CREDIT RECOVERY AND COLLECTION

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CREDIT RECOVERY AND COLLECTION
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CHALLENGERS

• Longer repayment period
• Higher loan limits
• Higher monthly installments
• Many cases handling cash in the field
• Mainly new clients so no track record
• Many cases new areas of operations

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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

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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

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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.

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SEEDS EXPERINCE ON COLLECTIONS
15 LATE PAYMENT REASONS Crop failure 24
Technical problems 26 Not visited on the
agreed date 28 Personal 12 Other 10
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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.

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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

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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

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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 ?

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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

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Statistics from the field officer

• 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.

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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

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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.

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Rescheduling is a convenient mode to clear up
arrears

• It will assist a client to overcome difficulties
• Recover a delinquent advance
• Systematically improve
• the recovery rate /PAR

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RESCHEDULING

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

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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

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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.

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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

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• 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

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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