ACCOUNT OFFICER’S BASIC TRAINING How to Conduct CI/BI

Credit Investigation/ Background Investigation : An Important Tool in Client Selection

3 What is CIBI? CI/BI is a tool used by the bank to gather relevant information to determine whether an applicant will qualify for a loan or not. The CIBI is a very important step in the lending process as this helps the bank determine high-risk loan applicants or the potentially bad borrowers from getting loans.

4 A thorough CIBI can prevent loan delinquency problems and ensure profits. The Importance of CIBI

5 A poorly done CIBI …. … can lead to ….. “Sleeping on the job” Hiding information“Guess-timates”

6 loss of income due to non-collection of loan installments … suspension of loan operations due to slow rotation of loanable funds.

7 …. serious loan delinquency can end up meaning banks must resort to measures like small claims proceedings.

8 So, why should we conduct a CIBI? We should conduct a CIBI because we want to:  Verify information  Verify if information provided by client in the loan application are true  Determine character  Determine character of the applicant, particularly reputation as a borrower  Determinecapacity to pay  Determine the applicant’s capacity to pay

9 The CIBI Steps The following steps are undertaken when doing the CIBI: 1. Loan Application 2. Character/Risk Analysis 3. Cash Flow Preparation/Analysis 4. Prepare/Finalize CIBI Report

10 Conducting the CIBI 1 st Step : Loan application The AO interviews the applicant and helps fill out the Loan Application form Based on the loan application, the Account Officer establishes if the applicant meets the bank’s client eligibility criteria

11 INTERVIEW WITH APPLICANT How old are you? What kind of business do you have and how long has it been operating? Are you married or Single? Is your wife working? How many children do you have? Do they go to school? I’m 56 years old I have a tailoring shop in the market. I have been a tailor for 10 years I am married My wife is not employed, but she has a small store in front of our house We have 3 children, they all study in public elementary school What are your agricultural activities? I have 2 hectares rice farm and several chicken

12 Character/Risk Analysis 2 nd Step : Character/Risk Analysis AO gathers information from references to assess character /reputation using the four indicators of: Stability Entrepreneurship Reputation Repayment Behavior 1 – Loan Application 2 – Client Selection Conducting the CIBI

13 The AO gathers information by interviewing: a)Other microfinance institutions b)Suppliers c)Co-makers d)Landlords e)Business & residential neighbors f)Barangay officials 1 – Loan Application 2 – Client Selection Sources of Information

14 BANK VERIFICATION LETTER Sir/Madam: Please furnish us with the following information regarding the borrower’s credit standing. The information shall be treated with utmost confidentiality. Name of Borrower _____________________________________ Address : _____________________________________________ 1. Type of Loan  Agricultural Loan  Commercial Loan  Industrial Loan  Salary Loan  Other Loans 2. Date Granted __________________________ 3. Maturity Date __________________________ 4. Principal Amount _______________________ 5. Balance of Loan ________________________ 6. Term of Loan __________________________ 7. Securities Offered  REM  Chattel Mortgage  Deposit Hold-out  Unsecured Loan 8. How would you describe the paying performance of the borrower?  All amortizations paid on time  90% of amortizations paid on time  Less than 90% of amortizations paid on time ________________________________ Authorized Signature over printed name Thank you for your attention on this matter. Very truly yours, ____________________ Loan Supervisor CREDIT CHECKING WITH OTHER INSTITUTIONS

15 Establish if the applicant has a business relationship with the supplier Establish frequency of purchase (input for purchase frequency in the Cash Flow) Establish credit standing with supplier; credit terms could indicate good repayment behavior INTERVIEW WITH SUPPLIER How long has Mr. Cruz been buying stocks from your company? How often does he buy stocks from you? Does he purchase in cash or credit? We have been supplying cloth to Mr. Cruz for the past four years He used to buy cloth once a month but lately, he ’s been ordering twice every month He used to pay in cash but with his increased purchases, we gave him a 45- day credit. He pays us on time.

16 INTERVIEW WITH CO-MAKER Establish willingness to co-make the loan Do you know why he’s applying fo a loan? Mr. Cruz, the tailor, is applying for a loan with our bank and has named you his co- maker How is his tailoring business doing If you act as Co-maker, are you aware that you will have the responsibility of paying the loan of Mr. Cruz if he is unable to make payment? Yes, he told me that he just got a contract to make office uniforms and needed more capital Yes, Pareng Maning requested me to co- make his loan Yes, Pareng Maning explained what acting as a Co-maker would mean, and I am willing to help him with his loan payment if he has any problems. He is one of the oldest tailors in town and he has many permanent customers

17 INTERVIEW WITH RESIDENTIAL NEIGHBOR I don’t know if Maning has a loan, but I did notice a collector from an appliance store going to their house every month Maning is my kumpare - he is the godfather of my baby… he is a very generous person Maning has been our neighbor for more than 15 years. He and his family are well-liked in the neighborhood. Do you know Manuel Cruz the tailor? Would you know if Mang Maning has any loans?

18 INTERVIEW WITH BARANGAY OFFICIALS Based on our records, no complaint has been filed against Mr. Cruz with respect to collection of debts.

19 Based on the tools and procedures available, the Account Officer should decide during the loan application process – whether to recommend the the applicant for a loan or not. NOTE: The CI/BI is discontinued and the loan application rejected, if at any point in the CI/BI process it is validated that the applicant does not meet the minimum loan criteria.

20 RepaymentCapacity Analysis 3 rd Step : Repayment Capacity Analysis AO uses the Cash Flow Analysis to determine the maximum loan entitlement an applicant can afford to pay. Conducting the CIBI 1 – Loan Application 2 – Client Selection Character/Risk Analysis 3 – Cash Flow

21 Is this the business approaching a lean or peak season? What do business neighbors say about the applicant’s reputation? What is the general business condition in the area? Does the applicant have a lot of customers?

22 Electric Bill Telephone / Cellphone Bill Water Bill CHECK BUSINESS AND HOUSEHOLD BILLS

23 4 th Step : Prepare / Finalize CI/BI Report 1 – Loan Application 2 – Client Selection Character/Risk Analysis 3 – Cash Flow Conducting the CI/BI 4 – Finalize CI/BI

24 Client Selection Process Flow Loan Application Does the client meet the loan criteria? CIBI NOYES STOP PROCESS Character & Repayment Capacity Analysis NO YES Finalize CIBI Report Does the client meet the loan criteria?

25 TO SUMMARIZE - applicant deserves a loan Character is the primary basis for evaluating loan applications and establishes whether the applicant deserves a loan maximum loan entitlement an applicant can afford to pay Repayment Capacity establishes the maximum loan entitlement an applicant can afford to pay

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