1. 1 The Loan Application Starting Point to a Proper Character Investigation / Background Investigation (CIBI)

2. 2 Introduction  The Loan Application is the 1 st step in the Credit Investigation/ Background Investigation (CIBI) process.  The Loan Application Form is the source of initial information on an applicant and is filled in by the Account Officer during the initial interview with the applicant; the applicant signs the form after the interview.  The Loan Application form shows if the applicant meets the eligibility requirements of the bank’s MF loan product.

3. 3 Objectives By the end of the lesson, participants will be able to: 1. Conduct an interview with the applicant and get relevant information required in the application form 2. Evaluate if the applicant meets the bank’s loan eligibility criteria and make a decision whether or not to proceed with the thorough CIBI

4. 4 How to Interview the Applicant & Character References o Conduct the interview in a very cordial and friendly manner o Avoid being offensive in delivering your thoughts, questions and inquiries. Once the applicant becomes defensive it would be difficult to extract information at his own free will. (Remember, the best source of information is the client). o Do not confront the applicant on issues or answers that you do not agree with. Verify these issues from other sources

5. 5 How to Interview the Applicant & Character References o Make your queries short and straight o Later in the interview, inquire about personal matters or problems affecting the applicant, offer some assistance, but refrain if you feel that the client resents this line. o Do not conduct the interview as if you are interrogating the applicant. o Prepare by studying the information on the loan application. If needed, write down important questions you want to ask from the applicant and character references.

6. 6 The Loan Application Form o There are two (2) types of Loan Application Forms - (1) for New Loans; and, (2) for Repeat Loans o The Loan Application is a single-page form that has the basic information for an initial evaluation of client eligibility and risk

7. 7 How to fill-out the form General Guidelines Fill in all the information Put a √ in the appropriate boxes Do not leave blank spaces; put N/A if information is not applicable

8. 8 New Loan New Loan Application Form

9. 9 The LAF-N contains the following: 1. Personal information Personal information 2. Household Composition and Sources of Income Household Composition and Sources of Income 3. Business Activities Business Activities 4. Agricultural Activity Agricultural Activity 5. Loan Information Loan Information 6. Loan Purpose Loan Purpose 7. Credit Information Credit Information 8. Savings Information Savings Information 9. Affiliation/Memberships Affiliation/Memberships 10. Authorization Authorization

10. 10 Analyzing information MF Loan Product Eligibility Criteria o Check if applicant meets the bank’s MF Loan Product Eligibility Criteria o Decide to either proceed with the CIBI or reject the loan application based on the eligibility or ineligibility of the applicant

11. 11 Repeat Loan Repeat Loan Application Form

12. 12 Comparison of application forms The LAF-N (New) contains the following: 1. Personal information 2. Household Composition and Sources of Income 3. Business Activities 4. Agricultural Activity 5. Loan Information 6. Loan Purpose 7. Credit Information 8. Savings Information 9. Affiliation/Memberships 10. Authorization The LAF-R (Repeat) contains the following: 1. Personal Information Personal Information 2. Business activities 3. Agricultural activity 4. Loan information 5. Loan purpose 6. Outstanding loans with other sources Outstanding loans with other sources 7. Savings information 8. Authorization

13. 13 Summary  The Loan Application Form is the initial source of information on the applicant/borrower and is filled out by the Account Officer during the interview.  The interview conducted by the Account Officer with the applicant/borrower must be thorough to ensure that all the primary information required by the bank is obtained. Client Eligibility Criteria  A review of the Client Eligibility Criteria is done by the Account Officer and on the basis of the findings, the AO makes a decision whether or not to proceed with the CIBI process.

14. 14 LINKS

15. 15 Account Officer : Loan Number :Photo RURAL BANK OF XYZ, INC. New Loan Application Form I - PERSONAL INFORMATION Name:Nickname: ID Type/ID Number:Birthdate:Birthplace: Business address (telephone/cellular phone number) Years in this address: Home address (telephone/cellular phone number) Years in this address : House :  Owned  Rented Civil Status :  Married  Separated  Widow  Single Sex :  Male  Female Write the name of Account Officer doing the interview Write the full name of the applicant Use these information for Character/Risk Analysis on Stability – see the indicators in the CIBI Form Number to be provided by the Loans Clerk Information on the birthplace can be used to establish if the applicant is a “local” resident or a “migrant”. Can be used to track defaulting borrowers who move out/disappear to flee from their obligations The picture should not be more than six (6) months old. Check this information with residency requirement (Client Eligibility Criteria)

16. 16 II - HOUSEHOLD COMPOSITION AND SOURCES OF INCOME (Write down all income including salary, pension, remittances, sari-sari, etc) Household members and dependents AgeRelationshipCurrent occupation / Economic activity Years in operation Regular monthly income/ sales School / Business / Employment Address Provides information on other sources of income of the household Provides information on # of household members; an input for Character/Risk analysis (Stability) and Repayment Capacity Analysis (Cash flow)

17. 17 III - BUSINESS ACTIVITIES (in addition to agricultural activities) Main BusinessYrs. in businessNo. of Paid employees Workplace characteristics  Owned  Rented  Home-based  Commercial  Ambulant Secondary Business  Owned  Rented  Home-based  Commercial  Ambulant  Owned  Rented  Home-based  Commercial  Ambulant Some members of the household may be helping out in the business but do not get paid for their work. Indicate here the number of employees who are really paid a salary. Salaried employees indicate business growth and profitability; this information is also an input for Repayment Capacity Analysis (Cash Flow) Having more than one business is a clear sign of entrepreneurship and indicates multiple sources of funds to pay the loan Workplace characteristics show if the business has permanency (an owned/rented space vs. ambulant vending). It also gives indications of the size of the business’ market (home-based vs. located in a commercial area).

18. 18 IV - AGRICULTURAL ACTIVITY  Rice _____ ha.  Coconut _____ ha.  Pineapple_____ ha.  Root crops_____ ha.  Piggery_____ heads  Corn _____ ha.  Banana _____ ha.  Mango _____ ha.  Vegetables _____ ha.  Poultry _____ heads  Other (specify): _________________________________ Total hectares Owned: _____________ has. Number of years in farming _______________________ Rented: _____________ has. Fill in these information only if the applicant has farming activities and is applying for a micro-agri loan Relate experience in farming to indicators of Stability and Entrepreneurship when doing Character/Risk analysis Relate this information to Stability when doing Character/Risk Analysis – if the applicant owns the land, his/her access to income generated is more certain than someone who merely rents or is a tenant.

19. 19 V - LOAN INFORMATION What is the maximum installment you can easily pay? P________________ How frequent?  Weekly  Semi-monthly  Monthly Amount requested: __________________________ Term: _________ months (maximum 6 months) This figure should be cross- checked with the computed Adjusted Debt Repayment in the Cash Flow (Repayment Capacity Analysis). Data on repayment frequency gives you an initial basis for preparing the Cash Flow and determining the Maximum Loan amount, considering “how often” the applicant wishes to pay his/her installment. Compare this amount with the Maximum Loan Amount computed in the Cash Flow (Repayment Capacity Analysis) Use the requested term as a basis for the preparation of the Cash Flow (Repayment Capacity Analysis)

20. 20 VI - LOAN PURPOSE (Check all applicable boxes)   AGRICULTURE   Rice  Banana   Corn  Coffee   Sugar cane  Other: ______________   Mango  MICROENTERPRISE  Sari-sari Store  Tricycle  Carenderia  Other: ______________  Dressmaking/Tailoring  Food Processing An applicant’s being able to clearly explain where s/he intends to use the loan proceeds is a clear indicator of Entrepreneurship – a basis for Character/Risk Analysis If the loan applied for is a micro- agri loan, the applicant must fill in what specific type of agricultural activity is to be financed For non-farm activities, the applicant should indicate the type of business being financed (e.g. sari-sari store, buy & sell, carenderia, etc.)

21. 21 VII - CREDIT INFORMATION (Including credit card information) Creditor/Supplier/LandlordLoan AmountOutstanding Balance TermMaturity DateInstallment / Frequency P_________  Weekly  Bi-Monthly  Monthly Fill in information after interviewing Creditors/Suppliers/Landlords. Include only loans/credit accommodations that still have outstanding balances. For Landlord: just indicate amount of Rent Expense in the column on Installment/Frequency. Character References indicated here should be the ones interviewed during the CIBI. Indicate the amount of the original loan/credit accommodation Indicates how much of the original loan/credit accommo- dation still remains unpaid Indicates how often an outstanding loan is paid and how much; used as an input for the Cash Flow Indicates when a loan /credit accommodation is due to mature; used as an input for the Cash Flow Shows term of the loan/credit accommodation extended to the applicant

22. 22 VIII - SAVINGS INFORMATION Banking InstitutionType of accountsSince when?Approximate balance  Savings  Current  Time Deposits Applicant should be encourage to disclose information relative to his/her savings accounts since this will improve his/her creditworthiness Indicate the name of the institution (bank/non- bank) where the applicant maintains deposits The type of deposit account (particularly if used for the business) can give indications of business size; established businesses that have credit lines would often have a current/demand deposit account - most suppliers require post-dated checks- PDCs) Length of time since deposit account was established should be analyzed in relation to the approximate outstanding balance – poor deposit growth could be an indicator of business illiquidity or use of funds for non-business expenses

23. 23 IX - AFFILIATIONS/MEMBERSHIPS Name of organizationPositionSince when? Membership / officership in neighborhood associations can be used as an indicator of Reputation for Character/Risk Analysis. Indicate the name of the association to which the applicant belongs to (if any). Non- membership to an association is not a negative indicator, but membership does provide a positive boost to Reputation indicators. Being an officer of an association improves the Reputation rating of an applicant. Association officers are usually elected because of the respect the membership has for them. More information on the applicant’s Reputation is available from character reference if s/he has been affiliated with an association for a considerable period of time.

24. 24 X - AUTHORIZATION I confirm that the above information is true and correct to the best of my knowledge. I am aware that any false statement may be an immediate cause for denial of this loan. In connection with this application, I authorize Rural Bank of XYZ, Inc. to obtain such other information as may be required. This authorization includes obtaining information from suppliers, commercial banks, rural banks, and all other creditors while releasing these institutions from liability under any and all bank secrecy laws. Signature of applicant ____________________________________ Date/Place __________________________ Signature of spouse ______________________________________ Date/Place ________________________ XI - FOR BANK’S USE ONLY Notes/Comments: The applicant confirms the correctness/accuracy of the information supplied in the Loan Application Form and authorizes the bank to obtain information from various sources to establish his/her creditworthiness. The spouse signs the form as proof of consent to the loan.

25. 25 Account Officer: Loan Cycle Number: 1 2 3 4 5 6 7 8 9 10 11 12 _______ RURAL BANK OF XYZ, INC. MAP Repeat Loan Application Form I - PERSONAL INFORMATION Name: Home Address: Home Telephone No.Cellphone No.Email Address: Business address and Telephone No.  Same as Home address If employed, Employment Address and Telephone No. Encircle (or write down) the loan cycle number of this loan. The more loan cycles a borrower has gone through, the more information the Account Officer has on the borrower’s historical repayment behavior. Information included are only those that need updating / confirmation; note that information on birthday/birthplace is no longer included.

26. 26 VI – OUTSTANDING LOANS WITH OTHER SOURCES (Including suppliers and credit card information) CreditorLoan Amount Outstanding Balance TermMaturity Date Installment / Frequency P_________  Weekly  Bi-Monthly  Monthly Update information using the initial data in the loan application form of the previous loan; information on the Landlord need no longer be included.