Independent Research Project Independent Research Project. ... Process mapping has broad...
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Process Mapping and Risk Mitigation Strategies for Micro Finance Institutions: A case from Orissa Independent Research Project Submitted by: Anup Kumar Singh Xavier Institute of Management, Bhubaneswar Under the Guidance of: Prof S P Das
Transcript of Independent Research Project Independent Research Project. ... Process mapping has broad...
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Process Mapping and Risk Mitigation Strategies for Micro Finance Institutions: A case from Orissa
Independent Research Project
Submitted by: Anup Kumar Singh
Xavier Institute of Management, Bhubaneswar
Under the Guidance of: Prof S P Das
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Table of Content
Contents Executive Summary ........................................................................................................................... 6
Introduction ...................................................................................................................................... 8
Literature Review ............................................................................................................................ 11
Ujjivan Financial Services Pvt. Ltd. ................................................................................................... 19
Chapter - 1 Credit Initiation Process ............................................................................................. 19
Chapter: 2 Credit Verification ...................................................................................................... 30
Chapter: 3 Loan Approval Criteria ................................................................................................ 31
Chapter: 4 Credit Collection Process ............................................................................................ 41
Chapter: 5 Loan Rescheduling Process ......................................................................................... 50
Chapter: 6 Loan write off Process ................................................................................................ 53
Adhikar Microfinance ...................................................................................................................... 55
Chapter: 1 Credit Policy ............................................................................................................... 56
Chapter: 2 Branch Set up Process ................................................................................................ 57
Chapter: 3 Group and Center Formation Process ......................................................................... 58
Chapter: 4 Loan Approval ............................................................................................................ 76
Chapter: 5 Loan Recovery Process ............................................................................................... 79
Chapter: 6 Loan Write off Process ................................................................................................ 87
Conclusion ....................................................................................................................................... 88
Annexure.............................................................................................. Error! Bookmark not defined.
References .................................................................................................................................... 111
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Acknowledgement
I would like to one and all those who contributed directly or indirectly towards completion of
my Independent Research Project.
I am deeply indebted to my project guide Prof. S P Das from Xavier Institute of Management
whose help, stimulating suggestions and encouragement helped me in completing this project
successfully.
I would like to convey my sincere thanks to the student research committee members, Dr.
Shambhu Prasad and Dr. Latha Ravindran, from Xavier Institute of Management, for
guidance and support.
I would like to thank Mr. Rakesh Panda (Area Manager, Ujjivan Financial Services Pvt. Ltd.
for giving consent to do the project with Ujjivan. Without his support and guidance this
would not have been possible. I would also like to thanks all the Ujjivan staff members who
contributed towards completion of the project.
I would like to thank Mr. Md. N. Amin, President & CEO, Adhikar Microfinance Pvt. Ltd., for
giving his consent to do my project with Adhikar Microfinance. I would also like to thank Mr.
Lingraj (Operations head, Adhikar Microfinance), Mr. Zeeshan Afri (Regional Operation
Manager, Adhikar Microfinance), Mr. Amulya Mishra (Regional Operation Manager,
Adhikar Microfinance)and Mr. Sujit Kumar (Area Manager, Adhikar Microfinance) and all
other staff members of Adhikar Microfinance who extended their support in direct or indirect
way towards completion of this project.
I thank Mr. Ravi Kant (Associate, Microsave) for providing constant guidance in completion
of the project. I would also like to thank my batch mates who have been constant source of
inspiration for me to work towards the project especially Anuj Jindal and for providing
valuable input.
Last but not the least I would like to thank Mr. Hemanta for providing us important
information on time.
- Anup Kumar Singh (u308008)
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List of Abbreviations
AM - Area Manager
ASD - Additional Security Deposit
BDO - Block Development Officer
BM - Branch Manager
CC - Center Chief
CD - Credit Department
CEO - Chief Executive Officer
CFO - Chief Financial Officer
CGAP - Consultative Group to Assist Poor
CGT - Compulsory Group Training
CM - Center Meeting
CMF - Center for Micro Finance
CO - Credit Officer
COO - Chief Operating officer
CP - Customer Profile
CRM - Customer Relation Manager
CRS - Customer Relation Staff
DSC - Daily Collection Sheet
ED - Executive Director
EMI - Equal Monthly Installment
GG - Group Guarantee
GRC - Group Recognition Certificate
GRT - Group Recognition Test
HO - Head Office
IFMR –Institute of Financial Management and Research
JLG - Joint Liability Group
KYC - Know Your Customer
LA - Loan Application
LC - Loan Card
LIC - Life Insurance Corporation
LPF - Loan Processing Fee
LUC - Loan Utilization Check
MD - Managing Director
MFI - Micro Finance Institution
MIS - Management Information System
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NFA - No Frills Accounts
NREGA - National Rural Employment Guarantee Act
OD - Operation Department
PACS - Primary Agricultural Credit Society
RBI - Reserve Bank of India
RCL - Receipt Cum Link
RM - Risk Management
RMP - Risk Management Programme
SBLP - SHG Bank Linkage Programme
SD - Security Deposit
SHG - Self Help Group
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Executive Summary
Micro Finance sector is one of the fastest growing sectors in India. With a client base of 70
million and total outstanding microfinance loan of Rs 359.39 billon the sector cannot be
ignored (Srinivasan 2009). This ever evolving sector is faced with many challenges and with
growing competition and increasing professionalism the sector can no more afford to remain
inefficient and at the same time it needs to manage risks also. Managing risk and efficiency at
the same time is need of the hour. Process Mapping is considered to be a tool for achieving
this dual objective by understanding and re-engineering the processes. But at the same time
there very few evidences are available to prove the applicability of the tool.
This paper is aimed at understanding various processes of MFIs and testing process mapping
as a risk mitigation tool in MFIs in Orissa. Two MFIs were selected for the purpose of study.
One of them is Ujjivan Financial Services Pvt. Ltd, a large MFI with nationwide operations.
The other is Adhikar Microfinance, a small MFI with operations limited to Orissa only.
In Ujjivan Financial Services six processes were studied which include Credit Initiation
Process, Credit Verification Process, Loan Approval Process Credit collection process, Loan
Rescheduling Process and Loan Write off Process. Two processes were selected for Process
Mapping - Loan Approval Criteria Process and Delinquency Management Process. Although
the study was conducted in the same area of operation, different sizes and organization
structure of MFIs do not bring comparability in the study.
In Adhikar Microfinance, Credit Policy, Branch Setting Process, Group and Center
Formation Process, Loan Approval Process, Loan Recovery process and Loan Write off
Process were studied and three processes were selected for process mapping - Group
Formation Process, Member Household Survey Process and Loan Recovery Process.
The study indicates that Process Mapping is a simple yet effective tool for Risk Mitigation in
MFIs. The four tier approach of process mapping which includes, Process Maps, Process
Description, Risk Involved in the process and Risk Mitigation strategy for the same,
helped in identifying the risks involved in the process and come up with the mitigation
strategies for the same. Irrespective of the size of MFIs and their organization structure
process mapping proved to be useful for risk identification and mitigation in both the MFIs.
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The study of different processes of MFIs also indicates that dynamic interaction between
different departments help in maintaining checks and balances and work as an internal
control mechanism for mitigating risk. There is a need to institutionalize the risk management
practice among MFIs and Process Mapping can be an option for the same. Process Mapping
can also be done time to time to upgrade the process
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Introduction
Background:
Micro Finance Institutions (MFIs) cater to the financial needs of one of the neediest section
of the society. Over the period of time Micro Finance sector has evolved as professional
industry from informal or semiformal structure. This ever evolving sector is faced with many
challenges like funding (donations, loans etc.), competition (from existing players, new
entrants, Govt. agencies) etc. MFIs are now compelled to rationalize their costs and cost of
services they are providing. In this scenario MFIs cannot afford to function inefficiently for
long also they cannot take high risk. SO MFIs have a dual goal to reduce inefficiency and at
the same time mitigate the risk. This further may impact both financial and social
goals/objective of MFIs. So, improving processes and risk mitigation is very important for
MFIs in the changed scenario. Improved processes will not only help to lower risk and lower
cost to MFIs but it will also help them in meeting their both financial and social goals.
Process mapping is a method of analyzing an organization‟s core processes. It helps in
discovering how different parts work together in a system. It helps MFIs to understand
current processes being performed and risks involved in them. Therefore, it can be used to
improve processes and reduce risk by identifying them.
Significance of study
Process mapping has broad applicability to many business functions, such as risk analysis,
process improvement, training, developing activity-based costing system, documenting
procedures, visualizing future-state processes before changing current-state processes, new
product development. Process Mapping helps MFIs in restructuring and re-engineering its
processes. It helps MFIs to identify the problem areas and also provides comparison of
current processes with optimum processes.
In the current global financial crisis, most of MFIs are facing a fund crunch; donations, loans,
equity, grants, subsidies etc have significantly come down, thereby impacting their revenues.
In this scenario, when MFIs are not able to increase revenues cost cutting by eliminating
redundant processes, reducing time taken for processes, identifying and mitigating risks etc.
can be a way to sustainability. Process mapping can be a very useful tool for the same.
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Increasing competition among MFIs apart from benefiting borrowers by better products is
also contributing towards wastage of resources and increasing risk to MFIs. Process mapping
may help MFIs in better utilization of resources and risk reduction.
MFIs typically have many small transactions and inefficiencies can cost much to MFIs.
Process Mapping can eliminate such inefficiencies. Also it ensures that the efficiency is not
gained at the expense of added risk. Process mapping helps in determining the level of risks
involved in processes and help MFIs to measure how to mitigate risk within the desired
tolerance.
Some of the possible benefits of Process Mapping to the MFIs are mentioned below.
o Increase in profitability
o Decrease in operational cost
o Satisfied customers due to reduction in disbursement time, processing time,
queuing time etc
o Implement risk mitigates since by identifying and prioritizing risks
o Standardize processes, which help in quick scaling up of operations
Research Objectives:
Identify all the process being undertaken by MFIs
Indentify internal risk mitigation techniques adopted by MFIs
Identify process flaws that are creating systemic risk
Identify process flaws that are creating unnecessary risk to MFIs and can be
avoided with reasonable cost
Come up process that MFI needs to reengineer.
Come up with risk mitigation strategy for MFIs
Come up with measures to streamline the process and bring efficiency
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Methodology:
The research will be based on both primary and secondary data collection.
Secondary data collection-
o Review of available literature
o Collecting data about process mapping and risk mitigation practices
worldwide
Primary data collection
o Personal interview with staffs involved in process
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Literature Review
Extensive literature is available on Microfinance now a day. But very little literature is
available on process mapping in microfinance. Very few organization use process mapping as
a risk mitigation tool in MFIs. Microsave has been doing a pioneering work in this field.
Works of Microsave has been referred for understanding usage of process mapping in Micro
Finance Institutions. The literature review has several parts and all of them put together form
a logical sequence. “What does it mean” section works as a connecting link and helps in
understanding the flow.
What is Micro Finance?
The term Micro Finance refers to the provision of financial services to low income clients,
including the self employed. These financial services include savings, credit, insurance and
repayment services. But Microfinance is not only about financial intermediation,
intermediation many MFIs provide social intermediation services like group formation,
development of self confidence and training in financial literacy and management capabilities
among members of group.
Microfinance is not simply banking but it is a development tool. It includes small loans,
typically for working capital, Informal appraisal of borrowers and investments, collateral
substitutes, such as group guarantee or compulsory savings, access to repeat and larger loans,
based on repayment performance, streamlined loan disbursement and monitoring and secure
saving products.( Joanna 2004)
More broadly, microfinance refers to a movement that envisions a world in which low-
income households have permanent access to a range of high quality financial services to
finance their income-producing activities, build assets, stabilize consumption, and protect
against risks. These services are not limited to credit, but include savings, insurance, and
money transfers. (Microfinance Gateway)
Microfinance offers poor people access to basic financial services such as loans, savings,
money transfer services and micro insurance. (CGAP)
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The size of the Micro Finance industry in India
The chapter presents a holistic view of the Indian Microfinance sector in a macroeconomic
context. The author tries to analyze the growth trend of Microfinance sector both under SHG
bank Linkage Programme (SBLP) and MFIs. The reports shows that there were 70 million
clients under both the system during the period 2008-09 and during the same period the total
outstanding microfinance loan amounted to Rs. 359.39 billion. Number of clients grew by 14
million in 2008-09 registering a growth rate of 25% over last year and loan outstanding
registered a growth of 30% during the same period. The microfinance sector is now delicately
placed in larger political economy and the sector cannot be ignored any more.( Srinivasan
2009)
Financial Inclusion – Institutional efforts
This article discusses the extent of financial exclusion despite the efforts of the Reserve Bank
of India and Commercial Banks. The paper discusses the policy level paradigm shifts for
financial inclusions and recent initiatives like banking correspondents and banking
facilitators. The paper critically analyzes the efforts of financial inclusion and suggests the
fact that the approach has been top down and the need of local population has not been taken
into consideration. This has resulted into large number of dysfunctional accounts. The
reasons for non utilizations are different but the numbers given in article suggest that after
one year of opening of account 72% of accounts have zero or near zero balance, while 11%
had only Rs. 200 in their account with a minimum of one transaction. The article suggests
other effective options for financial inclusion like post offices, SHGs, PACS (Primary
Agricultural Credit Societies) and MFIs. (Srinivasan 2009)
Financial Inclusion a reality check in Gulbarga: Finding Usage in Access
The study was conducted by IFMR CMF in the district of Gulbarga district in Karnataka, one
of locations claimed to have achieved 100% financial inclusion. The study suggests that the
financial inclusion drive doubled the number of people with bank accounts while still one
third of the poor people remained excluded. In the sample of 172 who opened bank accounts,
only 64 had no frills accounts (NFAs) of which only half were financially excluded. Other
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findings of study suggest that only 4% of households opened account for saving while 68%
opened for receiving NREGA wages. (Minakhsi, 2009)
Financial Inclusion: A Study Report on Cuddalore District
Another study jointly conducted by college of agricultural banking and IFMR CMF, on
financial inclusion in Cuddalore district of Tamil Nadu suggests that after declaration of full
financial inclusion still 25% of house remained excluded and whereas 47% of households
were excluded before the project was taken up. The reported reason for their exclusion was
unwillingness. The study found that the households‟ unwillingness is a function of
unwillingness of Bank that surveyed the area. The study suggests that financial awareness on
opening and operating accounts must precede and accompany the inclusion initiative.
(Tyagarajan et al., 2008)
(What does it mean?: There have been efforts from RBI and other commercial banks for
Financial Inclusion. But the ground reality of such inclusions process depicts a different
story in terms a large number of dysfunctional accounts and mass unawareness about the
uses of such accounts. In such situation SHGs and Micro Finance offer a viable solution for
Financial Inclusion. So one way Micro Finance is helping to the poor masses for availing
crucial financial services on the other hand it is offering a promising alternative for
Financial Inclusion.)
What is Risk?
Risk has been part of everyday life for as long as we have been on this planet. While much of
the risk humans faced in prehistoric times was physical, the development of trade and
financial markets has allowed for a separation of physical and economic risk. The definitions
of risk range the spectrum, with some focusing primarily on the likelihood of bad events
occurring to those that weight in the consequences of those events to those that look at both
upside and downside potential. Consequently, risk provides opportunities while exposing us
to outcomes that we may not desire. It is the coupling of risk and reward that lies at the core
of the risk definition. (Damodaran, 2007)
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Encyclopedia defines risk as - The expectation of loss. It is a function of the probability and
the consequences of harm. In economics and finance, an allowance for the hazard (risk) in an
investment or loan is defined as risk. Default risk refers to the chance that a borrower will not
repay a loan. If a banker believes that a borrower may not repay a loan, the banker will
charge the true interest plus a premium for the default risk, the premium depending on the
degree of presumed risk. All stock investment carries an implicit risk since there is no
guarantee of return on investment. Trading or variability risk is the amount that the return
may vary, up or down, from the expected return on investment.
What is Risk Management?
Risk management can be defined as the culture, processes, and structures that are directed
towards the effective management of potential opportunities and adverse effects.
Risk assessment involves estimating the level of risk – estimating the probability of an event
occurring and the magnitude of effects if the event does occur. Essentially risk assessment
lies at the heart of risk management, because it assists in providing the information required
to respond to a potential risk. (Lancare Research, 2007)
(What does it mean?: Risk is something which we face every day in our life. All the
organizations face risks and MFIs are no different. MFIs also face many kinds of risks. Risks
may cause losses and losses may be financial as well as non financial. So there is need of
proper risk management. Risk assessment is very crucial for proper risk management and
just like other organizations MFIs also need to manage the risk properly.)
“Proactive Risk Management: Lessons for Microfinance Institutions”
Proactive risk management is essential to the long term sustainability of a microfinance
institution. It lays out the general framework for identifying, assessing, mitigating and
monitoring risk in the MFI as a whole.
Effective risk management has several benefits like early warning system for potential
problem, efficient use of capital, successful new product development and roll outs.
(A comprehensive approach to risk management reduces the risk of loss, builds credibility in
the marketplace, and creates new opportunities for growth.)
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In traditional Risk Management, most Project development teams make two timing errors;
one is late discovery of potential problem and second letting the risk management lapse.
Good project management includes explicitly risk identification and mitigation at every stage
and it includes, periodic risk management reviews which helps in identifying risk before it
gets out of control, special event or significant change trigger which analyses the risks of
internal significant changes, counterparty risk helps in understanding risks posed by third
party, human resource risk management and product development risk management which
includes non technical risks apart from technical one.(Pikholz and Champagne)
Institutionalizing Risk Management for MFIs – Framework and Challenges
This paper is based on experience of various MFIs and it discusses the importance of risk
management and puts emphasis on the fact that the risks taken should be identified,
measured, monitored and managed within a robust, proactive and integrated risk management
framework.
The paper discusses various components of Risk Management Programme (RMP) like
strategy, structure, process and infrastructure. Strategy includes agreeing and articulating
objectives and direction, risk appetite, culture and risk management policy. Structure includes
proper demarcation of roles and responsibilities, internal audit and proper human resource
management. Process includes a complete feedback system. Infrastructure consists of
physical enablement for RM and includes MIS; controls limit structure and physical business
continuity arrangements.
The paper discusses various ways by which RMP is instutionalised in different organizations
and new ways which organizations have adopted for better RM. Integrated process
mapping is the way adopted by Equity Bank and KPOSB for Risk Management, while
separate project management, internal audit and Risk audit are some other ways for dealing
with Risk management.
The paper also discusses the challenges in setting up effective Risk Management Practice
(RMP) within Organizations. The challenges include misunderstanding of RMP as a
regulatory requirement rather than a strategic tool, structural issues like ineffective board
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involvement, human resource related issues etc, process related issue like inadequate
operational policies and manuals and internal control environment and infrastructural issues
like inadequate MIS and business continuity facilities. (Mugwanga, 2009)
(What does it mean?: There is not only need of risk management programme in MFIs rather
MFIs should manage the risk proactively to avoid the timing errors. So there is need of
institutionalizing the risk management programme just like other activities in organization.
While MFIs are relying upon different mechanisms or ways for institutionalizing the RMP,
Integrated Process Mapping has come up as an option for it as well as a tool for proactive
risk management.)
What is Process Mapping?
Process mapping is a simple yet powerful method of looking beyond functional activities,
such as marketing or accounting, to reveal an organization‟s core processes and discover how
its different parts work together to serve customers. Process maps enable us to peel away the
complexity of an institution‟s organizational structure (and internal politics) to focus on the
processes that are truly the heart of a business.
Process mapping is thus a valuable communications tool, a strategic business planning tool,
and an analytical management tool. A process map enables an MFI to compile data about the
processes in place so that they can be analyzed.
The ultimate objective of process mapping is to understand a process as it is currently
performed, and to improve it. Process mapping gathers, organizes, and displays facts about
the processes, so that knowledgeable people can study and streamline them. It is also a very
useful way for identifying areas of risk in any transaction or process. .(Pikholz and
Champagne et. al, 2008)
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Process Mapping and Risk Management and Process Improvement
This article discusses the uses of process mapping and how process mapping can be used for
risk analysis and process improvements. Process mapping has broad applicability to many
business functions, such as risk analysis, process improvement, training, developing activity-
based costing system, documenting procedures, visualizing future-state processes before
changing current-state processes, new product development. Three states are documented
using process mapping – as-is maps the current process as it is practiced; should be maps
how procedures and processes should be performed as set out in the MFI‟s formal procedural
manuals; could be maps how the process would look after making process improvements.
The article discusses the MicorSave’s four-tiered approach to process mapping for risk
analysis which include the symbols, the process description, the risks at each step and the risk
mitigation tactics (controls) each form a tier. Introducing process improvements is closely
linked to identifying risks, balancing optimum efficiency with effectiveness in meeting
corporate objectives. So process mapping allows organizations to identify risk and improve
processes accordingly.
The article also discusses the steps of constructing process maps. These stages include one,
Indentifying and prioritizing the operational gaps, two, Choosing process to be mapped based
on prioritized operational gaps, three, Assembling an appropriate team, four, Defining
process to be mapped and mapping objectives, five, Gather required data by interviews,
observations and documents, six, Constructing and Validating Maps, seven, Analyzing
Process Map for Risks and Process Improvements, eight, Analyzing Should-Be and Could-Be
Maps, nine, summarizing and distributing findings and ten, Implementing Process
Improvements.(Champagne, 2009)
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Process Mapping in Practice
This paper is based on Microsave‟s experience in practice of process mapping. It highlights
key benefits, which can be achieved through process mapping. The paper also presents brief
case studies detailing the experience of Tanzania Postal Bank and Equity Bank in Kenya.
Finally it provides tips on how to overcome common challenges faced during the process
mapping exercise.
MicroSave has now worked with six of its eleven Action Research Partners and Action
Research Associates to introduce process mapping and implement process improvements.
Positive results have been experienced from all institutions that have introduced process
mapping. Process mapping has had far greater strategic, management and operational impacts
than suggested by simply reworking processes.
Two case studies are presented. Equity Bank reports improved risk management,
standardized operations, improved training, enhancements in the banking system and
customer service, but also notes the considerable challenges it has had to meet along the way.
Process mapping at Tanzania Postal Bank has brought fewer definable benefits, but process
mapping was also a much shorter more focused exercise than at Equity Bank.
Using the experience of MicroSave in working through process mapping with its Action
Research Partners, MicroSave has identified generic challenges at each stage of the process.
It proposes strategies for managing these challenges. Many of the tips and challenges relate to
ensuring that appropriate personnel are engaged at each step of the process mapping exercise,
to ensure that sufficient skills and experience are reflected in the design of new processes. As
with other institutional interventions, communication is a recurrent theme in maximizing the
potential of process mapping – whether this relates to ensuring buy-in, process redesign, or
implementation of new processes. (Sempangi, Cracknell et.al. 2005)
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Ujjivan Financial Services Pvt. Ltd.
Chapter - 1 Credit Initiation Process
The credit risk management process is a continuous process commencing with the selection
of the work area, thru the group formation process, and the process of making available and
recovering loans from our customers. Often the customers are unable to pay or unwilling to
pay and then suitable strategies to recover dues need to be formulated and applied to ensure
recovery of dues
Following are the basic eligibility criteria of customer selection in Ujjivan.
Period of stay at a particular location: The reason is to know the keenness and
neighborhood relationship among the group members and also the stability of the
customer in that area.
The age of the customer. It ensures the working potentiality of the woman and her
ability to help/support the family to sustain by doing some economic activities.
Family income levels. The family income at the time of selection should be in
between Rs. 2000 to Rs. 8000 per month. It an idea about the condition of the family.
From family income, surplus is calculated after all household expenses to get an idea
of borrowing potential of the family and later, the loan utilization and debt servicing
capacity.
The working Woman: The basic criteria to provide loan to a customer is that she
should be economically active. She should be salaried or self employed to avail loan.
Only a small percentage is permitted for housewives who are not really employed.
Ujjivan follows joint liability group lending (JLG) model for lending. It is based on the
principles of trust and group guarantee. A group-based- lending involves the formation of
groups of people who have a common wish to access financial services; often involves
group guarantee to help other members during tough time under group guarantee
provision.
Group homogeneity: Five members of group in a JLG, having common form of social,
financial and cultural intermediation. They should have a common thought of solidarity and
are approachable to each other for any problem.
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Group guarantee is a process, which depends on (i) income levels of the individual, (ii)
common need for regular and reliable funding, (iii) their affinity towards each other and (iv)
their common knowledge about each other. This enables each customer / member of a joint
liability group to help each other through temporary ups and downs in life. Often, such
characteristics are the definition of a homogenous group of customers / borrowers.
Therefore, in order to keep losses and loss volatility down to acceptable levels in a group
lending environment it is essential that the customers meet the above criteria.
The gamut of credit risk management runs through the phases of (a) initiation, (b)
maintenance and (c) collection/settlement.
Credit Initiation
The credit initiation process commences with the selection of a place to open a branch.
Ensuring the availability of an adequate number of customers, and the „quality‟ of customer
is the major objectives of the „area survey‟. The audit department is responsible for cross
checking of information provided by distribution team.
Customer acquisition
The objective of the field is to obtain customers who are coming under target customer
criteria. Ujjivan‟s target market is the poor salaried or self-employed women. It excludes
non-workers, who have less or no income generating capacity or who have income more than
the range specified. It is assumed that such customer will repay Ujjivan‟s loans and seek
more. The design of JLG helps in achieving this objective and loan amounts are also
controlled to ensure the ability to repay.
There are two methodologies adopted by Ujjivan for customer acquisition. One is by direct
marketing and two is referred by existing customer.
Different phases of credit initiation
1.1 Street survey:
Carried out by experienced CRM or CRS
He should able to present the Ujjivan to a large audience
The purpose and need of coming should be communicated properly
The communication should be from both ways.
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Credit Check:-
Credit observes the whole process of communication and clarifies of any doubt arises by
CRM/CRS
1.2 Projection meeting:
A good presenter carry out the process, preferably a senior CRS
Different condition and criteria of joining is explained by the CRS
The CRS explains in detail as asked by the customers
Credit Check:-
Presentation quality of the CRS is observed, if anything found unexplained, credit give
solution to the point separately.
1.3 Compulsory group training and Group Reorganization test
CGT is carried out in a common approachable place, a house with mutual consent of
group members, or a community hall etc. The main purpose of CGT is to train customer
about the goals and objectives of Ujjivan and to make understand the customer the
importance of Group Solidarity, Unity and Mutual support system.
Credit visit to CGT
Credit Department visits CGT to observe
Whether the required information communicated to customer by CRS
Whether the customer understood clearly. (Make customer herself answer some of the
questions)
The participation level of the customer in the CGT.(Body language indicates how
much, the customer is willing to understand)
CGT- Day 1
Responsibility of CRS for the day
Give Customers the telephone numbers of Ujjivan branch and Head office.
Teach Customer pledge and staff pledge.
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Member‟s selection criteria (Group formation rules and importance of member
choice)
Responsibilities of Group leader.
Teach Signature.
Collect voter ID, Ration Card & Photo.
Credit check
All the group members are from same area, known each other well, willing to help
each other. (Can be checked by asking about each other‟s family details. This can be
traced by observing, who sits bit far. Example- In a row 1 & 5 can be considered for
check)
Homogeneity of the group (example- Age, Income level, religion, caste, education
level. It can be checked by general observation, house visit, occupation, newly
married lady etc.)
Blood relation check (It can be traced by verifying the given documents like Ration
card, Voter ID and by enquiry.)
CRS comfortable & clear with explaining the Ujjivan products & Services Clearly. If
not, help her or him to gain the required knowledge.
Customer pledge
We will use loans for development of our family
Meaning:- Ujjivan‟s objective is to help its customers emerge from their poverty, so
loan should not be used on idle consumption.
We will repay the amount promptly
Meaning:-Repayment on time will ensure other customers get loans expeditiously
We will save
Meaning: - It is an opportunity to save safely, It helps me tide over some emergencies
without resort to moneylender, It helps me for to make financial plan for known
expenses, Savings are buffer for bad times
We will give good education to our children
Meaning: - Education is a powerful tool against poverty. Education is essential for
future growth.
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We will join our hands with our members during happy and sad moments.
Meaning: - Group unity and mutual help in all matters will enable them to tackle
temporary problems.
We will develop good relationship with Ujjivan.
Meaning: - Ujjivan does not only give loan, but wants a long term relationship to
tackle your problems.
God is the witness to all that we say and do.
Credit Check-
Credit has to check whether the customer understood the meaning of each line in pledge they
say.
Group Responsibility & Liability-
The group members should be friends who trust each other and are ready to support each
other in times of trouble. The Group must ensure that they only select members who are
not likely to move out in the next one year. If they do so, the group will make sure that
the member will repay her loan before leaving. If a member moves without repaying, then
the group members will help in searching the new abode of the member and help to
collect the loan. If not, Group members will have to repay the loan as per the group
guarantee they agreed.
If a member intentionally refuses to repay the loan and proves to be untrustworthy, then
the Group Members will assist Ujjivan in getting the loan repaid. If not the Group
Members will have to repay the loan.
In the case of temporary repayment problem of a member like illness in the family, late
payment of salary etc, the other group members must lend to this person to overcome the
problem.
Credit Check-
We can ask some questions like – If you get Rs 8000 loan instead of Rs.10000 when all other
group members get Rs.10000. What will you do?
Members and Group Discipline-
Be present in the centre meeting on time
24
Sign the attendance register
Sit according to the sitting pattern
Deposit the savings & pay the repayment in the center meeting on time
Use the loan for the purpose stated in the loan application
Organize the money for the repayment and saving prior to center meeting
Obey the rules and regulations of Ujjivan.
Credit Check-
Credit to focus on above aspects are covered and understood by the members, and point out
any inconvenience to maintain those rules with regard to discipline and inform CRS
separately and give a solution.
Responsibility of Group Leader-
Before starting centre meeting Group leader has to ensure that all the members carries the
payment amount required for the meeting
Ask group member to sign the attendance register
Hand over the collected security deposits and loan repayments to the center leader
Evaluate & then recommend members loan request at the center meetings
Resolve with CRS, CRM & center leader in any issues
Conduct loan utilization check with center leader & CRS
Discuss any problems faced by member & resolve during the center meeting with the
CRS & center leader
Keep in touch with all members and communicate their views to the center & Ujjivan
Standby all the members in the event of any trouble or danger faced by members.
Credit Check-
Credit has to check that group leaders are instructed with all the above responsibilities which
they have to follow.
Practice for Signature-
Members should be literate or at least they should know how to sign. Those members, who
do not know how to sign practice for the same is done to enable them to sign.
25
CGT- Day 2
Responsibility of CRS for the day,
Revision of previous day‟s topics
“ Group” concept should be explained in details
Nomination of Group leader
Explain the important of obtaining receipt and register
Review of details loans, Security deposit, ASD, Insurance and benefits
CPF and insurance forms fill up
Collect all relevant documentation, including voter ID, Ration card and member‟s
photograph
Practice for signature.
Credit Check-
Required Document are verified & collected by the CRS. Credit has to cross check the
documents.
The specification of loan requirement.
Ask the customer about the previous days understandings.
Information about the refundable, non-refundable fees is asked by the credit department.
Checking the relevance in selection group leader.
Importance of using receipts and register-
Written Document
It records all received fees
It helps to maintain discipline in the field
It helps to all customer and Ujjivan for maintaining Transparency
26
Credit Check-
The customers could not claim there amount without proper receipts and registers. Receipts
are the only proof for field operation.
Group Guarantee-
All the members of the group jointly take responsibility for the recommendation and grant of
a loan to any of the group member. Since the entire group has participated in the decision to
grant the loan, the group members have to take joint responsibility for the repayment of the
loan
Credit Check-
All members have to sign in loan application so they have to support each other for
temporary repayment problems. Q: Is it ok with you? Will your family members object it?
Security Deposit-
After availing the loan, the customer
Should have to compulsorily save.
ASD should entered in customer pass book with sign of CRS weekly min Rs.20 or
monthly Rs.80- Center can decide for increased amount.
ASD (Additional security deposit) can be withdrawn any time. But security deposit
cannot be withdrawn till the present loan is closed.
CCrreeddiitt CChheecckk--
Verification of the documents time to time
Insurance
Scheme: Janashree Bima Yojana
Age: Between 18-59 years of Age
Premium:Rs.100/- Per member
Benefits: Natural death- Rs. 30,000
Accidental death Rs.75, 000
Permanent disability (Partial): Rs. 375000
Permanent disability (full):Rs.75, 000
27
Note: - LIC is compulsory for customer and not compulsory for spouse
Credit Check-
To make sure LIC policy has clearly understood by the customer and customer won‟t get any
loan without this policy any year.
Fees collection from customers after GRT-
Membership fee should be collected.
Fee for training purpose(one time)
Insurance premium Rs.100 and Pass book and ID card charges of Rs, 15 will be
collected
Credit Check-
Information regarding fees collection has to be given clearly.
CGT- Day 3
CRS has to cover following points on 3rd
day of CGT-
Review day 1-2 topics
Stress importance of Group unity and Group Responsibility
Discuss center meeting procedures and seating pattern
Discuss the roles and responsibilities of the center leader
Discuss the loan application process
Discuss the loan disbursement process and security deposit and benefits.
Complete all CPF and Insurance forms
Credit Check-
Credit has to make sure that the customer understood the importance of Group
guarantee, Purpose & usefulness of savings, Importance of regular attendance etc.
Has to inform regarding the importance of the customer‟s sign in pass book, loan card
etc.
Can ask customer about previous 2 days understanding.
Stress on Group Unity & Responsibility.
28
Center Meeting Place-
A formal gathering of Ujjivan customers at a fixed place and time where they can:
A center usually consists of 4 – 5 groups i.e. 20 -25 members.
Complete requirements relating to the Ujjivan loan, security deposit, insurance and
other programs
Center Meeting Procedure-
Before starting centre meeting centre leader and Group leader have to ensure and
collect the additional security deposit (savings), repayment
Members reach 5 minutes in advance
Sit according to the seating plan
Start the meeting with the pledge
CRS check the attendance register
Credit Check-
Credit people have to check whether these aspects are covered by CRS or not.
Credit visit by CRM to GRT
In GRT CRM has to cover all the important aspect, to what extent the customer
understood & CRS has trained them.
Some of the important aspects are
Importance of Group guarantee,
Attendance and fine procedure,
SD & ASD importance,
Required attendance for long term relationship with Ujjivan, minimum 80% required
for each customer to get future benefits from the company.
Sitting pattern, (It shows how discipline the customer is to maintain healthy
atmosphere in the Center meeting.)
Rules & regulations of Ujjivan,
Importance of repayment on time, (Showing customer the scope of Ujjivan where
they can get larger loan by repaying promptly.)
Importance of homogeneity,
29
Group leader‟s roles and responsibilities,
Center leader roles and responsibilities,
Fees and fines collection,
Most importantly CRM has to visit each of these houses.
Homogeneity and Group Liability Test by Credit Team
It is the field which involves in (i) ensuring the group meets target customer requirements, (ii)
ensuring of group homogeneity and (iii) understanding & acceptance of the group guarantee
process.
The credit department makes a sampling of the above process for a field staff, for a branch.
The sampling could take place at the (a) projection meeting time, (b) CGT process and (c)
during the GRT.
The sampling process covers the following methodology; (a) branches with high delinquency,
(b) branches with new staff at various levels, (c) previous track record of the new staff at
various levels. Other factors to be considered are (i) previous reports on center meetings,
GRTs, audit reports etc, CPF & LA rejection rates, (ii) new branches, and (iii) branches with
high group formation rates and customer dropout rates.
Subsequent to the selection of the branch, field staff activity is reviewed, homework is done
by the credit analyst prior to visiting the field. The homework consists of reviewing prior
branch audit comments in respect of activities to be reviewed; reviewing specific field staff
related comments if any, review of previous group formation rates, review of rejection rates
of documents and delinquency performance.
30
Chapter: 2 Credit Verification
Though it is process under credit initiation, but credit has a distinguished role to play to
verify the different customer profile form with some predefined attributes. The process
includes the below sub stage. The whole responsibility of quality customer acquisition is
vested upon the credit department.
2.1 Check of Customer Profile Form by Credit Department: When the CP comes to
regional office, the values of different customers are inserted to the software data base by
operation Department. Then the data are analyzed by credit department to know about group
solidarity by checking income level, occupation detail, age and address of each customer in
the five member groups. This cross checking helps to know the group homogeneity and the
reason of commonness among the customer to form the group. Credit department works as a
watchdog to know whether certain sorts of procedures are followed by the field or not.
31
Chapter: 3 Loan Approval Criteria
3.1 Criteria for Loan Approval
3.1.1 First loan
Surplus is equal to EMI + 25% of EMI.
o If enough surplus is not there then checking the loan amount that can be
approved.
o In case of deficit and low surplus, going to field and cross verifying with the
CRS, customers and group about the surplus.
Customer name and husband‟s name verification with system and application
CRM, CRS and center leader signature is there.
If the customer is single, then check whether guardian signature is there or not.
Check for the nominee name and if the nominee is less than 18 years old check for the
guardian name.
CRM, CRS, Customer, & Group leaders Signatures should be verified in forms
Verify DPN and RCL.
Check for witness‟ name and signature.
Check for Overwriting in any document and reject if any.
Check for group members‟ sign and name.
Per capita income of the member should be as per the company norms
Check for Valid Life insurance in place
If External borrowings are more than Rs. 30.000 it should have valid note from the
CRM
Consistency with purpose and type of loan required. In case new business CRM
clarification is required
If the documents matches and the loan amount meets the criteria approve the amount
and send to operations department else send it back to branch
3.1.2 Repeat Loan approval Criteria (including Festival & Emergency) & Top up Loans
All criterions as in the first loan
All supporting documents for 1st Loan are in file
Loan type, installment amount & satisfactory attendance history should be verified
32
The previous loan(s) history of the customer is verified
If loan is greater than Rs.15,000, field visit is done to cross verify the purpose and
customers cash flow
Verification of SD and satisfactory ASD history.
Group member‟s repayment history should be verified and group support.
3.2 Loan Approval Criteria
After the approval of Customer Profile, the Customer can apply for all loan products
offered by Ujjivan, as per eligibility.
The Loan proposal will be discuss by the Customer, Group Members, Group Leader
and Center Leaders at the center. The CRM & CRS will recommend or reject the loan
proposal considering, in particular, the purpose and the Customer‟s ability to repay
the loan.
The CRM must personally review and approve (sign) every loan application.
The Loan Application Forms completed with necessary documentation will be sent to
HO for processing and approval. Every set of Loan Applications must include a
Loan Application Checklist.
The Operations Department (OD) will process the entire Customer‟s data before
sending it to the Credit Department (CD) for review and approval.
The Credit Analyst determines the eligibility of a Customer with regards to the
Center, Group and Customer‟s performance and discipline, regular meeting
attendance, cash surplus, and loan purpose.
The Credit Department verifies all the data filled in the system with the information
from the Loan Application Form completed in the Field Operation.
Everyone working in this unit is allowed to verify the data in different documents:
In the hard copy
In the system
In excel
If there is dissimilar information between the hard copy and the system, it is written with
a pencil on the first page top right of Loan Application Form. Moreover the Analyst
warns the Branch of the problem, sending an e-mail to the CRM with the reasons why the
33
form is rejected and what is required to the Customer and Manager to correct that
problem.
The hard copy document is sent back at the Branch for the changes. The approval process
can‟t go on.
If the Credit Analyst decides not to approve or only approve a reduced amount, it will
return the application to the Branch, clearing up the reasons of new amount
The CRM &CRS will first discuss the reduced amount of the loan with the Centre
Leader and Group Leader and then with the Customer. If the Customer decide to apply
for then the reviewed form will re-sent to the Credit department.
Approved loan cards are returned to the CRM & CRS for disbursement at the next Center
Meeting.
The Analyst of Credit Department is allowed to fill up in the Branch Efficiency Report all
relevant errors found in the hard copy documents.
34
Loan
proposal
from group
to centre
Discussion in
the centre
about the loan
proposal
LA sent to HO
(Operations
Department)
Recommend
ation from
CRS
Is LA
Applications
has issues?
LA sent to
Credit Dept
for Approval
Verification of the
information based
on Approval criteria
Are there
any issues
with LA?
Homogen
eity and
Group
Guarantee
W
Homogen
eity and
Group
Guarantee
Recommend
ation from
CRM
Yes, Clarification from Branch
No
Approve and
sent to
Operations for
further process
Clarification from Branch
No
Loan Sanction and
Loan Card
preparation from
Operation
Loan cards sent to
Branch
Customers will come to
branch on disbursement
date along with ID card
and Loan Card
Loan
Disbursement in
the presence of
CRS and CRM
Loan Cards were
given to
Customers
through CRS
Yes
Loan Approval Process Flow Chart
Homogeneity and Group Guarantee
35
3.3 Tips to check the loan application
The following are some of the hints for evaluating the credit proposal
Customer ID numbers should be mentioned in check list and in loan applications
for all types of loan.
Branch, CRS name, center and group number should be completely filled.
Center meeting day should be clearly mentioned, if there is any change in center
meeting day it has to be informed to operation department, then loan
applications should be sent to head office.
Loan type and loan cycle column should be clearly ticked.
In purpose of loan column the reason for loan purpose should be clearly
mentioned, just mentioning to repay old loan is not accepted. The reason for old
loan should be mentioned. For Ex: To repay old loan (medical expenses for
husband, children education expenses or to purchase materials for business etc.)
Attendance details column should be compulsorily filled in all the loan
applications.
Nominee name should be filled properly,
o If customer is a widow or separated do not mention nominee as husband
o If nominee is minor, appointee name and signature is required.
Group guarantee form should be completely filled.
Group member sign should not be missing, if any customer is dropped out or
expired; reason is required from CRS, in each missing column of the group
guarantee form CRM has to put a note for the whole group.
If there is no center leader mention NIL in that column.
CRM and CRS name, signature, date of signing should be mentioned.
If customer is single or house wife, guarantor name and sign is compulsory.
3.3.1 Loan Documents
All the details in the loan document should be filled clearly and carefully
without any mistakes. Same ink should be used to fill loan documents.
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3.3.1.1 DPN Document
Customer name should be mentioned first, then father name should be
mentioned only if customer is single
Husband name should be mentioned if customer is married, widow, divorced or
separated.
Customer‟s complete address, loan amount and interest rate should be filled
(1.25% for family,1.10% for business and 1.17% for combo)
In borrower column customer name should be mentioned and signature should
be taken, and one more signature on the stamp should be taken starting from
middle of the stamp and may extend outside.
Witness name, signature and address should be mentioned.
Scratches, overwriting and use of whiteners are not acceptable in loan
documents.
3.3.1.2 Receipt cum Link Letter
Loan amount, interest rate, installment amount should be filled correctly. Loan
amount in words and figures should be correctly mentioned without any spelling
mistakes.
Customer name and signature should be taken compulsorily.
CRS or CRM should not sign in loan documents anywhere for any reasons.
3.3.2 Processing of Loan application in the Head Office
CRS sends loan application from branch to head office
Operation Department make batch log and send it for data entry
37
After data entry, the loan application is given a unique no. and send it to credit
department
Problematic loan application with some mistake, given back to help desk for
clarification from respective branch.
Help desk clarifies, else send the application back to branch for correction
The loan application verified in credit department with procedure
Credit department give back the loan application after sanction for loan
disbursement.
The problematic LA held in credit department for clarification
The problematic LA is sent back to branch for clarification.
After clarification, LA returns back to OD and follow the same process.
The operation department sanctions the loan and sends it to respective branches.
CRS received the loan card for disbursement of loan
3.3.3 P.S. To Branch Functionaries
CRM or cashier should verify the loan applications and documents before
sending it to Head Office.
CRM should make a note in the loan application for the following cases:
If customer is applying loan for new business
If any customer is dropped out from the group
if any customer is transferred from one group to another
If center meeting is changed in the branch, first it has to be informed to operation
dept, after the changes are made, then loan applications has to be sent to head
office.
Cashier makes a note in the loan application if he is signing on behalf of CRM in
the loan application, when CRM is on leave.
Branches should respond to the mails or queries sent by Head Office -Credit or
Operations Department and messages should be conveyed to CRS‟s in the
meeting.
38
Loan Approval Criteria Process Map
39
First Line
Process
Description
After filling up the CP, the LAF is approved by the center
and discussed among the members of the center
The CRS recommend the LAF to CRM for his consent
After recommendation by CRM, the LAF is sent to HO in
operation Dept for entry.
The data is entered and MIS is maintained in the software
Risks The CRS may influenced by Customer and going to
commit a fraud.
The LAF may have some mistake or wrong data entered
There may be delay due to courier services or any
unforeseen reason.
The LAF may be incomplete
The Staffs may enter wrong entry
Risk
Mitigation
Strategy
The CRM visit the CM during Loan recommendation, if
any doubt apprises.
CRM should check and sign the loan application form.
The checklist of loan approval should duly signed.
The CRM should ensure the movement of courier in time
The LAF should be properly checked before it entered to
the system
The Staffs in Operation should always be alert
40
Second Line
Process
Description
The LAF is checked properly and if anything is wrong or
not entered, should be sent to Help Desk
The Help Desk Should clarify the doubt with CRM
If the information by CRM is enough, then it sent to
Credit department
If no, then should be sent to branch for rectification
The LAF is moved to the Credit Department for approval
LAF is checked against the approval criteria by Credit
staffs
The LAF is moved to OPD for further processing and
filing
Risks There may be communication gap between CRM and
Help desk
The LAF may not be sanctioned and sent back to Branch
due to some other reason
There may be backlog of forms which reduce the turn up
time
There may still be some doubt in LAF
The LAF may missed out some points which needs
discussion
Risk
Mitigation
Strategy
The help desk should understand the branch manager and
having a good coordination between them.
LAF should be checked properly to avoid any mistake
The LAF should be checked properly before coming to
credit for sanction
Credit staffs should consult Credit Manager for some
doubt
OPD should keep the data of LAF for further use
41
Chapter: 4 Credit Collection Process
Credit collection is the second stage of credit risk management. The collection or
repayment starts just after loan disbursement. The loan disbursement, under the
regulation of credit department has below described flowchart.
Credit Collection Process
4.1 Collection process at the Center meeting:
Repayment Collection: The collection of repayment and its time, date and place is
decided by branch manager in consent with members of the center. It may be weekly,
monthly or fortnightly depending upon the availability of the members.
Repayment takes place at the center meeting (CM).
Group leaders collect the repayment from group members and then center leader
collects all the groups repayment from group leaders and hand over to CRS
The loan card should be updated and signed by the customer and the CRS
The CRS reports in the minutes of the center meeting the “the repayment rate”-
100% if all the borrowers have repaid their installments and exceptions, if any.
Collection of CTS
and cash by Head
office, data entry by
OD and CD and
generation of report
Scheduling of
Repayment by
HO with
consent from
branch
Filling up of
repayment cum ASD
collection report and
cash collection
Scheduling of
Repayment by
HO with
consent from
branch
Center meeting
Schedule and
collection of
ASD, SD and
repayment
Provision for
receipt and
signature as
authentication
Collection of CTS
and cash by Head
office, data entry by
OD and CD and
generation of report
Cash Collection
from CRS to
Cashier along
with receipt slip
and ASD
Movement of
cash from
branch to Bank
for deposit
Filling up of CTS
by Cashier with
center and group
wise
42
The CRS also takes the signature of the members in repayment cum ASD
collection slip to link up the truth with head office.
ASD collection: Though both repayment and ASD collection is done at same point of
time, still it is a practice to take it differently in some branches. The reason is ASD is not
compulsory to the borrower. That is depending upon the capacity of the borrower to save.
As a standard amount, it is kept between Rs. 20- 25 per week. Credit department keep a
different eye on the collection of ASD in branches to know the ability of the CRS to
maintain thrift habit among the Ujjivan‟s borrower. Different receipt is provided by the
CRS on collection of ASD from the group.
SD collection: Security deposit is a provision form of collateral taken by the institution to
maintain the fund condition in a better way. But it is not applicable to some branches due
to different reasons. It is collected during loan disbursement day. SD can be adjusted with
last loan repayment in the year end.
Authentication and receipt provision: It is provided to customers for maintaining trust
and transparency in the system.
Credit Check:-
The main observation to be made in Center meeting is
How disciplined are the customers in attending the Meeting on time.
The CRS efficiency in handling the Center meeting
The Center leader plays a very important role in formation of good center so the
roles and responsibilities of Center leader should be mainly focused.
The main observations to be made for CRS:
Customer pledge and staff pledge at the beginning of CM and staff pledge at the
closure of Center Meeting.
Proper sitting pattern followed by Group leader, Center leader and Group
members within the space limit.
The procedures of collection of Additional Security Deposit and repayment.
43
Verification of loan cards, pass book and minutes books which is very important
as it reflects the CRS responsibility over the center.
Customers and CRS signature, on time updating of loan amount, ASD and other
details verification.
Attendance details should be checked. The customer with more absences can be
tracked and followed up.
Center cooperation and CRS involvement in solving routine problems of their
members should be checked.
The groups guarantee concept can be focused by cross verifying with some queries
like how the group members support each other in the time of crisis. Homogeneity
of the group and how well they know and co operate each other can be analyzed
through this process.
Pre visit preparation by Credit staffs can be done by following procedures:
The Center details should be thoroughly collected before attending any Center
meeting.
Credit MIS report gives the information of overdue customers which should be
utilized by Credit staffs before they attend the Center meeting of any branch.
Tally the overdue list with branch register. The qualitative and quantitative
information to be collected from the branch before Center meeting.
Check repayment history and attendance details of defaulted customer
4.2 Branch operation in relation to credit
Once the CRS comes back to the branch office, the cashier and the CRM should
verify repayments.
The cash tally slip is updated with details
Cash received details are entered in the banks‟ cash deposit slip
Cash is deposited at the bank but cash received from center meetings held after 3
PM is kept at the branch office and is deposited in the next working day.
The petty cash register is maintained for the same
44
Deposit slip acknowledged by the bank is stapled to the singed installment due
report and the cash tally slip and forwarded to operations department for
processing.
Credit Check:-
The whole process is observed by credit department, anything gone wrong, is
conveyed to branch manager.
45
Delinquency Management Process
46
First Line
Process
Description
Repayment schedule sent by HO to Branch and CRS
attend the CM day wise to collect the repayment in
time. CRS has to reach the CM in time
The MIS analyst enter the amount in the
software as soon as the CTS is received and
generate the Overdue report
The over Due report is sent to the branch
Risks The Loan card and schedule may not reach to the
branch in time.
Fraud Risk by CRS/Cashier/CRM in the branch
Customer may abscond after getting the amount
The CTS may not reach on time or may have
some problem in CTS received
Wrong Report may be generated/ The time of
overdue is not/wrongly mentioned
Risk
Mitigation
Strategy
Operation Dept has to ensure the reach of documents
in time.
Signature and receipt collection is essential
Customer should collect receipts for her deposit and
inform CRS/CRM about the non-entry/wrong entry
by CRS in the repayment schedule.
Group members should ensure the GG during GRT
and aware about GG rules
Cashier should send right CTS with
consultation with CRM
Branch should send the report in time
The overdue report should be sent to branch in
each week and the reason of overdue is to be
followed up by CRM/PM
47
Second Line
Process
Description
On getting the overdue report, the CRM follow up the
customer and find out the condition of CM
He has to find out the reason for non-repayment from CM
/CRS in the meeting itself
Credit staffs visit to the customer with questionnaire and
find out the reason for non-repayment from CM and
Group
They have to sort out in the office with the questionnaire
and discussion with Credit Manger, whether the reason is
justified for non-repayment.
The decision is to be taken whether to write-off or
reschedule
Risks The reason may not be known by Center.
The member may abscond, don‟t want to repay for some
reason
Willful defaulter or other reason, he has to specify
The credit staffs may not be able to find the actual reason
due to misleading by customer or group or CRS
The reason which they get may not be applicable to
rescheduling or write off
Risk
Mitigation
Strategy
Group should be formed under the guideline of GG
The CRS and CRM has to be cautious during any
incidence in the CM prior to the knowledge from HO
The Credit staffs should go with appropriate home work
like the customers CP details, the area tendency, any
previous cases in the branch or that area.
For new reason of default, Credit Dept will consult with
senior management
48
Third Line
Process
Description
The reduction in default rate which will increase the
portfolio quality
If there is a willful defaulter, the risk management team
should make a action plan for recovery
There should be provision for house visit will may be a
long term process
Proper MIS should be carried out to derive a conditional
reason and solution for defaulting.
Proper provision should be made to avoid such type of
cases.
Risks There may be a good no. of cases for a single time line The risk management may not be able to understand or
follow up the default due to absence of customer for a
long time.
Non-follow up of CRS or Center members
The process may give time to customer to move some
other area.
Risk
Mitigation
The Organization has to be cautious before they are going Help of center members and CRS in follow up
49
Strategy for rescheduling.
Increase of loan loss percentage with increase of default
case in time
Understand the proper movement of customer after
defaulting
The default cases should be followed up in early time.
50
Chapter: 5 Loan Rescheduling Process
STEP 1: CRM/CRS Investigation of Genuine Default & Notification to Credit
CRM and CRS must inform the Credit Department who are unable to repay the
installments and will not been able to do so for an extended period of time (3
monthly installments or 12 weekly installments). The CRM must verify and
inform the reason for which the customer cannot repay.
These reasons may include:
A major contributor to household income meets with an accident, lose of job,
etc.
The death of major income contributor of the house or
A customer‟s cash surplus is severely decreased by an unforeseen health
problem or loss of job.
Natural or man made disasters.
[*Note: The CRM must be familiar with the borrower‟s current family and
income information and believe the reason for current and continued non-payment
genuine. The reason for rescheduling needs to be clearly specified. Before
considering a loan rescheduling, he/she should have considered using the
customer‟s Additional Security Deposit to offset the repayment and have checked
with the Group and Center to see if they can help make the payment for the
customer. After checking these options, if the CRM is sure that there is no other
way for the customer to make payments and that a genuine default is the only
option, he/she should ensure that the customer would want a rescheduling. In
addition, the reason for disruption in income levels (as a result of which loan
payments are not being made) must be genuine and the situation will not be
rectified for a period of 3 months or more. Only then can he or she recommend
the loan rescheduling to the Distribution Manager/ED/COO.]
The CRM must fill in Form 1 (available at credit department) and send it to the
Credit Department. The form includes details of the customer such as Customer
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ID, Center Number, Group Number, amount repaid, amount outstanding and
reason for non-payment. The form should bear a note signed by the CRS & CRM
stating that he/she has checked out all measures and has come to believe that the
customer would genuinely default if her loan is not re-scheduled and must
mention that the customer wants the re-scheduling
STEP 2: Filling Field Questionnaire with Current Loan Details
After the Credit Department receives the form, they will fill up the Field
questionnaire (Available to credit department). The Credit Department will fill
up only the areas that are available in the BankersRealm system such as Customer
Name, Center No, Group No, Type of Loan Taken/Amount, Monthly/Weekly
Installment, Income, Expenses, Surplus, Occupation, Health Status, No. of Family
Members, Amt. Family Members contribute to Income, Amt. of External
Borrowings, Tenor of External Borrowings, Monthly/Weekly Installment of
External Borrowings.
STEP 3: Field Visit by Credit Team
The CRM must schedule a time when the Credit Department staff may meet the
customer, group and center. The visit of the Credit Department must take place
within a week from the receipt of the Information form (Form 1). The rest of the
questionnaire will be filled by the Credit Department staff member upon the visit
to the customer in the field.
STEP 4: Confirmation of Rescheduling by Credit
The staff member must independently confirm the reason for loan rescheduling
and must be satisfied with the findings. Then they should submit the questionnaire
to the Credit Manager for approval.
STEP 5: Joint Approval of Rescheduling/Provisioning/Branch Performance
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The Credit Manager will recommend it to the Distribution Manager and
CEO/ED/COO for approval. After all of the approvals are obtained, the
rescheduling will be input into the system by the Operations Department.
After receipt of the CEO/ED/COO‟s approval, a provision should be made.
Once approval is obtained, the Credit Department will inform the CFO to
make the appropriate provision. Any restructured loan will require 50%
provisioning of the loan principal outstanding. Any restructuring (even when
applied to an already restructured loan) will attract the above provisions.
Re-scheduling is a process which allows disciplined customers with genuine
defaults to remain Ujjivan customers.
STEP 6: New Loan Details are Input into the System
The Operations staff will feed the information into the system and new loan entry
will be passed through.
STEP 7: Signing of Rescheduling Memo
The Re-scheduling Memo should be printed, signed by the required parties and
sent to the branch office.
Step 8: New Loan Information/Rescheduling Memo/Documentation from Branch
The branch office will be sent a new loan card along with the Rescheduling
memo. The memo would have to be filled and sent back to the Head office within
1 day. The new loan documents, for which the CRM/CRS will be responsible for
obtaining and sending to the Credit Department, should be sent together with the
rescheduling memo or within a week of it being sent. Tracking of the documents
will be done by Credit Department.
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Chapter: 6 Loan write off Process
STEP 1: CRM/CRS Investigation of Default & Notification to Credit:
CRM and CRS must inform the Credit Department of the customers who are
unable to repay monthly/ weekly installments and there is no possibility that the
customer will be able to repay their loan installments again.
The CRM must verify and inform the reason the customer cannot repay.
These reasons may include:
The customer has migrated, cannot be traced the group and center are
unwilling to repay the loan
The customer was a victim of staff fraud and is unwilling to pay
Poor customer selection on part of the field staff
The CRM must fill in Form 1 and send it to the Credit Department: The form
includes details of the customer such as Customer ID, Center Number, Group
Number, amount repaid, amount outstanding and reason for non-payment. The
form should bear a note signed by the CRS & CRM stating that he/she has
checked out all measures and has come to believe that the customer would
genuinely default if her loan is not re-scheduled and must mention that the
customer wants the re-scheduling
STEP 2: Field Visit by Credit Team and/or Fraud & Risk Management Team
The CRM must schedule a time when the Credit Department staff may meet the
customer, group and/or center depending on the case. A field questionnaire will
be filled by the Credit Department staff member upon the visit to the customer in
the field. If the case is a fraud case, the Fraud & Risk Management team will also
visit the customer and provide feedback on whether the Write off is necessary and
if so, will provide the relevant customer information to Credit.
STEP 3: Approval of Write off through Signing of Write off Memo
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The Credit Manager will recommend it to the COO for concurrence and to ED
or MD for approval.
The Write off Memo should be printed, signed by the required parties and
sent to the Operations Department.
Approval for the Write off is required from either the CEO or the ED
however, both signatures are not required.
STEP 4: New Loan Details are Input into the System
Once Approval takes place, the Operations staff will write off the loan on the
Bankers Realm system.
STEP 5: Provisioning
After receipt of the approval from all appropriate parties, a provision should
be made. Once approval is obtained, the Credit Department will inform the
CFO to make the appropriate provision. Any loan that is written off will
require 100% provisioning of the loan principal outstanding.
Responsibilities of Credit Department in Credit Collection Process:
These are some points which are required to check whole credit collection process
by credit department
Tracking of defaulters list during repayment week is very important aspect of
Credit Dept.
The CRM should send on time report of each defaulted customer during the
end of repayment day which can be used for tracking of particular Center.
The Credit Dept should follow up with the branches each day during
repayment week and concentrate especially on problematic centers.
Necessary plans should be taken when the customer overdue crosses from 30
days to 60days.The planning should come into action immediately during the
same week.
Identify the possible reasons for non repayment.
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The CRM support and co operation with Credit staffs during collection week is very
important. The Credit staff should ensure about adequate and potential customer selection
by field staff during the field visit and there should be transparency between Branch and
Credit Dept which leads to efficient processing of collection activities.
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Adhikar Microfinance
Chapter: 1 Credit Policy
In Adhikar the basic criteria of customer selection is based on following parameters:
Marital Status: The women should be married. This is to control the mobility of
the client.
Age of the women: The age on the women should be within the age group of 18
to 55 years. This is to ensure that she is economically active and can actively
support group and family.
Family Income and Asset levels: Her family income at the time of selection
should not be more that Rs. 3000 per month and her household assets should not
be more than Rs. 100000.
Locality of stay: All the members should belong to the same locality. They
should belong to same village or slum.
Members from family: Only one member from one family can be the given
membership and dual enrollments are strictly prohibited. Membership is given to
individuals and one member can join only one group.
Literacy: Membership is open for both literate and illiterate women, but after
joining the group women should learn reading and writing, at least she should be
able to sign her name.
Know Your Customer: Only those women who fulfill the KYC criteria are
eligible for membership. Under this women need to provide proof of residence
and identification proof.
Physical disability: Physically handicap women can also be member if group
agrees to include. She can be unmarried but her age should be more than 25 years.
Adhikar also follows JLG (joint liability group) model of lending and it based on the
principle of trust and group guarantee. Group consists of 5 members and it is fixed. If any
member drops out from the group, then a group has to mandatorily include one new
member before the next cycle of loan. The group will be leaded by group leader.
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A Center is formed with minimum if 3 groups and maximum of 8 groups. It means that
the minimum number of members for creating a center is 15 and maximum 40 members
can be part of one center. The center is leaded by center leader. All the transactions are
done at the center level so it is business transaction point for the organization.
Operations
The process commences with the new branch survey and setting up branch office and
then staff deployment.
Chapter: 2 Branch Set up Process
New Branch Survey: The new branch survey is done by Area Manager and other
branch managers and the prime objective of branch survey is to map the existing potential
in the area. The survey include following activities -
Preparing a rough Map of the area covering 10 kms from the proposed branch
Collecting direction wise village details. Few villages are selected in all the
directions and information regarding occupation of villagers, sources of income,
business opportunities, MFIs operating in the area are collected.
Surveyor can also meet Surpanch or village head to discuss with them village
profile.
Collecting available infrastructure facility related information at the proposed
branch location/town. Certain basic facilities are required for setting up branch
office and these facilities include Bus, courier, telephone, bank, transport,
internet etc.
Meeting with government officials like BDO/Tashildar/DRDA etc for collecting
data about all the villages in the range of 10 kms from the proposed branch.
After collecting all this information it is sent to Zonal Manger and then Zonal manager
decides about it in consultation with operations manager.
Selection of Branch office: After the decision for opening a branch is taken the next
stage is opening branch office. Here the focus remains on choosing proper location with
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minimum required space and facilities. The branch location should be well connected and
it should be located near to bank and bus stand but it should not be on main road or in an
area with law and order problem. All these measures are taken to mitigate the risk. Near
bank branch ensures low risk associated with transaction with bank and bus stand helps in
maintaining connectivity. Distance from main road and problem area helps in mitigating
the risks.
Purchase of fixed assets: Fixed assets are defined for a standard Adhikar Branch. It is
decided considering the operation in the branch.
Staff deployment: Staffs are deployed before the operations starts at the branch.
Operation is started on the 1st of the month. The minimum staff required at any branch is
four and this includes, One Branch Manager, at least 1 Senior Credit Officer and at least
2 recently confirmed Credit Officer.
Village Survey: After establishment of branch a broad village survey will be done with
existing staffs. Village survey collects information regarding occupation of villagers,
sources of income, number of BPL families, proximity with bank, business
opportunities, MFIs operating in the area, basic infrastructure facility. The survey is
conducted in a proper village survey format. The format is attached.
General meeting: Before starting the operation in a village, the BM with consultation
with surpanch, anganwadi workers, SHG leaders, local shopkeeper, other MFI clients
organizes one general meeting where all the women members are invited. In the meeting
the following matters were discussed: Objective of this meeting, Adhikar‟s mission,
vision, history of the organization, product and services offered and area of operation.
Chapter: 3 Group and Center Formation Process
The women members who fulfill the selection criteria enumerated earlier will be allowed
to form into group. The CO can form a group by taking the name of 5 such eligible
members and form a minimum of three groups (15 members) at a center, After formation
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of three such groups, the CO will fix the day and time ti start training classes for 5 days,
as per the convenience of members. Full attendance in the training classes is compulsory
for all the members; otherwise training will be postponed or cancelled. Training is vital
for MF programme to run successfully. Training will cover topics like the membership
criteria, group behavior, LPF, Pledge, Loan Application and center meetings with a brief
introduction on the organization, its founders and different role players. The group
formation requires patience and commitment from the staff because a good group when
formed will make the running if the groups easier in future.
Training Schedule:
1st Day:
Signature of members in training register. It is mandatory for all the members to
sign in the training register.
Document checking of each member: Documents are checked of each member to
meet the KYC norms. Under this two kind of proofs are required –Proof of
Identity and Proof of Residence. Voter Id, Ration card, Driving license etc are
used for Member ID and Land papers, electricity bills etc are used for proof of
residence.
What is group: The concept of group is introduced to members. It is explained that
group is for everyone and each one is for group. Concept of joint liability group is
introduced to all the members.
What is Centre: The concept of center is discussed with members and its
importance and functioning is explained.
Why they should form a group: Emphasis is put on the importance of group and
potential benefits to the members.
Criteria of group members: Eligibility criteria of membership are mentioned to
each member. Eligibility criteria include age specification, marital status,
occupation of the member, family income and assets, locality of residence,
relationship status with existing members etc.
CO’s Responsibility:
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The credit officer will meet the prospective members at the decided place, time
and date for the first meeting.
Ensure that no blood relative or relatives are clustered in one group/center.
2nd
Day: Maintaining discipline is very important for proper functioning of MFIs. So
second day training educates members about the disciplinary norms of organization and
their respective responsibilities.
Timely attendance: Timely attendance is very important for day to day
functioning. So members are made aware about time related norms of the
organization. All members are expected to attend the meetings on time and they
are expected reach center 10 minutes before the scheduled meeting.
Proper sitting arrangement: A fixed sitting order is introduced to members and
members are required to sit in the particular order in all the meetings. This is for
the sake of smooth operation at the center and maintaining discipline and other
related work also. The diagram of sitting arrangement is given below.
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Responsibility of all members: All members are made aware of their
responsibilities towards their group and center. Member‟s responsibilit ies include
timely attendance of meeting, timely repayment of loan and responsibilities
related to group guarantee.
Responsibility of Group Leader: Responsibilities of group leader is explained.
Selection of group Leader: After explaining roles and responsibilities of group
leader, group leader is selected from each group.
CO’s Responsibility
The CO has to follow the time schedule strictly for training
CO has to be the role model to the members in all the matters
3rd
Day: Financial literacy and transparency is very important for Operation of MFIs.
Third day training intends to literate members financially.
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What is Loan: The concept of loan is introduced to members. Rules and
limitations related to loan are introduced to members. The purposes are explained
for which loan can be given.
Amount of loan: Members are explained about the rules related to loan amount.
Nature of loan: MFIs offer different kind of loan products and for good repayment
it is important that loan fulfill the member requirement. Members are introduced
about the nature of loan products available with organization.
Membership fee: A membership fees of Rs. 100 is charged from all the members.
Interest on loan: For maintaining transparency members are educated about the
interest rates being charged by organization on the loan.
Installment: Members are introduced about the installments to be paid.
How to calculate the installment: Members are educated for calculating the
interest rates and installment on the given rate. This helps in bringing trust by
creating awareness.
Insurance: Members are introduced about the insurance scheme of the
organization. It is mandatory for the group to take insurance.
Loan Processing Fee (LPF): Loan processing fees is the fees charged by
Organization apart from interest for loan processing. Currently loan processing
fees is 3.5%.
Late attendance fine: Members are introduced about the provision of late
attendance fine. Members who come late in meetings are fined certain amount of
money as fine. As mentioned earlier, maintaining discipline among members is
very important for proper functioning of MFIs. Late attendance fine is a negative
reinforcement for curtailing the members behavior to come late or remain absent
from the meeting. Members are educated about the late attendance fine and this
helps in holding timely meetings.
CO’s Responsibilities:
CO has to ensure that the information, which are necessary and compulsory are
explained to the women properly and correctly.
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4th
Day: Fourth day training concentrated on mitigating the risk of default. This is done
by electing Center Chief, introducing her roles and responsibilities and making members
aware about the benefits of timely repayment of loan.
Responsibility of Centre chief: The responsibilities of Center Chief are
introduced and explain to the group. Center Chief is responsible for attendance of
the members and in case of absence of member Center Chief is required to pay the
due amount to the CO and then collect it from the absent member.
Election of Centre Chief: After knowing the roles and responsibilities of Center
Chief (CC) election is conducted and CC is elected.
Motivation for loan repayment: Benefits of timely repayment are discussed with
members. Timely repayment of loan leads to the second and subsequent cycles of
larger loans which can be used for productive purposes. It also ensures continued
support from organization and the group members.
Review of the credit policy: At the last, the credit policy is reviewed and a brief
recap of four day training is done.
CO‟s Responsibility
The CO has to ensure the selection of Center Chief and Group Leaders with
democratic process.
Ensure no change in members during the whole training period.
CO has to ensure that the information, which are necessary and compulsory are
explained to the women properly and correctly.
5th
Day: G.R.T. taken by Branch Manager/Area Manager.
Training module
The credit officer will meet the prospective members at the decided place, time
and date for the first meeting.
The CO will provide training to these potential members as per the training
schedule
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During the training period, the branch manager will accompany the CO (at least
once) and see for himself the progress id the members in training. The Bm will
have to verify all the information supplied by members to the CO
Check Points for CO while organizing training.
1. The CO has to follow the time schedule strictly for training
2. CO has to be the role model to the members in all the matters
3. The CO has to ensure the selection of Center Chief and Group Leaders with
democratic process.
4. All seriousness to be exhibited while teaching the prescribed thins to the members
as per Adhikar rules and regulations in the entertaining environment.
5. CO has to ensure that the women members follow the reaching and his behavior
should be gender sensitive.
6. Ensure no change in members during the whole training period.
7. Ensure that no blood relative or relatives are clustered in one group/center.
8. CO has to ensure that the information, which are necessary and compulsory are
explained to the women properly and correctly.
9. CO has to ensure that women (who are not yet members) have the desire and need
for the loan and has to know their backgrounds. This will help him to avoid
unnecessary conversations in future
10. CO has o ensure that the mobile should be in silent or vibration mode
11. Give respect to all the members
Preliminary Household Survey
The CO has to visit every member‟s doorstep while conducting preliminary housing
survey and fill the survey format as per the information required.
GRT
The Branch manager and above designated employee will conduct the GRT after
successful completion of training. For this, the concerned authority will have to conduct
an oral test by asking questions relevant to the programme like, the amount they can get
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as 1st loan, the amount they have to pay as service charge, the principle loan amount,
repayment schedule and methods etc. He can ask any of them about her neighboring
member of the same group. He has to satisfy himself with other details like husband‟s
occupation, her family‟s monthly income, children details and family members etc. If
he/she is satisfied with the response and oral presentation of the members about the rules
and regulations of the society and with their background (Social, economical, family,
occupations and so on), then only the group will be eligible for membership. He will have
to check all the houses of the members and ensure that they are matching the prescribed
criteria.
Responsibility of BM at the time of GRT.
Verification of survey form at door step of 30% members.
During doorstep verification of member the concern CO will accompany BM not
member.
Original document verification.
Guardian opinion may be obtained at time of door step visit.
Purpose of loan at door step visit
Member fees collected after GRT.
Sign of members on GRT certificate on the spot.
Money receipt issued compulsory.
Training schedule to be displayed in the branch.
Sample members survey information checklist must be attached with GRT
certificate.-Sample checking format.
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Group Formation Process.
Process Village Survey is done in
prescribed format to know the
potential business of the
village. Then information is
given to Anganwadi center, or
existing groups, or shop
keepers about the date of
general meeting. Then on the
fixed date general meeting is
The purpose of meeting is
discussed and potential
members are identified in the
meeting. Group formation
meeting is done with potential
members. If number is not
sufficient then members are
told to motivate required
number of members.
Verification of original
Member Id and Residence
proof is done. Loan schemes
and organization details are
briefly discussed. After that
CO forms groups and Center.
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conducted.
Risk Involved Information may not be
disseminated in the required
amount. So few people may
turn up on the general meeting
day.
Extra added members might
not be fully interested in
organization schemes which
may create problem of drop
out in future. Such members
can also create heterogeneity
in the group.
Mitigation Strategy Organisation with help of
Anganwadi etc. can get
involved in awareness creation
about meeting.
Member selection should be
done with caution. Only
interested members should be
included in the group and
homogeneity must be
considered.
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Process Description After group and center are formed, Group Leader and
Center Chief are selected. After selection of Group
leader and Center Chief CGT starts.
CGT starts and continues for next
four days. At the same time member
survey is conducted simultaneously.
On the fifth day BM conducts the
GRT. On successful completion of
GRT, Group Recognition Certificate
is given by BM or examiner. In case
GRT is not completed successfully
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then group has to repeat CGT again.
After successful completion of GRT
guardian meeting is called.
Risk Involved Wrong selection of leader and chief, as members they
are ignorant about their roles and responsibilities. This
might create problem in future functioning of group or
center OR the leaders and chief selected earlier may
show unwillingness after knowing roles and
responsibilities. This would lead to repetition of same
process again.
Risk Mitigation strategy Responsibilities of Group Leader and Center Chief are
discussed during CGT. So their selection should be done
during or after the CGT only after the roles and
responsibilities are discussed and members have
understood them well.
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Process Description In Guardian meeting guardians are made
aware about the norms and rules of the
organization in brief. Then guardian
consent for member participation is taken.
With guardian consent membership fees is
Members leave center with membership
fees receipt and CO & BM leave for
branch. Member data is entered into MIS
and fees money is deposited in branch.
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collected and receipt is given to members.
In case guardians do not agree to the norms
of the organization and do not allow them
to participate in the process member is
disqualified.
Risk Involved This may result in member dropout after
training; this would increase the cost of
operation.
Risk Mitigation Strategy Guardian meeting should be conducted
before the CGT and their consent should
be taken at before training starts.
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Member Household Survey Process
Process Description CGT and member
household survey is done
simultaneously. Each day
after training is over; CO
goes to member‟s house
for gathering data.
There is fixed format for
collecting household
information. Information
is collected using the
survey forms. Data
related to household
assets and liabilities are
collected. CO gathers the
Guardian verifies the
information and signs the
form. Then it is
forwarded to member for
signature.
CO collects the
survey form and also
collects photocopy of
required documents
and photograph of
member. All these
documents are
attached with survey
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information and after
completing the form
gives to guardian for
signature.
form. The CO moves
to other members
house or comes back
to branch office.
Risk Involved Liability of household is
not considered as
eligibility criteria and
members with existing
loans from other sources
including other MFIs are
considered to be eligible.
This increases the risk of
multiple lending and may
increase default rate.
Mitigation Strategy Household liability
should be included in the
eligibility criteria of
members and incidences
of multiple lending
should be eliminated.
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Process After CO completes the survey,BM
verifies 30% of surveyed households. BM
goes alongwith CO and does not take
members with them.
BM verifies the information collected by
CO. If some information is not correct then
he makes necessary correction. After this
they leave to branch where the survey form
is stored.
Risk Involved CO may not complete all the work with
equal quality and the household surveyed
by BM may be baised.
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Members may not be available at home.
Mitigation Strategy BM should randomly select members and
should go member‟s home along with
randomply selected members.
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Documentation
Loan application forms contain columns to collect information like, borrowers name,
proposed project/purpose, required amount, Center‟s name etc. after successful
completion of GRT, CO will collect and fill in the loan application form after
ascertaining all particulars from applicants at the center meeting with the consent of the
Group. Selection of the borrower‟s project or occupation is purely members choice, not
that of CO‟s. The applicants must put her signature in it along with 4 members of the
group for guarantee and Center chief for over all recommendation. Preparation of loan is
a must before the proposal is considered for sanction.
Chapter: 4 Loan Approval
The 1st cycle loan is sanction by Branch Manger or Branch in Charge and 2
nd and
subsequent cycle loans up to maximum limit of Rs. 20,000 is sanctioned by Area
manager.
1st cycle loan is sanctioned by BM after completion of following procedures.
The membership fee is collected from the eligible applicants and deposited in the
branch.
The loan application form duly filled in with two photographs signed by the
loanee and guaranteed by other four members of the group and counter signed by
the Center Chief and endorsed by CO has been received and also her husband‟s
signature.
Should fulfill the RBI‟s KYC norm
The Demand Promissory note signed by the loanee
Loan approval register to be filled by CO.
2nd
and subsequent cycles of loan is sanctioned by Area Manager after satisfactory
comepletion of the following procedures?
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Generally, loan applications for 2nd
cycle loans duly signed by all members have
to be collected only after complete recovery of the 49th installment of the 1
st loan
cycle.
The BM on the receipt of the application visits the center and discusses with
members about recovery of 1st cycle loan, its utilization and he also analyses the
repayment behavior of the clients.
Individual loan applications are appraised based on the experience of the previous
loans including member‟s behavior. The loan application is signed by loanee and
4 other members of the group and countersigned by center chief and CO and is
verified by Branch Manager.
The BM verifies the required amount and he recommends appropriate amount to
the Area Manager.
Loan approval register is filed by CO and approved by BM and AM.
Loan Disbursement.
After thorough verification and appraisal of the loan by BM and CO the loans are
sanctioned and disbursed. The loan amount is disbursed in cash at Center Meeting in
presence of all the members of center/group. AM, BM and concerned CO has to be
present at the center on the day when loan is being disbursed.
Fund requisition for the next week is submitted at the Area Office at the weekends with
center file.
Center meeting and attendance
Center is the place where all the group members of a center meet and it serves as business
transaction point for organization. The center is used to undertake transactions like loan
application preparation, loan disbursement, loan recovery, collection of premium etc.
The center meeting is a basic exercise before the loan related programmes are initiated. It
covers following operational points.
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It is held in a place within the cluster of member‟s residence
It is held on a fixed day and at fixed time. The center meetings are held from
Monday to Thursday
They members are required to reach center 10 mins before the scheduled meeting
time. And they are required to sit in a particular order and to their allotted seat.
CO is required to reach center 2 min before the scheduled time
Members are required to sign the attendance register without fail
Members hand over money and passbook to their group leader and group leader
will hand over the same to center chief and center chief handovers to the CO
The CO enters the amounts and returns the passbooks to center chief, Center
Chief to Group Leader and Group Leader returns to the members. Group
members check the entries in passbook before leaving the center.
If there is any change in programme or policy of organization CO explains that in
center meetings
Loan applications are filled on centers and disbursement also takes place on
center only.
LPF is collected from the members who receive the loan.
Meeting is scheduled for 20-30 mins based on the number of transactions. 20
Mins are spent on monetary transactions and 10 mins are spent on discussing
member‟s problems and issues related to transaction.
Meeting ends with the members 5 point pledge.
Operational Guidelines for the COs.
1. Co has to ensure that all the members has signed the Attendance Register.
2. CO has to ensure that every member attends meeting. If any member is absent
then the reason of absence has to be ascertained from the Center Chief and
recorded. Loan installment due from the absent member has to be collected from
the Center Chief.
3. If a person is absent for more than one week, the CO has to inform group leader
and if time permits he has to visit the member‟s house with other members of the
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group to know the reason of absence and explain the importance of her
attendance.
4. No personal relation is developed with any member.
5. CO is not allowed to accept any tip or any type of hospitality from members.
6. CO has to give proper respect to members and should refrain from calling them in
her first name.
Chapter: 5 Loan Recovery Process
As per the amount of loan taken by borrower and terms and conditions of the loan
document, the installments become due on weekly basis or monthly basis. The recovery
periodicity is told to the borrower at the time of disbursement of the loan. For
maintaining transparency in recovery process, the due amount including interest rates has
to be collected at center meetings only, in presence of all the members and the Center
Chief as per the given repayment schedule. Joint Liability system is based on the
principle of group guarantee and trust. As such, the group is for individual and the
individual is for group. If a member fails to pay for some or other reason on due date, the
group undertakes the responsibility of paying the amount on her behalf on that date and
motivate the defaulting member to clear the dues to them. The CO therefore, must remain
in constant touch with the members through periodic visits to their houses and ensure full
attendance in the center meeting and ensure full repayment without fail. Generally the
center meetings are held in between 7am to 12:30pm from Monday to Thursday. The
working member find the morning hour convenient for this operation, as they find time
after the center meeting, to perform their daily duties in time and also not to lose their
day‟s earnings. Prepayment towards foreclosure of loans is accepted at the field
level/center meetings in case the entire group or center desires so. For this the
group/center has to give an application in advance, and the BMs will visit the group and
finalize the prepayment programme. A member can individually prepay her loan
outstanding if she agrees to clear the principle and interest in full.
80
Loan Recovery Process
Process
discription
CO reaches to the
collection center
with Daily Collectio
Sheet (DCS) 2
minute before the
scheduled meeting
time.
Borrowers reach
All the group
members sit in a
prescribed order and
Clients hand over
their cash and
passbook to
respective group
leaders during the
All the group leaders
then hand over
passbooks and cash
to the center leader.
Center leaders
passes on the all
passbooks to credit
officer.
Credit Officer
checks the amount
due in DCS and
matches that with
money colllected
and fills all the
accounts.
81
with passbooks and
cash. After every
one arrives meeting
is started.
meeting.
Risk Involved CO may not reach
on time, and
members may leave
the center this can
lead to delayed
payment.
Risk Mitigation There should be
rules for CO to reach
center on time.
82
Process Discription If the amount is correct then the
CO counts all the cash and
updates the DCS and
individuals passbook. If the
amoung is not correct then
borrowe makes correction and
then updates DSC and
individuals Passbook.
Passbook is handed over to
group leader
The paasbbok is then handed
over to Borrower.
The whole process is completed
within 10-15 minutes.
Risk Involved In hurry CO may not collect the
information related to the loan
utilisation by member and their
83
enterprise./investment. So
status of member is not known
to the organisation and this may
lead to default.
Risk Mitigation CO should spend prescribed 30
min. on center.Once collection
of installment is over, CO
should sped 10 mins with
members discussing their status
of investment.
84
Process Discription Borrower checks the paasbbok
and leaves the center, while CO
leaves for bank with cash and
DSC. He reaches bank and
complete the deposite slip
CO hands over deposit slip and
cash in tha bank.
Bank employee provide bank
slip and credit voucher to the
CO.
Risk Involved Theft can take place while CO is
carrying cash.
85
Risk Mitigation Transit insurace can be taken for
covering risk of theft.
Process Discription CO after collecting credit
voucher ans bank slip moves to
branch with DCS.
CO handovers deposit slip,
Credit voucher and DCS. BM
cross verfies and signs DSC.
DSC is then again handed over
to the CO for MIS entry.
Risk Involved CO may manipulate the bank
slip.
86
Risk Mitigation BM and AM should keep eye
on CO and should check the
bank account randomly.
Process Dicription CO hands over DSC again to BM for
crossverification.
The MIS entry and total collection is verified with DSC.
Risk Involved
Risk Mitigation
87
Chapter: 6 Loan Write off Process
Writing off is a extreme step and it is decided by HO. This implies waiver of collection of
loan in exceptional cases where the scope of recovery is absolutely bleak. Usually death
of borrower without any outstanding insurance claim, permanent migration without
whereabouts, failure of all the efforts to recover, nonexistence of any attachable assets etc
are situations which lead to write offs.
CO, BM and AM closely monitor the irregular cases and enquire about the reason of non
repayment. CO and BM go to member‟s house for recovery if member does not come to
center. But in above mentioned situations where recovery seems impossible loan is
usually waived.
88
Conclusion
Micro Finance Institutions cater to the financial needs of one of the neediest section of
the society. In the changed scenario with increasing competition and growing
professionalism in the sector MFIs have a dual task to reduce inefficiency and at the same
time mitigate the risk. The study indicates that Process Mapping is a simple yet effective
tool which helps MFIs in achieving the goal of risk mitigation by way of process
improvement. The study of different processes of MFIs also indicate that dynamic
interaction between different departments helps in maintaining checks and balances and
work as an internal control mechanism for mitigating risk. Although the process of
Ujjivan Financial Services are more streamlined than Adhikar Microfinance but various
factors like difference in organization structure, size of operation, area of operation etc
does not bring comparability between these two. Irrespective to the difference in size of
MFI and difference in organizational structure Process Mapping proved to be an effective
tool for identifying the risk in both the MFIs for the mapped processes. There is a need to
institutionalize the risk management practice among MFIs and Process Mapping is an
effective tool that can be used for the same. Process Mapping can also be done time to
time to upgrade the process.
89
Annexure
Annexure: 1
Check list for CGT and GRT
S.N Check list Hints Observations
1 Place of center meeting Area, situation,
space
2 Introduction of Ujjivan by CRS company details,
procedures, roles
and responsibility
3 Level of participation of the customer body language,
interest displayed
by the customer
4 Selection of group leaders Cordial,
understanding,
acceptable to
others
5 Sitting pattern of customers (observation) Affinity among the
members
6 Belong to same area Min. 5 years of
neighborhood
90
7 Blood relation check verify ration card,
other Address
proof, enquire the
members
8 Comprehension level of CRS in
explaining the products
Conformability
Presentation skill
9 Group guarantee Give cases of
health, accidental
issue and then loan
repayment issue,
ASD issue
10 Center meeting attendance discipline
penalty
Explanation
11 Understanding of pledge by the customer Ask the meaning
12 Patience of CRS in teaching customer‟s
signature
Observation
13 Refundable , non-refundable fees
explained by CRS
observation
14 Repeat of previous day lesson Understanding
level of each
customer
15 Group concepts explained by CRS
properly
Group guarantee
etc
16 Importance of ASD is explained properly Compulsory for
getting repeat loans
91
17 Repayment problem with example and
consensus of the members regarding that
2-3 cases
18 Importance of signature explained for
receipt of loan
19 Benefit of insurance explained
92
Annexure: 2
Ujjivan Financial Services Pvt Ltd
Branch Name:
Date :
RESCHEDULE-MEMO
Customer ID Centre No
Customer Name Group No
PRESENT LOAN DETAILS
Loan A/C No Loan Amount
Disbursement
Date Loan Term
Loan Inst.
Amount Frequency
Principal Paid Installments paid
O/s Principal
O/s Interest
Total Arrear
Waived Amount
(If any)
Net Outstanding
93
CRM Statement for Reason of Rescheduling:
CRM Signature:
Credit Verification for the Reason of Rescheduling:
NEW LOAN DETAILS
Loan Amount New
IRR: Loan Inst. Amount
Loan Term Frequency
Meeting Day
First installment
date after
rescheduling
94
Prepared By: Credit Department
Approved By:
Distribution
Manager CEO/ED/COO
Credit Manager
95
Annexure: 3
Ujjivan Financial Services Pvt Ltd
WRITE OFF MEMO
Branch Name:
Date :
Customer ID: Centre No:
Customer Name: Group No:
Customer Occupation:
LOAN DETAILS
Loan A/C No Disbursement Date
Loan Amount Loan Term
Loan Inst. Amount Frequency
No. of Days Overdue
and Arrears Amount Installments paid
Principal Paid Balance O/S (A)
O/S Principal SD, ASD if any (B)
O/S Interest
Net Outstanding to
be written off (A –
B)
96
Brief history of the case:
Action taken for recovery:
CRM Recommendation for write off with reasons in detail:
Documents attached: (documents will be provided for principal outstanding greater than Rs.200/-)
Loan card Y / N
Customer letter
(applicable in case of
CRS
misappropriation)
Y / N
Pass book Y / N
Any other document
(please
specify)___________
Y / N Group member / centre
members letter
(applicable for skip
cases)
Y / N
Justification by CRM for not providing documents:
CRM Signature
Fraud and Risk team feedback:
97
Signature
Credit Remarks:
Signature
Approved By
Distribution Head Fraud and Risk Head Credit Manager Operations
Head
ED / CEO
For Head Office Use Only
Operations Remarks:
Adjust from SD/ASD Y / N GL Account # 01000000420130 for Write off Amount
98
Rs._________
Annexure: 4
Check list for Center meeting Process
S.N. Check List Hints Observations
1 CRS efficiency in handling center
meeting
Timeliness, efficiency
2 Attendance and timeliness in attending
CM by customer
Attendance check, ask
reason for late
3 Sitting pattern, flow of cash member to
GL then CL and CRS
observation
4 Check of homogeneity by asking
question
Give cases and see the
result
5 Role and responsibility of CL Body language,
patience, timeliness
6 Verification of loan card, pass book,
signature Check, amount properly
Check documents and
receipt book
99
entered etc.
7 Customer pledge, CRS pledge Observation
8 Tracking of the defaulter list Ask CRS and customer
the reason and track her
9 Attendance detail, visitors detail and
fine collection detail
Check CM register
10 Involvement/commitment level of CRM Ask about problematic
branches and centers
11 Delinquency management and planning
age wise
Ask clarification
12 Cause of delinquency Area, customer
selection, negligence of
staff, over burden on
staff
13 Insurance claim in case of death LIC policy is in line
14 Need for rescheduling or write off Guideline told and
verified
100
Annexure: 5
CENTER MEETING FORMAT (Credit Department)
Branch: Date
Area name: Center No No of Groups/ members
CRS name
Center meeting Start End
Attendance Present Absent
No. of members arrived late Fine collected (Y/N)
Customer Pledge(Y/N) Staff Pledge (Y/N)
Comments on sitting pattern
Collection of Saving and Repayment procedure
Behavior of center leader
101
Efficiency of the Center Leader
Behaviour of CRS
Attendance of 5 previous meeting and fine register
General Procedure of Center meeting
ASD Collection and receipt system
Loan Card Check (questionnaire)
1. Signature of CRS
2. Overwriting ,if any
3. Check amount with Report carried from HO
4. Tally amount told by customer with report and Loan Card
5. Comment, if any:
Saving pass book Check(Questionnaire )
102
1. Signature of CRS:
2. Overwriting :
3. Check amount Report carried from HO:
4. Ask the customer her total amount and tally with report and Pass Book
5. Comment, If any:
Loan utilization Check(Only For Business Loan(Questionnaire)
Attributes C 1 C2 C3 C4 C5
Purpose
Reason (e.g-
Purchasing Cow etc.)
Profit (Now)
Comment, If any
Comment from Customers about meeting/place/CRS/Ujjivan
Comment from Center Leader
Comment on Center meeting by officials
103
Signature with Date
104
Annexure: 6 (Adhikar)
1. CO- Activity register(to be maintained in a register.)
PARTICULAR Present status
(center no) with
pending works
Target to Achieve: REMARKs for
not achieving
Centre closed
Centre to be closed
Disbursements
LUC
OD collection Amt
New member
Appraisal
Others.
Annexure: 7
2. Weekly/Monthly Activity register BM/AM.
Particulars Center No. No. Of
members
Date of visit Reference
Appraisal 8,6 30
Survey
LUC 1st , 2
nd , 3
rd 4
th
Training
Center Visit
Over Due
Disbursement
105
Annexure: 8
3. Group attendance register
No of weeks: Date:
Group No-1 Group No-3
1 1
2 2
3 3
4 4
5 5
Group no2 Group no-4
1 1
2 2
3 3
4 4
5 5
No of members Present::………./…………..
Total amount collected:
Name of CC with Sign
Name of CO Sign:
Denominations:
1000X
500X
100X
50X
20X
10X
5X
coins
Total
Remarks of Visitors:
Sign with name and
designation.
106
Annexure: 9
Sl.No. Particulars/Materials
Stock in Hand
Required(quantity.)
.
Bringing innovation in microfinance
107
Annexure: 10
adhikar Micro Finance
Village survey report
Name of the village/urban colony:
Distance from branch office:
Population:
Male: Female: Children:
No of house hold:
No of BPL house hold
Occupation:
Major investment opportunity:
Distance from bank: Nearby business centre:
Distance from primary school: Distance from hospital:
Need of micro credit:
Competitor:
Population density:
Loan returns history:
Road connectivity:
Migration situation:
Date of survey: Signature of the surveyor
108
Annexure: 11
Adhikar Micro Finance
Village Introduction report
Name of the Branch:
Name of the village/urban colony:
Name of the Introducer:
Address of Introducer:
Occupation:
How he/she introduced:
Where the 1st meeting was held:
No of male and female persons attended:
(write down the name with address in the back side)
What is the subject of discussion?
Any specific demand in the meeting:
Who are the Adhikar staffs present?
List of the members name and address
Date of meeting: Signature of the introducer
Signature of the
staffs
109
Annexure: 12
7. Adhikar Micro Finance
GRT Sample survey report
Branch Name: GRT No-
Name of the
member with
group order no.
Age KYC documents Asset/ Liability
statement
Occupation
Name of the
member with
group order no.
Age KYC documents Asset/ Liability
statement
Occupation
Name of the
member with
group order no.
Age KYC documents Asset/ Liability
statement
Occupation
110
Name of the
member with
group order no.
Age KYC documents Asset/ Liability
statement
Occupation
Date of Survey: Signature of Surveyor with designation:
111
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