1. ACCOUNT OFFICER’S BASIC TRAINING
Zero Tolerance Against Delinquency
Alarm Signals
The Cash Flow is prepared to be able to establish :
How much a client can afford to pay, thus also determining the maximum loan amount, and;
How frequently loan repayments should be scheduled.
Correctly establishing the answer to these two questions can mean the success (full repayment of the loan) or failure (default of loan payments) of a microfinance loan. Therefore, the procedure for filling up the Cash Flow must be clearly understood by the Account Officer.
To facilitate the filling up of data, in addition the cash flow form, worksheets are also provided so that Account Officers can breakdown information provided by the client, particularly if the client has multiple income sources.

2. Objectives Discuss “alarm signals” of delinquency
Review steps to respond timely and effectively to prevent delinquency from escalating

3. STAGES OF DELINQUENCY HARDCORE PAR 1-7 DAYS PAR 8-30 DAYS
PAR OVER DAYS
This slide is intended to provide the participants an appreciation on how easily could a PAR deteriorate from 1 day to hardcore without the proper monitoring
Minor Risk, but needs to be watched
Low Chance of Repayment
LOST!
Moderate Risk
Serious Risk

4. FRAMEWORK PREVENTIVE PREVENTIVE STAGE 1-2 STAGE 3-4 STAGES 4-5
MINOR TO MODERATE RISK AS PAR AGING INCREASES
SERIOUS RISK
HARDENED
UNCOLLECTIBLE
Loan is 1-30 days past due
Loan is days
past due
Loan is over 90 days past due
(1) Loan Evaluation
- character assessment
- cash flow analysis
(2) Loan Monitoring
Actions:
-Follow Delinquency Alarm Signals
Collection/follow up by field staff, including AOs, supervisors and branch manager
Attach assets
Debit savings balances
Collection by AOs/ BMs
Atty.’s demand
Write Offs
Remedial Mgt
Debt Recovery
Legal options
Collection agency
Provisions
2% of outstanding balance of loans
20%:PAR days
50%:PAR days
100% on PAR over 90 days
PREVENTIVE

5. Zero Tolerance against Delinquency
Zero tolerance means NO LEVEL OF DELINQUENCY IS ACCEPTABLE! Bank takes steps once a client misses a payment.
It is an institutional culture that defines the attitude of the bank management & staff towards loan delinquency.
The bank will seriously pursue collect missed payments and past due accounts, whatever the cost, to to maintain the discipline of zero tolerance against loan delinquency.
Review:
Before starting the session, review the definition of “zero tolerance against delinquency.” How do participants define the concept of “zero tolerance?” Ask participants to share what practices they feel their has incorporated within lending practices that support this concept (for example: disciplined client selection tools, detailed cash flow analysis, monitoring of loans, MIS systems that produce reports that can detect missed payments and past due accounts by borrower and by loan use…)

6. PAR 1-30 days Delinquency Alarm Signals

7. Delinquency Alarm Signals : Alarm Signal No
Delinquency Alarm Signals : Alarm Signal No. 1 - Payment is delayed one (1) day
Actions to be Taken
Account Officer
MFU Supervisor
Branch Manager
Credit Committee
Determine cause of non-payment
Monitor & follow up action taken by AO to effect loan payment .
Informs Supervisor and BM
Collect from spouse/co-borrower
Follows up loan payment and asks borrower to pay penalty fee within 24 hours of default
Alarm Signal 1: A borrower misses a payment (one day overdue)
Delinquency can be addresses by using the right tools to measure and assess missed payments or defaults.
Reports (produced ideally by management information systems) are one effective way to detect defaults early on. The two primary MIS reports are: the PAR Aging Reports and Delinquency Report per AO. These reports should be produced by AOs regularly and reviewed by supervisors and branch managers. They are a useful tool to identify and analyze causes and trends in delinquency. AOs should be trained in how to produce and analyze these reports. Supervisors should be responsible for reviewing these reports.
The AO should inform the Supervisor and Branch Manager immediately (even the 1st day) a borrower misses a payment. The AO should determine the cause of the missed payment and explore options to recover the payment within 24 hours or as soon as possible.
The AO should apply a balance of courtesy and assertiveness in discussing the missed payment with the client and following up to recover payment as soon as possible. The account officer and not the client, should dictate the terms of payment.
Review the table in the slide to discuss actions an AO, supervisor and branch manager should take when a missed payment occurs.

8. Delinquency Alarm Signals : Alarm Signal No
Delinquency Alarm Signals : Alarm Signal No. 2 - Payment is delayed three (3) days
Actions to be Taken
Account Officer
MFU Supervisor
Branch Manager
Credit Committee
Collect from spouse/co-borrower and co-maker/s
Supervisor accompanies AO during visit to client
Monitor & follow up action taken by AO & Supervisor to effect loan payment
Monitors progress of actions taken by MFU re: clients with delayed payments
Reports clients with delayed payments during weekly CreCom meeting
Verify if client and co-maker are real.
Validate if the co-makers understand their liability and willing to pay.
Verify reason of default
Deliver 1st Warning Letter signed by the Supervisor
Sign the 1st Warning Letter
Alarm Signal 2: A borrower misses a payment (3 days over due)
The strategies discussed in the previous slide (payment delayed one day) are also applied in the case of a payment that is 3 days overdue….the emphasis here is that the longer an account is overdue, the more difficult it may be to collect payment. The first recommendation is to pursue immediate collection of the loan…or to come up with a term of payment (date/time, for example, if a client is expecting some form of income to come in before paying the loan amortization).
Note on the table presented in this slide the recommendation that the bank credit committee assume a monitoring function when payment is delayed at 3 days---PAR Aging Reports can be designed to report PAR at different time periods…and the MFU/bank management can incorporate processes to ensure that the Credit Committee receives these reports regularly so that they can monitor PAR Aging.

9. Delinquency Alarm Signals : Alarm Signal No
Delinquency Alarm Signals : Alarm Signal No. 3 - Payment is delayed one (1) week
Actions to be Taken
Account Officer
MFU Supervisor
Branch Manager
Credit Committee
Collect from spouse/co-borrower and co-maker/s
Monitor & follow up action taken by AO to effect loan payment
Monitor & follow up action taken by AO & Supervisor to effect loan payment
Monitors progress of actions taken by MFU re: clients with delayed payments
Reports clients with delayed payments during weekly CreCom meeting
If non-payment is caused by disasters affecting the business or household, serious illness or death of immediate family, Supervisor may recommend restructuring.
Deliver 2nd Warning Letter signed by the Manager
Sign 2nd notice
Review the table for actions to be take at ALARM SIGNAL 3: a payment is delayed for a week.
Note:
Warning letter is sent by the Branch Manager
Branch Manager/Supervisor discuss strategies such as scheduling payment to provide flexibility to the borrower to make the payment.

10. Delinquency Alarm Signals : Alarm Signal No
Delinquency Alarm Signals : Alarm Signal No. 4 - Payment is delayed two (2) weeks
Actions to be Taken
Account Officer
MFU Supervisor
Branch Manager
Credit Committee
Collect from spouse/co-borrower and co-maker/s
Monitor & follow up action taken by AO to effect loan payment
Monitor & follow up action taken by AO & Supervisor to effect loan payment
Monitors progress of actions taken by MFU re: clients with delayed payments
Reports clients with delayed payments during weekly CreCom meeting
Follow-up recommendation on restructuring, if any
BM accompanies AO during visit to client
BM considers re-scheduling payment, based on supervisor verification of reason for default.
Deliver 3rd Warning Letter signed by the BM
BM signs the 3rd warning letter
Review the table for actions to be take at ALARM SIGNAL 4: a payment is delayed for 2 weeks.
Note:
Credit committee regularly receives reports to monitor PAR.
Visits made by supervisor(s) with AOs to follow up on missed payment. Branch Manager/supervisor become directly involved to symbolized importance of recovering the payment.
Note list of “drastic measures”

11. Delinquency Alarm Signals : Alarm Signal No
Delinquency Alarm Signals : Alarm Signal No. 5 - Payment is delayed three (3) weeks
Actions to be Taken
Account Officer
MFU Supervisor
Branch Manager
Credit Committee
Collect from spouse/co-borrower and co-maker/s
Monitor & follow up action taken by AO to effect loan payment
Monitor & follow up action taken by AO & Supervisor to effect loan payment
Monitors progress of actions taken by MFU re: clients with delayed payments
Reports clients with delayed payments during weekly CreCom meeting
Advise borrower to go to the bank to withdraw from the contractual savings to effect payment
Review the table for actions to be take at ALARM SIGNAL 5: a payment is delayed for 3 weeks.

12. Delinquency Alarm Signals : Alarm Signal No
Delinquency Alarm Signals : Alarm Signal No. 6 - Payment is delayed four (4) weeks
Actions to be Taken
Account Officer
MFU Supervisor
Branch Manager
Credit Committee
Enforce the voluntary offer to surrender
Monitor & follow up action taken by AO to effect loan payment
Monitor & follow up action taken by AO & Supervisor to effect loan payment
Monitors progress of actions taken by MFU re: clients with delayed payments
Reports clients with delayed payments during weekly CreCom meeting
Review the table for actions to be take at ALARM SIGNAL 5: a payment is delayed for 3 weeks.

13. NOTE : What is a Voluntary Offer to Surrender?
A document signifying the intent of the borrower to surrender any of his/her valuable item(s) on a specified period in case he/she fails to forward the full payment of the loan on an agreed date. The bank can sell the item(s) in case the borrower fails to pay the loan 5-10 days after surrendering the item(s).
Not a legal document, but binding. The ACT only becomes legal once the borrower signs an Authority to Sell;
Surrendering the item(s) does not extinguish the loan; loan is considered paid once the bank receives cash in payment for the loan
Explain to the participants the legal status of a Voluntary Offer to Surrender.
This document is not legal unless it is signed by the borrower during the time she is surrendering the items (chattels) to the bank representative, in this case, the AOs. It is a common practice that when a borrower signs her documents during the processing of her loan, one of the documents she signs is the VOS. When the borrower completes her payment on the cycle of the loan this document she signs (VOS) is therefore void. The bank should not use the old document (VOS) signed by the borrower for her succeeding loan.
It is therefore appropriate that when there is a signed VOS at hand, the bank should let the borrower signs the document a second time when the borrower ultimately surrenders her chattel/s during a collection problem.
Take note that the owner should present a certificate of ownership or official receipt of purchaseNot the usual procedure but nonetheless a binding legal document.
Surrendering the item(s) does not extinguish the loan; loan is considered paid once the bank receives cash from the proceeds of the sale in payment for the loan.
The essence of securing payment through this technique lies on the Authority to Sell that the client signs;
Banks cannot just pull-out personal belongings from the client. Banks should not ask the client to sign such agreement on the time the loan is being applied for.

14. Action on Agreement Borrower Action Bank Option
Borrower surrenders item/s specified in VOS
Keep visiting client/remind about loan payment
Have borrower sign Authority to Sell, then sell item/s

15. PAR 31 to 90 days Continued Visit by Supervisor &/or Manager
Compile necessary documentations on actions/steps taken by the MFU
Refer case to bank’s legal department/counsel
Send demand letter(s) from the bank’s lawyer

16. TO SUMMARIZE......

17. Delinquent Borrowers can be Classified into 3 Categories:
Borrower forgot to pay
Borrower not able to pay
Borrower not willing to pay

18. How to handle Delinquency
Bank Action
Borrower forgot to pay
Frequent visit and reminder
Borrower not able to pay
Supportive measures or Debt Recovery Program:
Extension of payment
Payment arrangement schemes
Shared payment with co-makers
Borrower not willing to pay
TAKE LEGAL ACTION

19. REMEMBER:
Constant follow-up is one of the keys to preventing and remedying delinquency.

20. TDK
Tutok, Dikit, Kulit

21. Thank you!