Microfinance Lending Process and Procedures

1 Microfinance Lending Process and Procedures
The management of the Bank commits to provide microenterprises with quick access to affordable, non-collateralized loans. With this commitment in mind, I will be discussing to you the following simplified Lending Process & Procedures which the Microfinance Unit diligently follows in processing new loans.

2 Microfinance Loan Flow Chart
1) Client Orientationand Application2) Credit and Background Investigation3) Loan ApprovalThe Microfinance Unit follows a standard flow in processing new loans. This process usually takes one week. It will start with a:READ THE SLIDE…Client Orientation then the Pre-application, followed by:The Credit and Background Investigation, then theLoan Approval. A Credit Committee Meeting is being held every Loan Approval. Then,Loan ProcessingLoan Disbursement, and finally,Loan CollectionI will discuss each activity in detail.6) Loan Collection5) Loan Disbursement4) Loan Processing

3 Attendance Sheet CLIENT ORIENTATION Question and Answer Client Logbook
Applicant comes to bank toattend the group client orientationAttendance SheetWelcome and introductionof prospective clientsAO conducts individualclient orientationCLIENT ORIENTATIONALL prospective clients who intend should attend a Client Orientation. Loan applications will not be entertained if a client fails to attend an orientation.The main reason why the MFU conducts Client Orientations is basically to inform the prospective clients of the policies and procedures of the Microfinance Loan.There are two types of Client Orientation – the Group and Individual Client Orientation.Group Client Orientation is usually done in the bank particularly in the Microfinance Office.On the other hand, Individual Client Orientations are conducted for prospective clients whose residence/business is located far from the bank.This is the procedure when clients attend the Client Orientation.READ THE SLIDE…Question and AnswerClient Logbook

4 Application Applicant fills out the application form
The applicant may choose to sign theform at the bank or bring the form tohis/her houseAO determines applicant’seligibilityAfter the orientation, clients are required to fill out and sign the Pre-application Form.READ THE SLIDE.If eligible, the AO schedulesa CI/BI appointmentIf not eligible, AOproposes a savings plan

5 Credit and Background Investigation
AO conducts CI/BI toassess the applicantAO brings along the loan applicationform to validate informationcontained in the formIf necessary, creditverification letters are sentto the applicants creditorsAO visits references: suppliers,previous and present creditors,business neighbors, and residenceAs I have said earlier, Credit and Background Investigations are administered to eligible clients.READ THE SLIDE….The CI/BI procedures will be discussed in a separate session so that we can fully understand and appreciate this important process.If there are adversefindings, applicationis disapprovedIf CI is positive, AO evaluates theapplicant’s debt repayment capacity

6 Preparations before the Credit Committee Meeting
AO summarizes and preparesthe loan recommendationsheetLoan RecommendationSheet, Loan ApplicationCompleted CI/BI FormCo-signer’s profile,Proof of payments, andother documentsAO organizes theapplicant’s credit folderSupervisor reviewsapplicants creditfolderChecks and reviewsfor inconsistenciesIt is important that preparations are made before the Credit Committee Meeting so that all important pieces of information are gathered, filtered and summarized in order to have a good loan recommendation.READ THE SLIDE….Loan application is endorsedto the Credit Committee

7 Loan Review and Approval (Credit Committee Meeting)
PREPARATION2CREDIT COMMITTEE:1) Convenes every week toreview loan applicationsrecommended for approval2) Composed of: GM/BM,Loans Supervisor and AOsAO presents CI/BIResults to CreditCommittee3 1This is the procedure when we deliberate loan applications.READ: CREDIT COMMITTEE convenes every week……THEN READ: PREPARATIONS, AO PRESENTS….During the Credit Committee meeting, the AO must explain the reasons behind his/her recommendations on the basis of his/her overall objective observations/impressions about the client, their character, reputation in the community, capacity to repay a loan, credit worthiness as well as the importance as to why the client should be given a loan. The Credit Committee members are expected to ask several questions based on the submitted documents including the CI/BI report. This is also an opportunity for the other AO to actively participate – ask questions about the client’s residence, business, character, cash flow analysis, and share their opinions or ideas about the loan application.After the deliberation of the loan application, the Credit Committee decides whether to approve, disapprove or defer the approval of the loan application.DELIBERATIONRECOMMENDATIONAND APPROVAL4 5

8 Loan Processing (After the Credit Committee)
Supervisor informs theAO to prepareloan documentsIf loan is disapproved,AO visits the applicantand informs the reasonsfor disapprovalIf loan is deferred,AO informs the applicantand obtains addt’l. infoa) Credit Memo/CCb) Signature Cardsc) Promissory Noted) Co-Signer’s Statemente) Disclosure Statementf) Deed of Assign. of Dep.h) Security AgreementIf loan is approved, AO visitsthe applicant and gives a list ofrequirements for his/her compliance.AO prepares loan documents.There are at least three (3) key important results after the Credit Committee meeting.READ…. If loan is disapproved…..READ…. If loan is deferred….READ…. If loan is approved…..Supervisor checks completenessof the credit folders

9 Loan Disbursement Supervisor gives copy of
credit ticket/cashier’s check to Tellerfor disbursement/postingBefore signing, the BM orsupervisor explains to thegroup their obligationsas Borrower(s) andCo-Signer(s)Borrower together with spouse/Co-Signers, come to the bankto sign the loan documentsREAD THE TWO TEXT BOXES, THEN READ THE THIRD BOX….This is also a crucial part of the Loan Process. In this step, the policies and procedures are again explained to the client particularly their obligations as Borrower, Co-Borrower or Co-Signer of the Microfinance Loan. This is to make sure each fully understands the product policies as well as the procedures.(Note: Revise the last box if your bank follows a different procedure for disbursing loan proceeds.)Client signs a withdrawal slipto withdraw the loan proceedsfrom Savings Account or encashesCashier’s Check throughTellerSupervisor gives the clienta copy of the LoanAmortization Schedule andDiscount Statement

10 Loan Collection Supervisor updates accounts
Supervisor generates weeklypayments due/Collection Sheetfor the week every MondayForwards cashto TellerAuditor accountsfor all PRs issuedvs. reportCashier issuespre-numbered PRs toAOs for collectionBatches collectionsfor the dayAO collects paymentfrom clientIt is important that all clients realize the importance of making their payments on time. The AO must monitor his/her portfolio closely, particularly with new clients, to ensure that they do not become delinquent in making payments. Once a collection schedule is established, the AO should STRICTLY ENFORCE IT!!! Borrowers tend to test the bank to see how serious it is about late payments. THE AO SHOULD LEAVE NO ROOM FOR LAX OR INTERMITTENT COLLECTION AS THIS REDUCES THE SERIOUSNESS WITH WHICH CLIENTS VIEW THEIR OBLIGATIONS.READ THE SLIDE…..(Note: Revise this slide if your bank follows a different loan collection procedure.)AO retains othercopies which will beused to batch thetotal collectionsRecords pymts andgives original PR