Workshop on Delinquency Management

Transcription

1 June 2010 Workshop on Delinquency Management «Credit without discipline is nothing but charity» Pr Yunus

2 Our Business Service Cost to client Money and Debt Advice Access to bank accounts Free Free Microcredit Business Loans 15-19% Interest Rate Personal Loans 32-39% Interest Rate + 5% Admin Fees

3 Delinquency management definition and coverage Understanding Delinquency and its risks Definition Risks How to prevent and manage delinquency Loan delinquency: A loan is delinquent after one day in arrears Measuring the risk: Portfolio at Risk: Proportion of the portfolio that is at risk of not beingrepaid Bad debt: Loans never to be repaid after more than 180 days in arrears and a CCJ On MFIs: Less income, no sustainability On clients: Less trust, less impact on poverty reduction On staff: Weakens the motivation, income decreased On Funders: Less credibility, less income Preventative Stage At the loan appraisal level Challenge your own practices regularly Curative stage Loan Monitoring and follow up Procedure for loan collections Distinguish Can t payers and Won t payers 3 3

4 Impact of the credit crunch on delinquencies To determine the impact of the Credit Crunch on Delinquency management of UK MFIs, it is essential to understand the UK context, the causes of the credit crunches and their consequences on both clients and MFIS Credit Crunch UK context No Interest rate cap Extortionate Interest rates Financial exclusion versus Over inclusion Irresponsible lending Causes of the Credit Crunch in the UK Bad Product design Not suitable for client Inability to understand debts Credit scoring system High level of refusal by Banks Turn to extortionate lenders and fall in Overindebtness Consequences On Client s situation Redundancy Unemployment Living standard Reduced access to Bank loans, Overdrafts and credit cards For MFIs Demand Increase Client profile 4

5 Observable Consequences Statistics Number of applications Increased by 20% Refusal rate Increased by 5% Consequences on the Portfolio at Risk NONE Consequences on the rescheduled Loans DOUBLED Client who would never have had to come to us before are now pushing the door

6 Case study on Fair Finance Fair Finance offers a range of adapted products and as such avoided an increase in the portfolio at risk during the credit crunch. Fair Finance s clients have been credit crunched for all their life so the institution has built experience in understanding risk and dealing with it. Fair Finance Product design (Understanding the market) Small Loans: less risky Step by step approach Based on Existing income Flexible Transparent Site visi Quick Face to face Interview No credit Score No Collateral Case by Case appraisal Lending responsibly (preventing bad loans) Character Disposable income Income and expenditure Finance and Debt Management Business Viability Credit check Delinquency Management (Dealing with arrears responsibly) For Can t payers Close monitoring of the portfolio No penalty fees for arrears Rescheduling/Payment holiday Focusing on communication For won t payers Strong procedure in place: As responsible lenders Taking them up to court 6

7 Results Statistics 2005/ /9 Total number of clients supported 5000 Personal Loans Made (Over 2000) 1,500,000 Microcredit Loans Made (160) 600,000 Bad Debt Rate 9% Debt Advice Given 1500 Over indebtedness managed 12m Bank Accounts opened 120

8 Outstanding Balance Outstanding balance variation for the last 3 years for Personal Loans and Business Loans Number of active loans Outstanding Balance in Value ( )

9 Risk Profile Personal and Business Loans PAR >30 days for the last 3 years (End of month) 25% 30% Personal Loans Business Loans 14% 13% 8% 15% 8% 12% 11% 20% 10% Bad Debt 9% in 2009 Aug 07 Mar-08 Mar-09 Dec-09 0% 9 9

10 Fair Finance Businesses Please tell us where are the risks, would you give the loan? Case studies Business Online retail Jewellery Mini Cafe Application Mr Paul is married and has been running the business successfully for the past 3 years with his wife. He applied for 10,000 to develop it and secure premises. Cash Flow realistic and genuine client No site visit realised Mrs Jane Draft is divorced and has one dependant child. She lives in Hackney and is tenant of the Council. She is in the process to start her business after having two other loan from 2 other Loan Providers, for a total amount of 10,000. She came to Fair Finance asking for a loan of 5,000 to finish the refurbishment of her premises and buy part of the equipment, in particular the coffee machine with accessories

11 Opening Questions Not to be shown What would have worsen the situation. (the absence of credit bureau see South America) What are the next challenges: Risk of Bad practice in collections Target driven delinquency management Challenge the banks on their scoring methods Avoid a similar crisis in developing countries What are the differences in management in Europe and the rest of the world; Are the current PAR in Europe more representative of the reality of the risk?

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