ACCOUNT OFFICER’SBASIC TRAINING
Procedures for Filling up the Debt Procedures for Filling up the Debt Capacity AnalysisCapacity Analysis
STEP 1STEP 1 : Select the most appropriate column for doing the Debt Capacity Analysis
Item Daily Weekly Semi-Monthly
Monthly MONTHLY TOTALS
NET BUSINESS & HOUSEHOLD INCOME
DEBT CAPACITY ANALYSIS
Equivalent of DAILY Net Income
Equivalent of WEEKLY Net Income
Equivalent of SEMI-MONTHLY Net Income
Equivalent of MONTHLY Net Income
Amount Available for Debt Service
Adjusted Debt Capacity @ ______ %
Maximum Loan Amount for _____ weeks/months
STEP 2STEP 2 : Transfer the Net Income values of the various columns into the selected Debt Capacity Column and convert their values
Item Daily Weekly Semi-Monthly Monthly MONTHLY TOTALS
NET BUSINESS & HOUSEHOLD INCOME
861 ( 4,000 ) ( 3,140 ) 5,232
DEBT CAPACITY ANALYSIS
Transferring Net Income Values
If the DAILY column is selected, transfer the converted net income values of Weekly, Semi-monthly and Monthly columns
Converting Net Income values
To convert WEEKLY Net Income values to its daily equivalent, divide the amount by 7 (or the number of effective operating days
To convert SEMI-MONTHLY Net Income values to its daily equivalent, divide the amount by 15days
To convert MONTHLY Net Income values to its daily equivalent, divide the amount by 28 (or the number of effective operating days)
Item Daily Weekly
(Selected Debt
Capacity Column)
Semi-Monthly
Monthly MONTHLY TOTALS
NET BUSINESS & HOUSEHOLD INCOME 861 ( 4,000 ) ( 3,140 ) 5,232
DEBT CAPACITY ANALYSIS
Equivalent of DAILY Net Income 6,027 = 6,027 x 7
Equivalent of WEEKLY Net Income ( 4,000 ) = -4,000 x 1
Equivalent of SEMI-MONTHLY Net Income
Equivalent of MONTHLY Net Income
( 785 ) = -3,140 / 4
Amount Available for Debt Service
Adjusted Debt Capacity @ ______ %
Maximum Loan Amount for _____ weeks/months
* -861 x 7 days
** -3,140 / 4 weeks
Sample : If Weekly Column is selected
Specific guidelines for converting Net Specific guidelines for converting Net Income: Income: Values – Values –
• Positive balances to the leftleft of the selected Debt Capacity Column areare included in the analysisincluded in the analysis since these refer to cash flows that have already been received by the client
• Positive balances to the rightright of the selected Debt Capacity Column are not to be included in the are not to be included in the analysisanalysis– Why? Columns to the right often refer to longer time frames – future
cash flows – and including these figures could overstate the figures of the Debt Capacity Column
Item Daily Weekly
(Debt Capacity Column)
Semi-Monthly
Monthly MONTHLY TOTALS
NET BUSINESS & HOUSEHOLD INCOME 861 4,000 3,140 5,232
DEBT CAPACITY ANALYSIS
Equivalent of DAILY Net Income 6,027
Equivalent of WEEKLY Net Income 4,000
Equivalent of SEMI-MONTHLY Net Income
0
Equivalent of MONTHLY Net Income 0
Amount Available for Debt Service 10,027
Adjusted Debt Capacity @ 35 % 3,509
Maximum Loan Amount for _____ weeks/months
42,434
Term : 3 months
Interest ; 2.5%/month
Item Daily Weekly
(Debt Capacity Column)
Semi-Monthly
Monthly MONTHLY TOTALS
NET BUSINESS & HOUSEHOLD INCOME 861 4,000 3,140 5,232
DEBT CAPACITY ANALYSIS
Equivalent of DAILY Net Income 6,027
Equivalent of WEEKLY Net Income 4,000
Equivalent of SEMI-MONTHLY Net Income
0
Equivalent of MONTHLY Net Income 785 3,140 / 4
Amount Available for Debt Service 10,812
Adjusted Debt Capacity @ 35 % 3,784
Maximum Loan Amount for _____ weeks/months
45,760
Term : 3 months
Interest ; 2.5%/month
Including positive net income values from longer time frame columns could unduly bloat maximum loan amounts
For conservatism (considering loans are character-based/collateral free), long time-frame positive values should not be included.
Positive net income value columns could serve as buffer fund should daily or weekly cash flows not turn out as expected.
Long time-frame columns (e.g. semi-monthly, monthly) with positive net income values indicate sufficient cash flow to support expenditures in those periods.
STEP 3 : STEP 3 : Compute the AMOUNT AVAILABLE FOR DEBT SERVICE by adding up the equivalent Daily, Weekly, Semi-monthly and
Monthly Net Incomes
Item Daily
(Selected Debt
Capacity Column)
Weekly
(Selected Debt
Capacity Column
Semi-Monthly
Monthly MONTHLY TOTALS
NET BUSINESS & HOUSEHOLD INCOME 861 ( 4,000 ) ( 3,140 ) 5,232
DEBT CAPACITY ANALYSIS
Equivalent of DAILY Net Income 6,027
Equivalent of WEEKLY Net Income ( 4,000)
Equivalent of SEMI-MONTHLY Net Income
0
Equivalent of MONTHLY Net Income ( 785)
Amount Available for Debt Service 1,242
Adjusted Debt Capacity @ ______ %
Maximum Loan Amount for _____ weeks/months
STEP 4 : Compute the ADJUSTED DEBT CAPACITY by STEP 4 : Compute the ADJUSTED DEBT CAPACITY by multiplying the Amount Available for Debt Service by multiplying the Amount Available for Debt Service by
the the Adjusted Repayment Capacity Rate (ARCR)Adjusted Repayment Capacity Rate (ARCR)
The client’s debt capacity, represented by the Amount Available for Debt Service, should be adjusted for:
1. Unforeseen events or circumstances that would reduce the applicant’s income or increase expenditures (e.g. illness, other household emergencies); and
2. Errors in the assumptions or estimates used in preparing the applicant’s Cash Flow.
In the example below, the ARCR used is 35%. This means that the lender assumes that only 35% of the client’s debt capacity will be
used for paying the new loan. By using a small portion of the client’s debt capacity, the lender is given a higher assurance that the loan is
well within the client’s capacity to pay.
Item Daily Weekly Semi-Monthly
Monthly MONTHLY TOTALS
NET BUSINESS & HOUSEHOLD INCOME 861 ( 4,000 ) ( 3,140 ) 5,232
DEBT CAPACITY ANALYSIS
Equivalent of DAILY Net Income 6,027
Equivalent of WEEKLY Net Income ( 4,000)
Equivalent of SEMI-MONTHLY Net Income 0
Equivalent of MONTHLY Net Income ( 785)
Amount Available for Debt Service 1,242
Adjusted Debt Capacity @ 35% 435
Maximum Loan Amount for _____ weeks/months
STEP 5: Compute the Maximum Loan Amount to be STEP 5: Compute the Maximum Loan Amount to be given to the client by using the Loan Size Multipliergiven to the client by using the Loan Size Multiplier
• Depending on the MFI’s policy, the formula for the Loan Size Multiplier may vary
Policy Formula
Interest amortized(Standard)
(Adjusted Debt Capacity) * (No. of Installment Payments 1 + (Interest rate per month * No.
of months)
Interest discounted (deducted up-front)
(Adjusted Debt Capacity ) * (No. of Installment Payments)
Interest discounted / contractual savings 10% of loan installment
(Adjusted Debt Capacity) * (No. of Installment Payments) 1 + Contractual Deposit Rate
Interest amortized / contractual savings 10% of loan principal
(Adjusted Debt Capacity) * (No. of Installment Payments) 1 + [(Interest rate * No. of Months) +
Contractual Deposit Rate]
Interest amortized / contractual savings 10% of loan principal & interest payment
(Adjusted Debt Capacity) * (No. of Installment Payments) ((1 + (Interest rate * No. of Months)) * (1 +
Contractual Deposit Rate)]
Interest amortized (standard)Interest amortized (standard)
Max. Loan Size = Max. Loan Size = (Adjusted Debt Capacity) * (No. of Installment (Adjusted Debt Capacity) * (No. of Installment Payments)Payments)
1 + (Interest rate per month * No. of months)1 + (Interest rate per month * No. of months)
Example:
Loan Term: 3 mos. (91 days)Frequency of Payment: DailyInterest Rate: 2.5% per month
Max. Loan Size = (62.10) * (65) 1 + (.025*3)
= 4,036.50 1.075
= 3,754.88
The computed maximum loan amount is shown in the cash flow template as follows:
If a weekly amortization schedule is desired, the size of the weekly installment is computed by multiplying the adjusted daily debt capacity by 5. In the example above, the weekly installment will be:
62.10 * 5 days = P310.50
Item Daily Weekly Semi-Monthly
Monthly MONTHLY TOTALS
NET BUSINESS & HOUSEHOLD INCOME 861 ( 4,000 ) ( 3,140 ) 5,232
DEBT CAPACITY ANALYSIS
Equivalent of DAILY Net Income 861
Equivalent of WEEKLY Net Income (571.43)
Equivalent of SEMI-MONTHLY Net Income
Equivalent of MONTHLY Net Income (112.14)
Amount Available for Debt Service 177.43
Adjusted Debt Capacity @ 35% 62.10
Maximum Loan Amount for _____ weeks/months
3,754.88
Interest discounted Interest discounted ((deducted up-frontdeducted up-front))
Max. Loan Size = (Adjusted Debt Capacity) * (No. Max. Loan Size = (Adjusted Debt Capacity) * (No. of of Installment Payments)Installment Payments)
Example:Max. Loan Size = 62.10 * 65 = 4,036.50
Interest discounted / contractual savings Interest discounted / contractual savings 10% of 10% of loan installmentloan installment
Max. Loan Size Max. Loan Size = = (Adjusted Debt Capacity) * (No. of Installment (Adjusted Debt Capacity) * (No. of Installment Payments)Payments)
1 + Contractual Deposit Rate1 + Contractual Deposit Rate
Example:Max. Loan Size = 62.10 * 65
1.10
= 3,669.55
Interest amortized / contractual savings 10% of Interest amortized / contractual savings 10% of loan principal payment
Max. Loan Size = Max. Loan Size = (Adjusted Debt Capacity) * (No. of Installment (Adjusted Debt Capacity) * (No. of Installment Payments)Payments)
1 + [(Interest rate * No. of Months) + Contractual Deposit 1 + [(Interest rate * No. of Months) + Contractual Deposit Rate]Rate] Example:
Max. Loan Size = 62.10 * 65 1 + [(.025*3) + .10]
= 4,036.50 1 + [.075 + .10]
= 4,036.50 1.175
= 3,435.32
Policy Maximum Loan Amount
Interest amortized(Standard)
3,754.88
Interest discounted (deducted up-front) 4,036.50
Interest discounted / contractual savings 10% of loan installment
3,669.55
Interest amortized / contractual savings 10% of loan principal
3,435.32
Interest amortized / contractual savings 10% of loan principal & interest payment
3,413.53
21
Lending to Microenterprises without analyzing the cash flow …
… is like playing darts blind-folded. Determining how much loan the bank should give to a client is left to CHANCECHANCE.
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