1. Managing Delinquency LOAN PORTFOLIO ANALYSIS Session 1

2. Session Objectives Read and interpret MIS reports such as the PAR aging reports effectively Use portfolio analysis to better manage clients Enhance decision-making skills to improve portfolio quality

3. Loan Portfolio Analysis Rationale “Your loan portfolio is the biggest income- generating asset of your bank”

4. How important is Loan Portfolio Analysis in Microfinance Operation ? Microfinance loans are potentially more volatile-- can show rapid deterioration in arrears – and the absence of collateral guarantees offers less/difficult recourse in the recovery process. Loan Portfolio Analysis

5. In order to manage risk and minimize delinquency, Management should conduct a regular analysis of its loan portfolio Loan Portfolio Analysis

6. Why do portfolio analysis?  It’s a powerful tool in tracking and controlling delinquency  It is key to identifying and preventing PAR  It is key to planning the work of supervisors and BMs with every AO; planning the work of the product manager with the various Branch MFUs; and the whole MF operations of the Bank

7. MIS: Essential Element in Portfolio Analysis A good MIS should be able to provide portfolio performance information on a “daily basis”. Accurate and reliable; Account officers, MF Supervisors, BMs and senior officers must have an understanding in reading and analyzing the reports; Portfolio performance reports must be easily accessible to all AOs, supervisors and BMs. “ ANALYZE THE REPORTS DAILY IF NECESSARY”

8. Recommended Essential Reports : Loan Portfolio Data & Quality Revenue, Growth & Performance Quality, Based on Client, Business & Characteristics  Listing of Loans  Collection Due Report  Client Status Report  Delinquency Report  Portfolio at Risk Report  Interest collected by MFU  Performance Report by AO  Microfinance Monthly Report  PAR, by aging & business activity  PAR, by loans disbursed & business activity  Loans Profile by Gender

9. POSITION LOAN PORTFOLIO DATA & QUALITY REVENUE, GROWTH & PERFORMANCE QUALITY, BASED ON CLIENT, BUSINESS & CHARACTERISTICS PRESIDENT, COO, HEAD MF OPERATIONS, PRODUCT HEAD  Delinquency Report  Portfolio at Risk Report  Interest Collected by MFU  Performance Report by AO  MF Monthly Report  PAR, by aging & business activity  PAR, by loans disbursed & business activity  Loans Profile by Gender SUPERVISORS & BRANCH MANAGERS  Delinquency  Portfolio at Risk  Listing of Loans  Interest Collected by MFU  Performance by AO  Microfinance Monthly Report  PAR by Aging and Business Activity ACCOUNT OFFICERS  Delinquency  Portfolio at Risk  Listing of Loans Who Should Read What Reports?

10. How frequent are the reports? Daily  Delinquency Report Weekly Performance Report By AO Delinquency Report Portfolio-At-Risk Aging Report Monthly Performance Report By AO Delinquency Report Portfolio-At-Risk Aging Report Monthly MF Performance Report (MF Performance Indicators plus Statement of Income and Expens e)

11.  A tool to identify and assess the quality and risk in the loan portfolios.  It provides information how much principal is at risk and whether risk is serious, moderate, or minor.  PAR report on a weekly and monthly basis and broken down into smaller units (by branch or by account officer), is probably one of the most useful risk management tools for senior and middle management. Portfolio-at-Risk Aging Report

12. Why are you having this?

13. 1. The bank forgot to monitor 2. The account officer forgot to collect 3. The account officer is on leave 4. The account officer did not know that he has to collect 5. The account officer postponed the collection 6. The client forgot to pay Reasons

14. PAR 1-7 DAYS PAR 8-30 DAYS PAR 31 -60 DAYS PAR 61 -90 DAYS PAR OVER 90 DAYS Minor Risk, but needs to be watched Moderate Risk Serious Risk Low Chance of RepaymentLOST! STAGES OF DELINQUENCY

15. Main indicators that can help in analyzing PAR 1. What portion of the portfolio is totally current (100% on time repayment on the exact date that the payment was due) 2. What portion of the portfolio in % has missed at least one payment (this is total loan outstanding minus current loans)? How to Read PAR Reports

16. How to Read PAR Report 3. What is the quality or aging of your delinquent portfolio like? CHECK FOR TRENDS!

17. PAR Analysis : Sample Case 1 AO 1: JoelanAO 2: Marlon Sept. 20112.0% Who has the better performance?

18. PAR 1 : Determining Trends Sample 2 AO 1: JoelanAO 2: Marlon May 20110.61%7.00% June 20110.90%5.00% July 20111.00%4.50% August 20111.75%3.00% Sept. 2011 2.00% Who has the best performance?

19. PAR by AGE Sample 3 AOs1-78-1516-3031-6060-9090+ Luis 2% Jose 2% Ben 2% Marlon 2% Joelan 2% Who has the best performance?

20. Loan Loss Rate AOs Current1-78-1516-3031-6060-9090+ Luis 2% Jose 100% Ben 2% Marlon 2% Joelan 2% Who has the best performance?

21. PAR by AGE AOsPAR11-78-1516-3031-6060-9090+ Luis 6% Jose 3% Ben 3% Marlon 7% Joelan 4% Who has the best performance?

22. PAR by AGE AOsPAR11-78-1516-3031-6060-9090+ Luis 6%4.92%1.08% Jose 3% Ben 3%2.67%0.33% Marlon 7%2.52%1.39%3.09% Joelan 4%1.07%2.93% Who has the best performance?

23. Identifying Sources of PAR Before any bank wide PAR fighting is undertaken, Managers must isolate/ identify what are the main sources of PAR. Steps: 1. Identify which branches 2. Identify the Aos 3. Identify loan cycles

24. Exercise 1: What branch is the PAR source?

25. Exercise 2: Source of PAR by AO

26. Identifying Sources of PAR A break down of her PAR will further isolate PAR sources into First vs. Repeat Loans Repeat Loans 3 and 4 Loans with Increases above 30% A particular activity

27. Identifying Sources of PAR Isolating/identifying the source of PAR, will enable Branch Managers and Supervisors to: Implement measures tailored specifically to the cause identified with the AO identified Improve productivity Improve portfolio quality Improve time management

28. THANK YOU!