1. Lending Systems and Procedures
ACCOUNT OFFICER’S
BASIC TRAINING
Lending Systems and Procedures

2. The Microfinance Loan Process
1) Loan Promotion
& Application
2) Client Selection
(Loan Analysis)
3) Loan Approval
Facilitator: Ask the participants which among the processes are the most important and where AO has active participation.
6) Loan Collection/
Monitoring
5) Loan Release
4) Loan Documentation

3. Lending 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
Distribute brochures

4. Lending 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: “Word-of-mouth”

5. Lending Procedures Promotion
How to find a market for the product:
Value Chain Analysis
Universities
Farmer Associations
Traders/Input Suppliers
Buyers
Existing bank clients
Refer participants back to session 2 where Value Chain was mentioned as a way to find market for MAP

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

7. Lending 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).

8. Lending Procedures: LOAN ANALYSIS-Repeat Loan
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

9. Lending Procedures: LOAN ANALYSIS-Repeat Loan
A cash flow analysis may be done every other loan ONLY IF repeat loan amount is
the same or within 10% increase
not more than P25,000
loan term is 6 months or less, and
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 has to be done for every loan.

10. Lending 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

11. Lending Procedures: Loan Documentation
Loan documentary requirements must be attached in the client’s loan folder and properly filed.
AOs’ are allowed to access the client’s loan folders.
Loan Documentation will be discussed under the session on Documentation and Report

12. Lending 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

13. Lending 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.

14. Lending Procedures: Loan Monitoring
Close and timely monitoring of the portfolio performance as well as on-time payments are essential steps to be successful in offering microfinance services.

15. Lending Procedures: Loan Collection
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.

16. Lending 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.

17. Lending 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.

18. Think about this….
Delinquency does not only start when a client misses his payment…..
Delinquency usually starts when procedures and processes are not followed…
Delinquency will happen when we do our CIBI half heartedly….
Delinquency will also happens when we overestimate income or underestimate expenses during the preparation of Cash Flow…

19. Summary of Loan Procedures
Marketing: Account Officers reach out to farmers
Loan Application: Simple, one to two pages.
Loan Analysis: Based on client’s character and cash flow
Loan Approval: Decentralized.
Loan Documentation & Disbursement: Fast loan release
Follow-up & Collection: Strict adherence to zero tolerance approach. Restructuring only allowed in exceptional cases

20. Loan Product Comparative Table
Items
Microenterprise
Loan Product
MAP
Traditional Agricultural
Loan
Application
Simple, single page
One to two pages
Loan Analysis
Character (CIBI)
Business and Household Cash flow
Business, Agri and Household Cashflow
Collateral
Capital (counterpart)
Capacity to Pay
Condition of the farm/business and
Character
Loan Approval
Decentralized
Disbursement
Cash (one time)
Cash (one time or in tranche)
Monitoring
and Collection
Monitored and collected regularly (weekly, semi-month or monthly)
Monitored and collected regularly (weekly, semi-monthly or monthly)
Close monitoring in the case of supervised agri loan. One time loan collection upon harvest or marketing
Marketing Approach: AOs reach out to farmers, conducts barangay orientation, house to house visit
Loan Application: Simple. The smaller the loan amount the simpler the process. AO fills out the loan application. The small amounts usually associated with small scale farming do not require complex procedures. The information required and application process is proportional to the size of the loan.
Loan analysis: Once the client passes the character analysis, the Account Officer proceeds to the preparation of the Cash flow. Loan analysis is primarily focused on character, and repayment capacity. A loan properly packaged is already half collected.
Loan approval: Decentralized. Meaning to say the branch has the authority to approve loans within their approval limit.
Loan Disbursement: Quick disbursement of loan. Timely disbursement based on crop(land preparation / planting schedule)
Borrowers always look forward to another loan, so this becomes an incentive to borrower. Timely disbursement is key to a successful microfinance operation. First loan, not more than 7 days, repeat loans, within 24 hours. If you do more than that, then procedures may be cumbersome, you need to streamline your procedures. If it takes you two weeks to process a repeat loan, it means, you need to start processing the repeat loan three weeks before it matures.
Monitoring: Monitoring is key to preventing delinquency. Close and timely monitoring of the portfolio performance and delinquency is essential to the product’s success. Banks must have well-defined collection policies that clearly guide AOs on appropriate actions accordingly. Zero Tolerance to loan delinquency is of course the key to preventing loan delinquency. It means we don’t allow non-payment to loan.

21. Thank you