MICRO AGRI PRODUCT Module 2, Session 2 MAP Loan Features: Loan Process & Procedures Designed After the MABS Approach to Microfinance

Understand the rationale behind the micro agri product lending process and procedures Use the generic loan features as guide in writing the bank’s MAP loan process and procedures Session Objectives By the end of the session, the trainees are expected to:

1) Loan Promotion & Application 2) Client Selection (Loan Analysis) 3) Loan Approval 6) Loan Collection/ Monitoring 5) Loan Release 4) Loan Documentation The Microfinance Loan Process

Lending Process & Procedures Promotion Reach out to the communities and visit potential clients in their workplace (farm or businesses in town). Organize orientation sessions at Barangays. Entertain walk-in clients

Lending Process & Procedures Promotion  Due to increasing competition, AOs must adopt aggressive marketing strategies  Promotion is not a substitute for high quality services  The best and least expensive promotion a credit program could have is that of a satisfied client.

Lending Process and Procedures: Loan Application The loan the application is simple (one page). The AO fills out the application with the client Most of the information in the application for first loans refers to the client’s “character” [stability, entrepreneurship, reputation, and repayment behavior – (SERR)] Most of the information for repeat loans refers to repayment behavior of past loans

Lending Process & Procedures: LOAN ANALYSIS-FIRST LOAN Character/Risk assessment: analysis of client’s Stability, Entrepreneurship, Reputation, and Repayment behavior (SERR in CIBI for first loan) Cash flow: repayment capacity based on all household income from farm activities, businesses and others (including salaries, pensions and remittances).

Lending Process & Procedures: LOAN ANALYSIS-REPEAT LOANS Analysis of Repeat Loans are based on: Repayment behavior of previous loans Results of monitoring visits to determine changes/ potential problems in the client’s situation Cash flow to determine repayment capacity and possible increases in loan amounts

Lending Process & Procedures: LOAN ANALYSIS-Repeat Loans A cash flow analysis may be done every other loan ONLY IF repeat loan amount is 1.the same or within 10% increase 2.not more than P25,000 3.loan term is 6 months or less, and 4.client has not made payments with delay of not more than 3 days. If a borrower does not meet these qualifications, a cash flow analysis have to be done for every loan.

Lending Process & Procedures: Loan Approval Loans will be approved by a Credit Committee composed of the Branch Manager, Product Head, Supervisor, and Account Officer (feedback only) Approval limits depend on the policy of the bank

Lending Process & Procedures: Loan Disbursement Loan proceeds will be disbursed in cash in a single disbursement Loan proceeds will be deposited in the client’s account with the bank

Lending Process & Procedures: Loan Monitoring AO visits the farmer within a week of disbursement. Supervision on the use of the loan as planned is not intended but to instill the idea that the AO is keeping close follow-up AO will visit on-time first borrowers at least once a month. On time repeat borrowers will be visited once a month.

Close and timely monitoring of the portfolio performance and delinquency is essential to the product’s success Lending Process & Procedures: Loan Monitoring

Strict adherence to the Zero Tolerance approach: Banks must have well-defined collection policies that clearly guide AOs on appropriate actions to take. First missed payment: AO contacts the client within 24 hours and sets payment date within two days of contact Failure to make payment on agreed date: AO and supervisor deliver first warning letter signed by the manager and agree on a payment date and time within 24 hours of contact Lending Process & Procedures: Loan Collection

Failure to make payment of second agreed date: AO and branch manager deliver second warning letter and agree on a payment date. AO contacts co-maker(s) and discusses possibility of voluntary surrender of serialized assets. Failure to make payment of third agreed date: AO delivers third and final warning letter signed by the manager. Lending Process & Procedures: Loan Collection

Failure of client to make payment on fourth agreed date, AO and branch manager endorse the account to the bank’s legal counsel for collection or for filing of appropriate legal action. Lending Process & Procedures: Loan Collection

Restructuring/ rescheduling of past due loans will only be granted in exceptional cases: Major, unexpected, natural disasters such as earthquakes, typhoons, etc. adversely affecting the client’s family and/or farm Lending Process & Procedures: Loan Restructuring

Serious illness or accident of the client or immediate family member that requires the business to be closed for an extended period of time The client must demonstrate ability to pay the new payment plan Terms must not exceed the original term of the loan Lending Process & Procedures: Loan Restructuring

Restructuring will only be allowed once and not repeated. Refinancing/Rescheduling must be approved by the General Manager Restructured loans will be tagged as “restructured” and closely monitored. Lending Process & Procedures: Loan Restructuring

End of Presentation