Designing a Housing Microfinance Loan Product
Post on 23-Jan-2016
DESCRIPTIONDesigning a Housing Microfinance Loan Product. Lending Systems and Procedures (Based on RBAP-MABS HMF Generic Manual). The Microfinance Loan Process. 1) Loan Promotion & Application. 2) Client Selection (Loan Analysis). 3) Loan Approval. 6) Loan Collection/ Monitoring. 5) Loan Release. - PowerPoint PPT Presentation
Designing a Housing Microfinance Loan ProductLending Systems and Procedures(Based on RBAP-MABS HMF Generic Manual)
1) Loan Promotion & Application2) Client Selection(Loan Analysis) 3) Loan Approval6) Loan Collection/Monitoring5) Loan Release4) Loan DocumentationThe Microfinance Loan Process
Marketing: AOs & bank officers/staff reach out to prospective borrowersLoan Application: Simple, one to two pages. Loan Analysis: Based on clients character and cash flow Loan Approval: Decentralized. Loan Documentation & Disbursement: Fast loan release Follow-up & Collection: Strict adherence to zero tolerance approach. Restructuring only allowed in exceptional casesLoan Procedures: Points to Bear in Mind
Loan Product Comparative Table
ItemsMicroenterpriseLoan ProductHMFTraditional HousingLoanLoan ApplicationSimple, single page Simple, single pageOne to two pagesLoan Analysis / SecurityCharacter (CIBI) Business and Household Cash flowCharacter (CIBI)Business and Household CashflowCollateral -REMCapital (counterpart)Capacity to Pay Condition of the business andCharacter Loan ApprovalDecentralizedDecentralizedCentralizedLoanDisbursementCash (one time)Cash (one time)Cash ( in tranches)LoanMonitoringand CollectionMonitored and collected regularly (weekly, semi-month or monthly)Monitored and collected regularly (weekly, semi-monthly or monthly)Monitored and collected on a monthly basis
Lending Procedures:PromotionReach out to the communities and visit potential clients in their workplace (home, office or businesses).Organize orientation sessions at Barangays.Entertain walk-in clientsDistribute brochuresCaravan/Road Show
Lending ProceduresPromotionDue to increasing competition, AOs must adopt aggressive marketing strategiesPromotion is not a substitute for high quality servicesThe best and least expensive promotion a credit program could have is that of a satisfied client: Word of mouth
Lending ProceduresPromotionHow to find a market for the product:Existing bank clients Incentive for good performance for group and or individual loan clients.-New clients Lodging/boarding houses near schools or business districts.
Lending Procedures:Loan ApplicationThe loan application is simple (one page). The AO fills out the application with the clientMost of the information in the application for first loans assess the clients character [stability, entrepreneurship, reputation, and repayment behavior (SERR)]Most of the information for repeat loans refers to repayment behavior regarding past loans as well as the trend in savings
Lending Procedures: LOAN ANALYSIS-First Loan
Character/Risk assessment: analysis of clients Stability, Entrepreneurship, Reputation, and Repayment behavior (SERR in CIBI for first loan)
Cash flow: repayment capacity based on all household income from business activities and others (including salaries, pensions and remittances).
Lending Procedures: LOAN ANALYSIS-Repeat LoanAnalysis of Repeat Loans are based on:
Repayment behavior of previous loansResults of monitoring visits to determine changes/ potential problems in the clients situation Cash flow to determine repayment capacity and possible increases in loan amounts
Lending Procedures: LOAN ANALYSIS-Repeat LoanA cash flow analysis may be done every other loan ONLY IF repeat loan amount is the same or within 10% increase not more than P25,000 loan term is 6 months or less, and client has not made payments with delay of not more than 3 days.
If a borrower does not meet these qualifications, a cash flow analysis has to be done for every loan.
Lending Procedures:Loan ApprovalLoans will be approved by a Credit Committee composed of the Branch Manager, Product Head, Supervisor, and Account Officer (feedback only)
Approval limits depend on the policy of the bank
Lending Procedures:Loan DocumentationLoan documentary requirements must be attached in the clients loan folder and properly filed.
AOs are allowed to access the clients loan folders.
Lending Procedures:Loan DisbursementLoan proceeds will be disbursed in cash in a single disbursement
Loan proceeds will be deposited in the clients account with the bank
Lending Procedures:Loan MonitoringAO visits the borrower within a week of disbursement. Supervision on the use of the loan as planned is not intended but to instill the idea that the AO is keeping close follow-upAO will visit on-time first borrowers at least once a month. On time repeat borrowers will be visited once a month.
Close and timely monitoring of the portfolio performance and delinquency is essential to the products success
Lending Procedures:Loan Monitoring
Strict adherence to the Zero Tolerance approach: Banks must have well-defined collection policies that clearly guide AOs on appropriate actions to take. THE ALARM SIGNALS. Alarm Signal No. 1: (delayed by 1 day) - AO contacts the client within 24 hours; Reports non-payment to Supervisor; Prepares memo to file; reports during weekly committee meeting.
Lending Procedures:Loan Collection
Alarm Signal No. 2 (Delayed payment by 3 days) --AO and Supervisor delivers 1st collection letter signed by BM (cc: co-maker or co-borrower); Supervisor stresses importance of payments: ** eligibility for re-availments ** avoidance of penalty fees/charges
Alarm Signal Nol 3 (Delayed payment by 1 week) BM accompanies the AO to the client and handles 2nd demand letter Lending Procedures:Loan Collection
BM stresses: (a) client will loose privilege to borrow again, and (b) bank will enforce VOS or CHM
Alarm Signal No. 4 (delayed payment by 2 weeks) AO delivers 3rd and final letter; BM visits borrower and stress that his/her name will be included in the negative data bank/blacklist
Lending Procedures:Loan Collection
Alarm Signal No. 5 (payment is delayed by 3 weeks) Either the AO, Supervisor or the BM warns the borrower of legal action if unpaid within 1 week
Alarm Signal No. 6 (payment is delayed by 4 weeks) AO & Supervisor recommends to BM the debiting of O/B of loan from clients contractual savingsAO informs borrower of the debiting processFor unpaid balance, legal counsel takes over collection (extra-judicial or judicial)
The MABS program is implemented by the of the Rural Bankers Association of the Philippines. It receives funding support from the U.S. Agency for International Development with oversight provided by the Office of the President and the Mindanao Economic Development Council. Rural Bankers Association of the Philippines Mindanao Economic Development Council Office of the President of the Philippines U.S. Agency for International Development The general contractor is Chemonics International, Inc. These materials were made possible through the support provided by the U.S. Agency for International Development/Philippines under the terms of contract no. 492-C-00-98-0008-00. The opinions expressed herein are those of the author(s) and do not necessarily reflect the views of the U.S. Agency for International Development.
*After conducting the market survey and identifying that your respective banks clients have demands for housing microfinance product and a product manual has been designed, your are now ready process housing microfinance loans. Facilitator: Ask the participants the Microfinance Loan Process as per their experiences in their own banks. Draw responses from the audience and write in the whiteboard.
*Marketing- promoting the banks products and servicesLoan Application- as added value to the services of the banks, the clients would appreciate if AOs will help them in filling up the loan applications.Loan Analysis-Loan Approval- depending on the banks policy approving authority is decentralized for fast and efficient loan processingLoan Documentation & Disbursement- usually done in the branches and documentary requirements should be maintained on the minimum.Follow-up and Collection- Marketing Approach: AOs reach out to the clients, conducts group orientation, house to house visitLoan Application: Simple. The smaller the loan amount the simpler the process. AO fills out the loan application. The small amounts usually associated with small scale farming do not require complex procedures. The information required and application process is proportional to the size of the loan.Loan analysis: Once the client passes the character analysis, the Account Officer proceeds to the preparation of the Cash flow. Loan analysis is primarily focused on character, and repayment capacity. A loan properly packaged is already half collected.Loan approval: Decentralized. Meaning to say the branch has the authority to approve loans within their approval limit. Loan Disbursement: Quick disbursement of loan. Timely disbursement based on crop(land preparation / planting schedule) Borrowers always look forward to another loan, so this becomes an incentive to borrower. Timely disbursement is key to a successful microfinance operation. First loan, not more than 7 days, repeat loans, within 24 hours. If you do more than that, then procedures may be cumbersome, you need to streamline your procedures. If it takes you two weeks to process a repeat loan, it means, you need to start processing the repeat loan three weeks before it matures. Monitoring: Monitoring is key to preventing delinquency. Close and timely monitoring of the portfolio performance and delinquency is essential to the products success. Banks must have well-defined collection policies that clearly guide AOs on appropriate actions accordingly. Zero Tolerance to loan delinquency is of course the key to preventing loan delinquency. It means we dont allow non-payment to loan.
**Marketing Approach: AOs reach out to the clients, conducts group orientation, house to house visit
TO BE DISCUSSED UNDER THE MODULE OF PRODUCT PROMOTION
*TO BE DISCUSSED UNDER THE MODULE ON PRODUCT PROMOTION**Loan Application: Simple. The smaller the loan amount the simpler the process. AO helps the client fill out the loan application. The small amounts usually associated with small house repairs/improvements do not require complex procedures. The information required and application process is proportional to the size of the loan.
*Loan analysis: Once the client passes the character analysis, the Account Officer proceeds to the preparation of the Cash flow. Loan analysis is primarily focused on character, and repayment capacity. A loan properly packaged is already half collected.*Show CIBI for repeat loans
**Loan approval: Decentralized. Meaning to say the branch has the authority to approve loans within their approval limit. ( Give banks situation where all needs to be approved by the banks president)
*Documentary requirements should be limited to the basic requirementsLoan Documentation will be discussed under the session on Documentation and Report******VOS- voluntary surrender CHM- chattel mortgage *