- delinquency management training - delinquency management
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- Delinquency management training -
Delinquency management
Urban Program for Livelihood Finance and Training
- Delinquency management training -
Urban Program for Livelihood Finance and Training
Topic 1: What is delinquency in Micro-lending?
Topic 2: The effect of delinquency in Micro-lending
Topic 3: Measuring delinquency in Micro-lending
Topic 4: Causes of delinquency in Micro-lending
Topic 5: Preventing delinquency in Micro-lending
Topic 6: Acting on delinquent clients
Training flow
- Delinquency management training -
What is delinquency in Micro-finance?
• Delinquency is the situation that occurs when loan payments are past due (CGAP).
• A delinquent loan (or loan in arrears) is a loan on which payments are past due (Calmeadow).
• Delinquent payments/payments in arrears are loan payments which are past due.
Urban Program for Livelihood Finance and Training
- Delinquency management training -
Delinquency occurs when one loan
payment is one day late.
Urban Program for Livelihood Finance and Training
What is delinquency in Micro-finance?
- Delinquency management training -
• Default occurs when a borrower cannot or will not pay his or her loan. The MFI no longer expects to receive repayment. The MFI may continue the collection efforts.
• Usually, a loan is declared in default when the borrower has stopped payment on a loan for more than 2 or 3 due dates.
• Once a loan is declared in default, the MFI will try to collect collaterals.
Urban Program for Livelihood Finance and Training
What is delinquency in Micro-finance?
- Delinquency management training -
“Credit without strict discipline is nothing but
charity.Charity does not help to
overcome poverty.”
Urban Program for Livelihood Finance and Training
- Delinquency management training -
“Credit without strict discipline is nothing but charity. Charity does not help to overcome
poverty. Poverty is a disease that has a paralyzing effect on mind and body. A
meaningful poverty alleviation program is one that helps people gather will and strength
to make cracks in the walls around them.”
Mohammad Yunus – 1998
Urban Program for Livelihood Finance and Training
- Delinquency management training -
What is the effects of delinquency?
• On the Micro-finance institution?
• On the clients/beneficiaries?
• On the staff?
• On the donors?
Urban Program for Livelihood Finance and Training
- Delinquency management training -
Urban Program for Livelihood Finance and Training
What is the effects of delinquency?
On MFI:•Less income, less interest
•Less clients
•Shortening life of MFI
•Increasing expenses
•Restructural
•Bankrupcy
•Decrease sustainability
•Limit the spread
•Image of institution
•Ever-increasing delinquency
On clients:•Less discipline
•Less trust
•Less motivation
•More difficult to sustain the family needs
•No possibility to reloan
•Bad image in the community
•Client not served effectively
•Chain reaction
•No svings anymore
•Loose the money of clients (savings)
On staff:•Low performance
•Decreasing benefits
•Must focus on delinquent
•No bonus
•Loss of motivation
•Retrenchments/Forced resignation/Downsizing
•Extra efforts to motivate clients
•Laziness
On donors:•Loosing credibility
•No donation
- Delinquency management training -
Measuring delinquency in Micro-finance
• The outstanding portfolio of a Micro-finance institution is defined as the principal amount of loan balances outstanding.
• It is the remaining balance in principal of all the outstanding loans
Urban Program for Livelihood Finance and Training
- Delinquency management training -
• Largest asset• Generates income• Demanded by clients• Reason for MFI existence
Urban Program for Livelihood Finance and Training
Measuring delinquency in Micro-finance
Features of an outstanding loan portfolio:
- Delinquency management training -
Quantitative measureSize of the portfolio
Qualitative measureCapability to generate income => bad debts
Urban Program for Livelihood Finance and Training
Measuring delinquency in Micro-finance
- Delinquency management training -
Only ratios with “outstanding portfolio” in their formula can measure the quality of a portfolio!
Urban Program for Livelihood Finance and Training
Measuring delinquency in Micro-finance
- Delinquency management training -
Unpaid principal balance(1 late payment or more)
Outstanding portfolioPortfolio at risk =
P.A.R is the best indicator to measure potential losses !
Urban Program for Livelihood Finance and Training
Measuring delinquency in Micro-finance
- Delinquency management training -
Example 1: A client receive a loan of Php2000. She/he made two payments of Php250 and Php200 are principal, Php50 are interest. Then she/he has two mispayments.
At the time she/he started not to pay, the remaining balance was 2000-(2*200)=1600. Php1600 are considered at risk.
The portfolio at risk is 1600/1600=1
In percentage, it is 100%.
Urban Program for Livelihood Finance and Training
Measuring delinquency in Micro-finance
- Delinquency management training -
Measuring delinquency in Micro-finance
Urban Program for Livelihood Finance and Training
Example 2: 2 loans are granted.
A Php2000 loans to Miss A and a Php3000 loan to Miss B are released the same day.
Miss A must pay in 5 installments. Miss B must pay in 6 installments.
Miss A pays regularly. Miss B does not pay the 2nd and 3rd installments. Miss B pays all the other installments.
What are the P.A.R after the release?
After every installment?
- Delinquency management training -
Measuring delinquency in Micro-finance
Urban Program for Livelihood Finance and Training
Installments Just after release
1st 2nd 3rd 4th 5th 6th
Payments Miss A
Php400 Php400 Php400 Php400 Php400
Payments Miss B
Php500 Wala Wala Php500 Php500 Php500
Outstanding portfolio
Php5000 Php4100 Php3700 Php3300 Php2400 Php1500 Php1000
Unpaid balance (1 myspayment or more)
0 0 Php2500 Php2500 Php2000 Php1500 Php1000
PAR after installment.
0% 0% 67.5% 75.7% 83.3% 100% 100%
Example 2:
- Delinquency management training -
Urban Program for Livelihood Finance and Training
Measuring delinquency in Micro-finance
Repayment rate =amount received (less prepayments)
total amount due this period (including past due from previous period)
It shows the amount paid compared to the amount expected. It is a measure of the MFI capability to be paid on time.
Repayment ratio =
(on maturity)
amount received on maturity date
total amount due.
It shows the amount paid compared the amount expected to be paid on maturity. It measures the capability of a MFI to be paid on time, on maturity. In other words it measures the capability of the MFI to make the clients respect their contract.
- Delinquency management training -
Urban Program for Livelihood Finance and Training
Measuring delinquency in Micro-finance
amount of arrears or past due
outstanding portfolio.
Arrears rate or past due rate =
It gives an indication on how common is non-payment.
- Delinquency management training -
Urban Program for Livelihood Finance and Training
Measuring delinquency in UPLIFT
Total outstanding
PAR
Repayment ratio on maturity
% of non past-due partners
It is measured at the level of a LDO, a branch, a program and the entire organization.
Measuring delinquency in Micro-finance
- Delinquency management training -
Urban Program for Livelihood Finance and Training
Measuring delinquency in Micro-finance
MFI must have a loan loss reserve and loan loss provision for accurate financial statements.
These should be based on historical portfolio performance
Loan loss provision is an expense and affects the sustainability
Loan loss reserve is recorded as a negative asset on the balance sheet and reduces the outstanding loan portfolio.
MFI should have a reasonable write-off policy
- Delinquency management training -
Urban Program for Livelihood Finance and Training
Measuring delinquency in Micro-finance
Annual loan loss rate=Amount of loans written off a year
Average outstanding portfolio the same year
It measures the annual cost of default. It must be covered by interest income.
- Delinquency management training -
Causes of delinquency
List the reasons of delinquency
Urban Program for Livelihood Finance and Training
What motivates my clients not to pay me back?
- Delinquency management training -
Preventing delinquency
Urban Program for Livelihood Finance and Training
1) Image of the MFI
2) Value the access of credit
3) Screening
4) Capacity to pay based on actual
5) Incentives to pay, disincentives not to pay
6) Incentive on staff if effective
7) Provide field staff with information on their portfolio
8) Provide management with information to monitor delinquency
9) Design a clear process for late payment
10)Defining acceptable level of delinquency
KKEEYY
I I SSSSUUEESS
- Delinquency management training -
Urban Program for Livelihood Finance and Training
On time payments Late or no payments
Benefits for clients
Probability of immediate larger follow up loans Development of positive credit history Positive reputation among peers Access to training, savings or other program
services Acess to advice from credit officers Award or prizes for timely repayment Lower interest rates on second and third loans Interest rebates
Lower expenses if interest payments not made Maintain capital (or portion) from loan in business or
use for other purposes Fewer or no trips to financial institution to make
payments (lower transaction costs, in case of branch or area collection)
Lower transaction costs of attending meetings and other activities of lending institution
May not have to repay at all, if there is a low cost to default
Cost for clients
Pay interest and capital on current loan Pay time and transportation costs to make
payments Opportunity costs (if time is spent in meetings, it
prevents the clients from working on his/her business).
Late fees for late payments Delay future loans or loss of access to future loans Possible legal action and costs Possible loss of collateral Loss of access to other program services Hassle of frequent visits by loan officers Hassle of pressure from group members if group
loans Negative reputation among peers
Borrowers perceptions
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