DELINQUENCY MANAGEMENT
• Managing delinquency requires that
programs build credit discipline among
clients, especially through peers. The most
important among the other aspects are
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DELINQUENCY MANAGEMENT
1. Clientele motivation by the program and through
peers,
2. Spontaneous demand generation for services,
3. Preparation of group/member,
4. Simple, standardized and transparent procedures
that facilitate effective and timely monitoring of
the loans,
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DELINQUENCY MANAGEMENT
5. Prompt disbursement of loans to meet clients’
needs,
6. Close peer monitoring and supervision of loan
utilization (especially with peer support and
pressure),
7. Small and appropriate repayment schedules
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DELINQUENCY MANAGEMENT
8. Increased and continuous access to credit backed up
by strong non-financial support services such as
technology assistance, marketing and business
counseling as and when necessary, and
9. Presence of an effective action plan for various
levels of delinquency (at all times) with laid out
roles for the members and leaders (all levels)
individually and collectively.
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DELINQUENCY MANAGEMENT
• Overall, the clients should desire a permanent
financial relationship with the micro-finance project
and realize the value of maintaining credit discipline
which they must see as very vital to gain access to a
continuous stream of credit other services that will
enable them to undertake diversified income
generating activities and improve their overall quality
of life.
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DELINQUENCY MANAGEMENT
• Only this can keep Delinquency at very low levels and
enable the development of a sustainable and healthy
micro-finance program.
• In specific terms, Delinquency, can be better managed
by having a proper methodology and effective
information systems.
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DELINQUENCY MANAGEMENT
Proper Lending Methodology
• Good Borrower selection/preparation
• Appropriate Loan size and terms
• Provision of Incentives
• Spontaneous Peer Pressure
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DELINQUENCY MANAGEMENT
Effective Information Systems
• Reliable, accurate and timely data
• Relevant details for level of use (MFI, Federation,
Cluster and Apex Level)
• Timely Dissemination for corrective action
• Clearly, by ensuring the above, micro-finance
programs can prevent delinquency rather than
attempt to control it after it has occurred.
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DELINQUENCY MANAGEMENT
Best Practices GUIDELINES For Managing
Delinquency
• Accept that most in most cases, delinquency is caused
not by bad borrowers but by credit institutions that
have not implemented an effective methodology.
• Create an image and philosophy that does not consider
late payments acceptable. The benefit of creating
discipline in borrowers is critical to the success of the
micro finance institution.
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DELINQUENCY MANAGEMENT
Best Practices GUIDELINES For Managing
Delinquency (Cont…)
• The credit service must be valued by the clients. Loan
products should suit clients' needs, the delivery
process should be convenient, and clients should be
made to feel that the organisation respects and cares
about them. Incentives won't work if the clients do
not value the access to credit.
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DELINQUENCY MANAGEMENT
Best Practices GUIDELINES For Managing
Delinquency (Cont…)
• There are no bad borrowers only bad loans. Make
sure loan size and terms do not make repayment
difficult. Do not base loans on projections, but
rather base in on the capacity to repay.
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DELINQUENCY MANAGEMENT
Best Practices GUIDELINES For Managing
Delinquency (Cont…)
• Establish an incentive system that uses both
financial and non-financial incentives to encourage
on time repayments. For the borrower these can
include larger loans, follow up loans, interest
rebates, and access to training or disincentives such
as penalty/fees on further access to loans, collection
of collateral, legal action)
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DELINQUENCY MANAGEMENT
Best Practices GUIDELINES For Managing
Delinquency (Cont…)
• Design an incentive system for the field staff/loan
officers that include on-time payments as an
important variable. An incentive system places the
responsibility for portfolio quality on the shoulders of
the loan officers who with support can best respond to
repayment problems. It can motivate officers to look
for and eliminate the causes of arrears.
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DELINQUENCY MANAGEMENT
Best Practices GUIDELINES For Managing
Delinquency (Cont…)
• Ensure that information is provided to field workers
that enables them to conduct effective and timely
follow-up of loans and to manage their portfolios
efficiently. The easier it is for the field staff to figure
out whose payments are due and when, who is late
and by how much, the more time they can spend with
borrowers.
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DELINQUENCY MANAGEMENT
Best Practices GUIDELINES For Managing
Delinquency (Cont…)
• Develop a portfolio information system that enables
management to conduct timely and useful analysis of
portfolio quality, determine trends in the portfolio
over time, and identify possible causes of
delinquency.
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DELINQUENCY MANAGEMENT
Best Practices GUIDELINES For Managing
Delinquency (Cont…)
• Effective delinquency follow-up procedures are
needed. Develop policy that lists the steps one takes
when a loan becomes past due. Examples included
activating the group to follow up, visiting clients,
holding frequent staff meeting to discuss problem
loans, etc.
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SUGGESTED STEPS AND
PROCEDURES IN LOAN RECOVERY
Insurance Linkages for Managing Naturally
Caused Delinquency
• For example, as was done by a small NGO in the
earth quake affected (Latur) area of Maharashtra,
linkage to insurance schemes could be a solution to
tackle delinquency arising out of natural calamities.
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SUGGESTED STEPS AND
PROCEDURES IN LOAN RECOVERY
• Especially, if delinquency is due to natural
calamities/death/sickness, under extreme
circumstances, the loan may be re-scheduled.
Sometimes, to enable clients to re-build their
livelihoods, some level of re-financing may also be
done.
• However, barring such extreme circumstances caused
by external factors, the group can finally be offered 4
weeks time to bring their loan back to current status.
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SUGGESTED STEPS AND
PROCEDURES IN LOAN RECOVERY
Peer Pressure and Program Design
• This is when peer pressure could work and especially,
if there are others members in the group/SHG who
need a loan and the MFI is not that keen to extend
loans to (members of) that group, then these members
requiring the loan would begin to apply peer pressure
on defaulting members.
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SUGGESTED STEPS AND
PROCEDURES IN LOAN RECOVERY
Peer Pressure and Program Design (cont…)
• It is therefore crucial that the program design
incorporates such peer pressure inducing mechanisms
like ‘staggered disbursement of loans’, whereby funds
to provide loans to all SHG members are not given at
one single time. Rather, they could be provided in
tranches.
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SUGGESTED STEPS AND
PROCEDURES IN LOAN RECOVERY
Key Aspects
• MFIs must ensure that Good social intermediation,
which lays the foundation for effective
delinquency management through the generation
and maintenance of peer pressure, always exists
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SUGGESTED STEPS AND
PROCEDURES IN LOAN RECOVERY
Key Aspects (Cont…)
• Product packaging (adding value to the products),
often an under-estimated aspect, also plays a crucial
role and hence, MFIs should package their various
products in such a manner so as to stimulate and
sustain client demand at all times.
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