1. Skills for Microcredit Field Staff National Rural Support Programme
Delinquency Management
(Delinquency, Causes, Prevention)

2. Delinquency Management

3. Definition of Delinquency
Delinquency is……….
…the situation that occurs when loan payments are past due.
…a delinquent loan (or loan in arrears) is a loan on which payments are past due (Cal meadow).
…also referred as arrears or late payments, measures the percentage of loan portfolio at risk (Gemini).
  …delinquent payments in arrears are loan payments which are past due, delinquent loans are loans on which any payments are past due (SEEP).

4. Delinquency Management
Goals
Delinquency Management
ANALYSING THE CAUSES OF DELINQUENCY
APPRECIATING THE COSTS OF DELINQUENCY TO THE INSTITUTION
CONTROLLING DELINQUENCY
DEVELOPING AN INSTITUTIONAL ACTION PLAN TO ADDRESS DELINQUENCY

5. Levels Of Delinquency
Client Level
MFI Level
Macro-Economic Level

6. Causes Of Delinquency Client Level MFI Level
Husband (main earner) Absconds
Sickness/Ill health of customer
Business failure
MFI Level
Poor loan design and products
Poor staff training
Poor client screening
Poor loan appraisal system
Weak incentives for staff
No effective sanctions over late payments
Over empathy

7. Causes Of Delinquency Macro-Economic Level
Inadequate or weak peer pressure
Bad loan tracking system
Staff/Customer turnover
Becoming too large too quickly
Fraud
Macro-Economic Level
Bad credit culture
Political interference
Poor Government policy
Seasonality
Natural disasters

8. Preventing & Managing Delinquency by Lender “MFI”
Key Features:
Attitude and commitment towards getting the money back.
Create an image that does not consider late payments acceptable “A Zero Tolerance Policy”.
Loan products & delivery process should meet client needs “Service must be valued”.
There are no bad borrowers only bad loans.
Develop effective screening mechanism.
An incentive system for staff – clear responsibility.
That way
This way

9. Preventing & Managing Delinquency by Lender “MFI”
That way
This way
Ensure that borrower should not develop the perception of, benefits of late payments and costs of on time payments.
Accurate and timely MIS.
Undertake analysis of portfolio quality, determine trends & segregate information. Also look beyond the indicators.
Clear follow-up policy if payments are late.
Consequence of loan default should be sufficiently unappealing.

10. Borrower’s Perceptions (Benefits)
On Time Repayment
Late or No Payment
Probability of immediate larger follow up loans
development of positive credit history
positive reputation among peers
access to training, savings or other program services
access to advice from credit officers
award or prizes for timely repayment
lower interest on second/third loans
interest rebate
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)
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.

11. Borrower’s Perceptions (Costs)
On Time Repayment
Late or No Payment
Pay interest and capital of current loan
Pay time and transportation costs to make payments
Opportunity Costs
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 loan
negative reputation among peers

12. Uncontrollable Factors in Delinquency Management
Natural Disasters
Earthquakes, fires, floods, drought wreak havoc on economies and the activities of micro-entrepreneurs
Changes in Government Policy
A crack down on street vendors, a new tax
Individual Crisis
An illness or death that throws the household into a dire economic situation
State of local, national and world economies & relations
Even petty traders are often dependent on imported goods

13. Steps To be Taken to control “Delinquency Crises”
Review credit policies and operations (their compliance with basic principles and methodology)
Evaluate how credit officers are operating in the field (identify deviations)
Design an incentive system to steer performance
Separate portfolio, (Bad loans from average and good loans).
Review effectiveness of information system
Outline reviewed policies, procedures to staff
Set deadlines and communicate to team.
Remove credit officers who continue poor performance.