CREDIT RECOVERY AND COLLECTION

CHALLENGERS 1.Longer repayment period 2.Higher loan limits 3.Higher monthly installments 4.Many cases handling cash in the field 5.Mainly new clients so no track record 6.Many cases new areas of operations

Planning Foundation for recovery and collection is laid at the point of credit evaluation based on existing income Risk management process inbuilt to the credit product shall mitigate the recovery risks to some extent. Absolute collateral- equipment value (Guarantors act as additional security) Credit terms and the repayment amount are the first two items in the planning process

Mode of collection Cash ? Cheques ? Money orders Encourage payments through Banks and other forms of money transfer Home visited Set clear dates on a particular day for location

FROM NON MEMBERS Introduce incentives for clients to fall in line with members and to follow the normal collection method. (e.g. Center meetings) Introduce additional fees to collect from the doorstep. Introduce other form of collections such as pay roll deductions, standing orders from the bank account or direct deductions from the savings account.

SEEDS EXPERINCE ON COLLECTIONS 15% LATE PAYMENT REASONS Crop failure24% Technical problems26% Not visited on the agreed date28% Personal12% Other 10%

Problems of field management Sri Lanka experience show that the customer prefers the service at door step. The distance to travel for this task leaves many problems to the lender. High cost and more man power is the main issues to be addressed.

Field management Assign specific areas, clients to a field officer Supervise field visits periodically Issue numbered receipt books Provide satisfactory mode of transport (FO spend about 50% of the time traveling) Obtain confirmation that all clients are visited on the agreed dates

Define action required Efficient field management will not allow payments to fall back. If any weakness is reflected in routine visits they should be identified and be resolved immediately Cause of the weakness to be identified immediately If temporary relief measures are taken perhaps there would be positive results More permanent type of solutions such as rescheduling, restructuring too should be planned

Analysis the reasons Is the late payment/non payment due to genuine reasons ? What are the reasons for defaulting ? Crop failure / Drought / Sickness / any other reasons  Faulty credit assessment ?  Non disclosure of the correct income level  Willful defaulter ?

Use all available information to analyze In planning recovery and collection information available from the field could be used Importance of having timely information is very vital in planning and resource allocation for collection Credit scoring model can be a solution

Field officer is having more statistics and knowledge on the borrowers’ behavior patterns The raw statistics they collect routinely are formed into useful data for the purpose of performance measurement in recovery and collection – From the payment details customer categorization be effected. Statistics from the field officer

Defaulting Patterns From arrears reports and the customer information when combined together gives a good analysis of defaulting patterns Which areas have more customers with arrears Customer type Income pattern Age of the client

Field officers visit reports and traveling details This gives a picture of - Areas where more repeat visits done often Customers when prompt payments made Half payment or no payment, more excuses Strengthening the recovery procedure and field management are possible on these information.

It will assist a client to overcome difficulties Recover a delinquent advance Systematically improve the recovery rate /PAR Rescheduling is a convenient mode to clear up arrears

RESCHEDULING Probable option but have to do carefully. Only for genuine clients Decision is made only by a senior officer after a visitation

Recommended types of rescheduling Recover the defaulted amount within a specific period in short term i.e. 3 installments in arrears Proposal = Recover arrears in 6 months (present installment +recover the arrears in installments) by increasing the monthly installment

Adjust the loan installment according to the available income If the reschedule amount is excessive according to the cash flow of the client Extend the period by few months.

Rescheduling Recalculation is required to adjust the loan installment and accommodate the interest loss on the transaction Rescheduling require consent of the borrower and the guarantors. Loan is taken into the regular category only when three months are regularly paid

Rescheduling arrangement has to be automatically cancelled if installments are not paid on time. Original agreement should be made effective in such instances Field staff should keep a special note on recovery of reschedule loans

Essential features in a good recovery management Constant follow up of the program All borrowers should be covered Repeat visits on default Quick remedial action if no payments are received Overall supervision periodically Independent Audit