:
I. First Demand Note
II. Second Demand Note
III. Third Demand Note
 First Demand Notice
• If not paid as agreed, First Demand Notice is
issued by Manager
• Demands the client to clear arrears within 30
days
• Next time this client falls into arrears, he/she
will be issued a 2nd Demand Notice
 Second Demand notice
• If after 30 days given in 1st DN the loan is not
paid, the BM issues Second Demand Notice.
• Demands the client to pay missed instalments
(P+I) within 15 days.
• It also includes amounts that may fall due
within the notice period.
 Third Demand notice
• This is issued after failure to honour 2nd
Demand Notice and no agreement has been
reached with the borrower to pay arrears.
• The notice declares the entire outstanding
loan plus interest and costs due immediately.
• The BM submits the case to the Debt
Collection Unit.
 Procedure for Motor Vehicle Disposal
• Issue instructions to External service provider –
Bailiffs.
• Follow up to ensure no compromise in impounding
the MV.
• Advertise in news papers after impounding
• Get valuation report.
• Bid offers.
• Request for Management approval to sale to
highest bidder.
 Procedure for Land Title Disposal
• Issue instructions.
• Get a court order or if an agreement
mandates us to sale without recourse to court.
• Advertise in papers.
• Get valuation report.
• Get bid offers.
• Get approval from management to sale to the
highest bidder.
THANK YOU