Policies and Guidelines
for the
Collection of Delinquent Loans
OBJECTIVE OF GUIDELINES
1. To present to bank management, branch
managers and collection personnel
sequentially arranged strategies to apply
branchwide to support collection efforts.
OBJECTIVE OF GUIDELINES
2. Serve as tools which the bank may use as
leverage for borrowers that have past due
accounts, and need a restructured
payment plan to repay.
GENERAL POLICIES
1. The Microfinance Unit should follow a
Zero Tolerance Against Delinquency
Policy. Rigor must be applied in client
selection and loan administration.
Preventive measures should be in place to
detect delinquency early.
GENERAL POLICIES
2. There are multiple collection strategies.
Past due accounts should be classified to
identify the best recovery strategy.
Classification:
• Do borrowers have the means and
capacity to repay their obligation?
• Do borrowers have limited or no means
to settle their account at the present time?
GENERAL POLICIES
3. Repayment schemes are appropriate.
• payment plan determined on
borrower’s capacity to settle his loan.
• initially offer a payment scheme that
is most beneficial to the bank.
Maximize benefit to the bank if
possible.
.
GENERAL POLICIES
4. Performance Incentives.
Incentives should not be considered as
added compensation but temporary
incentive to motivate staff to recover
bank assets and reward performance.
GENERAL POLICIES
5. These strategies do not offer a
comprehensive solution to the problem
of delinquency but are measures or
tools that will help the bank in its
recovery effort. There’s no
substitute for a sound credit
evaluation in preventing
delinquency.
PROCEDURAL GUIDELINES
1. Each account officer must prepare/classify
his/her accounts using proper client
selection procedures. Borrowers with
delinquent and past due accounts can be
monitored through generating MIS
reports, such as the “Delinquency Listing”
report.
PROCEDURAL GUIDELINES
2. Using reports prepared by the Account Officer
and PAR Call Reports, Microfinance Supervisors
and Branch Managers are responsible for
detecting delinquency. The MABS Tool,
“Delinquency Alarm Signals” are a useful
resource to detect delinquency. Together the AO,
supervisor and branch manager must establish if
the borrower has still the capacity to pay/why
the borrower is unable to pay.
PROCEDURAL GUIDELINES
3. Based on the classified PAR listing
assessed by the account officer,
supervisor and branch manager,
delinquent accounts are assigned to
specific persons to pursue loan
recovery efforts.
PROCEDURAL GUIDELINES
PAR CLASSIFICATION
PERSON/S ASSIGNED
TO COLLECT
PAR 1- 30 Days
Account Officer
PAR 31- 60 Days
Account
Officer/Supervisor
PAR 61- 90 Days
Account
Officer/Branch
Manager
PROCEDURAL GUIDELINES
PAR 91-180 Days
Bank’s Collection
Department (AMU)*/
(Candidates for write-off as Outsourced Individual
Collector/Collection
per BSP Circular 409
Agency
PAR over 180 Days
Bank’s Collection
Department (AMU)*/
(Candidates for write-off as Outsourced Individual
Collector/Collection
per BSP Circular 409)
Agency
PROCEDURAL GUIDELINES
4. Collection Options
A. Delinquent accounts that fall under PAR 1-90
Days.
Follow the courses of action that are contained in the MABS
recommend Delinquency Alarm Signals. These actions are:
• Reminder/demand letters.
• Applications of deposit balances toward outstanding loan
balance
• Collect from co-makers
• Pursue acquisition of business or household assets
• File complaint with Barangay Court, MTC or RTC.
PROCEDURAL GUIDELINES
Branch Manager. Supervisor, Account officers
cannot offer payment schemes with
condonation of penalties to delinquent accounts
falling under PAR 1-90 days. An exception may
be allowed if the bank has imposed a penalty
system that is considered as excessive. A
penalty system is deemed excessive when it is
equivalent to an amount that is way to high
compared to the amount of unpaid principal
and interest or even to the loan balance.
PROCEDURAL GUIDELINES
B. Delinquent Accounts that fall under PAR over
91 Days:
A number of recommended options for hard core
delinquent/written-off accounts are
recommended in this proposal. Bank must
evaluate and choose their option based on :
• bank’s write-off and collection policies.
• availability of persons skilled in collection
within the bank or an asset management unit.
• financial impact of the collection effort.
PROCEDURAL GUIDELINES
OPTION 1
Assign a bank employee with good collection
skills to focus on the collection of hard core
delinquent accounts and written-off
accounts. Account Officers may provide
support, but their attention should not be
distracted from producing loans, especially when
an AO is skilled in producing new accounts but
has difficulty in recovery efforts.
PROCEDURAL GUIDELINES
OPTION 2
Assign collection of hard core delinquent
accounts and written off accounts to the
Collection Department or Asset
Management Unit (AMU) of the Bank. The
microfinance unit at the branch level may still
provide support, on a case to case basis that will
have to be balanced with the objective of
expanding the branch’s portfolio and outreach.
PROCEDURAL GUIDELINES
OPTION 3
Outsource the collection of hard core delinquent
accounts and written-off accounts to an
independent or outside professional collection
agent.
PROCEDURAL GUIDELINES
5. Booking and management of hard-core
delinquent accounts as well as written-off
accounts.
OPTION 1-3 : Hard-core delinquent/written-off
accounts transferred to Collection Department/
AMU.
• Accounts remain booked at the originating
branch but lodged under the name of assigned
collector at Head Office. Loan folders are
transferred to Head Office for easier
management and evaluation.
PROCEDURAL GUIDELINES
• Written-off accounts which have been stricken
off from the automated loan tracker system and
recorded in a subsidiary ledger can be transferred
to Head Office together with a copy of the MISgenerated loan listing. Loan folders of writtenoff accounts are likewise transferred for easier
management and evaluation.
• Depending on the number of collectors at the
Head Office, delinquent accounts are assigned
based on geographical/branch assignment.
PROCEDURAL GUIDELINES
6. Payment Schemes for Hard-core
delinquent Accounts as well as Written-off
Accounts
As a general policy, bank officers and personnel must
strive to make the borrower fully settle his/her loan.
However to make it easier and faster for borrowers to
settle obligations, the bank may offer payment
schemes. Payment schemes must be offered only to
borrowers who find it hard to settle their account
with the bank or have very minimal capacity to pay.
Any request to further reduce penalties and
surcharges shall have prior approval by senior
management before implementation.
PROCEDURAL GUIDELINES
Payment
Schemes
Time Frame
Special Promo
Offer
Principal and interest
outstanding either
paid in full or
staggered within
prescribed period
If payment is done
within 15 days
100% of penalties
and surcharges
waived.
Same
If payment is done
within 1 month
75% of penalties and
surcharges waived
Same
If payment is done
within 2 months
50% of penalties and
surcharges waived
Same
If payment is done
within 3 months
25% of penalties and
surcharges waived.
PROCEDURAL GUIDELINES
7. Incentive Schemes/ Commission to aid PAR
reduction efforts.
a) For In-House Collectors (employees under the
Bank’s Collection Department)
• PAR 91 to 180 days.
an incentive equivalent to 5% of total amount
collected. Computed and paid every month-end.
• PAR over 181 to 360 days.
an incentive equivalent to 10% of total amount
collected. Computed and paid every monthend.
• PAR over 360 days.
an incentive equivalent to 20% of total amount
collected. Computed and paid every monthend.
PROCEDURAL GUIDELINES
b) For Commissioned Collectors
An incentive equivalent to 20 to 25% of total amount
collected (present industry practice ) can be given
to commissioned collectors under the Collection
Department. This should be computed and paid
preferably every week.
c) For Collection Agency
An incentive equivalent to 25 to 30% of total amount
collected (present industry practice) can be given
to agency under the Collection Department. This
should be computed and paid every month-end.