1. Designing a Housing Microfinance Loan Product Lending Systems and Procedures (Based on RBAP-MABS HMF Generic Manual)

2. 1) Loan Promotion & Application 2) Client Selection (Loan Analysis) 3) Loan Approval 6) Loan Collection/ Monitoring 5) Loan Release 4) Loan Documentation The Microfinance Loan Process

3. Marketing: AOs & bank officers/staff reach out to prospective borrowers Loan Application: Simple, one to two pages. Loan Analysis: Based on client’s 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 cases Loan Procedures: Points to Bear in Mind

4. ItemsMicroenterprise Loan Product HMFTraditional Housing Loan Application Simple, single page One to two pages Loan Analysis / Security Character (CIBI) Business and Household Cash flow Character (CIBI) Business and Household Cashflow Collateral -REM Capital (counterpart) Capacity to Pay Condition of the business and Character Loan ApprovalDecentralized Centralized Loan Disbursement Cash (one time) Cash ( in tranches) Loan Monitoring and Collection Monitored and collected regularly (weekly, semi- month or monthly) Monitored and collected regularly (weekly, semi-monthly or monthly) Monitored and collected on a monthly basis Loan Product Comparative Table

5. Lending Procedures: Promotion Reach out to the communities and visit potential clients in their workplace (home, office or businesses). Organize orientation sessions at Barangays. Entertain walk-in clients Distribute brochures Caravan/Road Show

6. Lending Procedures Promotion Due to increasing competition, AOs must adopt aggressive marketing strategies Promotion is not a substitute for high quality services The best and least expensive promotion a credit program could have is that of a satisfied client: Word of mouth

7. Lending Procedures Promotion How 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.

8. Lending Procedures: Loan Application The loan application is simple (one page). The AO fills out the application with the client Most of the information in the application for first loans assess the client’s “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

9. Lending Procedures: LOAN ANALYSIS-First Loan Character/Risk assessment: analysis of client’s 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).

10. Lending Procedures: LOAN ANALYSIS-Repeat Loan Analysis of Repeat Loans are based on: Repayment behavior of previous loans Results of monitoring visits to determine changes/ potential problems in the client’s situation Cash flow to determine repayment capacity and possible increases in loan amounts

11. Lending Procedures: LOAN ANALYSIS-Repeat Loan A cash flow analysis may be done every other loan ONLY IF repeat loan amount is 1.the same or within 10% increase 2.not more than P25,000 3.loan term is 6 months or less, and 4.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.

12. Lending Procedures: Loan Approval Loans 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

13. Lending Procedures: Loan Documentation Loan documentary requirements must be attached in the client’s loan folder and properly filed. AOs’ are allowed to access the client’s loan folders.

14. Lending Procedures: Loan Disbursement Loan proceeds will be disbursed in cash in a single disbursement Loan proceeds will be deposited in the client’s account with the bank

15. Lending Procedures: Loan Monitoring AO 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-up AO will visit on-time first borrowers at least once a month. On time repeat borrowers will be visited once a month.

16. Close and timely monitoring of the portfolio performance and delinquency is essential to the product’s success Lending Procedures: Loan Monitoring

17. 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

18. Alarm Signal No. 2 (Delayed payment by 3 days) --AO and Supervisor delivers 1 st 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 2 nd demand letter Lending Procedures: Loan Collection

19. 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 3 rd 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

20. 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 client’s contractual savings AO informs borrower of the debiting process For unpaid balance, legal counsel takes over collection (extra- judicial or judicial) Loan Collection

21. 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.