Workshop on Delinquency Management - REM - · PDF fileWorkshop on Delinquency Management ......
-
Upload
nguyenquynh -
Category
Documents
-
view
218 -
download
1
Transcript of Workshop on Delinquency Management - REM - · PDF fileWorkshop on Delinquency Management ......
Workshop on
Delinquency Management
June 2010
« Credit without discipline is nothing but charity »
Pr Yunus
Service Cost to client
Money and Debt Advice Free
Access to bank accounts Free
Microcredit Business Loans 15-19% Interest Rate
Personal Loans 32 - 39% Interest Rate
+ 5% Admin Fees
Our Business
3
Understanding Delinquency and its risks
� Loan delinquency: A loan is delinquent after one day in arrears
� Measuring the risk: Portfolio at Risk:
Proportion of the portfolio that is at risk of not being repaid
� Bad debt: Loans never to be repaid after more than 180 days in arrears and a CCJ
Definition
•Preventative Stage
• At the loan appraisal level
• Challenge your own practices regularly
•Curative stage
• Loan Monitoring and follow up
• Procedure for loan collections
• Distinguish Can’t payers and Won’t payers
How to prevent and manage delinquency
Delinquency management definition and coverage
3
Risks
• On MFIs: Less income, no sustainability
• On clients: Less trust, less impact on poverty reduction
• On staff: Weakens the motivation, income decreased
• On Funders: Less credibility, less income
4
•On Client’s situation
•Redundancy
•Unemployment
•Living standard
•Reduced access to Bank
loans, Overdrafts and
credit cards
•For MFIs
•Demand Increase
•Client profile
Impact of the credit crunch on delinquencies
Consequences
•Bad Product design
•Not suitable for client
•Inability to understand
debts
•Credit scoring system
•High level of refusal by
Banks
•Turn to extortionate
lenders and fall in
Overindebtness
Causes of the Credit Crunch in the UK
•No Interest rate cap
•Extortionate Interest rates
•Financial exclusion versus
Over inclusion
•Irresponsible lending
UK context
Credit Crunch
To determine the impact of the Credit Crunch on Delinquency management of UK MFIs, it is essential to
understand the UK context, the causes of the credit crunches and their consequences on both clients and
MFIS
Number of applications Increased by 20%
Refusal rate Increased by 5%
Consequences on the Portfolio at Risk NONE
Consequences on the rescheduled Loans DOUBLED
Client who would never have had to come to us before are now
pushing the door
StatisticsObservable Consequences
6
Case study on Fair Finance
Delinquency Management
(Dealing with arrears responsibly)
Case by Case appraisalLending responsibly
(preventing bad loans)
•Small Loans: less risky
•Step by step approach
•Based on Existing income
•Flexible
•Transparent
•Site visi
•Quick
•Face to face Interview
•No credit Score
•No Collateral
Product design (Understanding the market)
Fair Finance
•Character
•Disposable income
•Income and expenditure
•Finance and Debt Management
•Business Viability
•Credit check
For Can’t payers
•Close monitoring of the portfolio
•No penalty fees for arrears
•Rescheduling/Payment holiday
•Focusing on communication
For won’t payers
•Strong procedure in place: As
responsible lenders
•Taking them up to court
Fair Finance offers a range of adapted products and as such avoided an increase in the portfolio at risk
during the credit crunch. Fair Finance’s clients have been credit crunched for all their life so the institution
has built experience in understanding risk and dealing with it.
2005/06- 2008/9
Total number of clients supported 5000
Personal Loans Made (Over 2000) £1,500,000
Microcredit Loans Made (160) £600,000
Bad Debt Rate 9%
Debt Advice Given 1500
Over indebtedness managed £12m
Bank Accounts opened 120
StatisticsResults
8
8
Outstanding balance variation for the last 3 years for Personal Loans and Business Loans
Outstanding Balance
0
100000
200000
300000
400000
500000
600000
700000
800000
2008 2009 2010
•Number of active loans •Outstanding Balance in Value (£)
0
200
400
600
800
1000
2008 2009 2010
9
9
Personal and Business Loans PAR >30 days for the last 3 years (End of month)
Risk Profile
•Personal Loans•Business Loans
•Bad Debt 9% in 2009
25%
8%
14% 13%
8%
15%12% 11%
0%
10%
20%
30%
Aug 07 Mar-08 Mar-09 Dec-09
10
10
Case studies
Bu
sin
ess
Ap
pli
cati
on
Mini Cafe
�Mrs Jane Draft is divorced and has one dependant child. She lives in Hackney and is tenant of the Council. She is in the process to start her business after having two other loan from 2 other Loan Providers, for a total amount of £10,000. She came to Fair Finance asking for a loan of £5,000 to finish the refurbishment of her premises and buy part of the equipment, in particular the coffee machine with accessories.
Fair Finance – Businesses
Online retail Jewellery
�Mr Paul is married and has been running the business successfully for the past 3 years with his wife.
�He applied for £10,000 to develop it and secure premises.
�Cash Flow realistic and genuine client
�No site visit realised
Please tell us where are the risks, would you give the loan?
www.fairfinance.org.ukOpening Questions Not to be shown•What would have worsen the situation. (the absence of credit bureau see South America)
•What are the next challenges: • Risk of Bad practice in collections• Target driven delinquency management• Challenge the banks on their scoring methods• Avoid a similar crisis in developing countries• What are the differences in management in Europe and the rest ofthe world;
• Are the current PAR in Europe more representative of the reality of the risk?