Process of dealing with clients at each stage of default

Default: Dues not paid on scheduled date and times are treated as default/delinquent accounts however dealing with the delinquency may vary with the degree of criticality. Our approach to deal with delinquency as an issue is as following.

  1. Preventive measure
  2. Curative measure

Preventive Measure: We are strong believer of preventive measure of managing default risk. In order to insulate ourselves against default we take the following precautions.

  1. Ensure client participation:  We learnt from our experience that there is direct co-relation between client participation in microfinance program and the issues of delinquency/default. Maximizing level of attendance in center meetings reduces the risk of default. Hence we encourage/motivate our clients to be part of every center meetings and there by enforce joint liability in its true spirit.
  2. Do the basics right: Proper client selection and weeding out clients prone to default is the key to mitigate default risk. Hence we give maximum emphasis to the process to client selection and sourcing. We follow triple filtration mechanism and each single client passes through three level of filtration (a) During CGT process by the CSO (b)During Pre-GRT by Branch Manager and (c) During final GRT by the Territory Manager.
  3. Mandatory Credit Bureau checking: All the clients appraised during the selection process are checked from industry recognized Credit Bureau and thereby reduce the risk of potential defaulting client who have negative credit history, very low or high level of income and default history with other micro finance institutions.
  4. Repeat and re-ensure joint liability in every single center meeting: The joint liability aspect of the group/center is re-ensured during every center meeting as the same is recited as verbal contract during the beginning and closing of the center meeting.
  5. Quick response to early symptoms: Our MIS generates granular and comprehensive reports of delay and default in payment. The daily reports are shared among all senior managements and any increase in non payment is immediately traced. Upon identification of any such issues the operation team works swiftly manage the risk before it becomes chronic.
  6. Center leaders workshop: In order to keep the clients motivated and inculcate sense of ownership within them we organize center leaders workshop where we re-ensure the discipline by re-ensuring our culture, practices and discipline. By doing this we mitigate the risk of default due to any mis-communication.
  7. Repetition  of entire process in every subsequent loan cycle: We understand that the economic and social behavior of clients are dynamic and may undergo change in subsequent cycle. Hence we repeat the entire process of appraisal irrespective of loan cycle and thereby we reduce the risk of default.

Curative Measure: Despite our best effort to curb default before it buds, few clients may show deviant behavior either intentionally or due to stressed situation. Our approaches to deal similar issues are as following.

  1. First time delay and default: As mentioned earlier we give maximum emphasis on timely and high quality of center meetings. In case a client is not able to pay her installment due to valid reason (because of income stress or causality in the family) we try to understand the exact nature of the CSO is expected to understand the exact nature of the problem. In case of genuine distress in the family the CSO is expected to behave in an empathetic manner. The CSO is expected to help the client in distress by motivating her fellow members and show the sign of group solidarity.
  2. Level one motivation by CSO:  In case the clients are not self motivated to help their fellow member the CSO motivates the center further by ensuring joint liability.
  3. Level 2 motivation by BM:In case the CSO fails to recover the due by ensuring joint liability he calls up the Branch Manager to address the issue by visiting the center immediately. Till the time the Branch Manager reaches the center the CSOs keeps the center motivated and engaged. The branch manager motivates the center and individual members with his expertise so that current date collection never becomes past due. He also educates the center on the benefit of on time repayment and thereby managing good credit track record.
  4. Level 3 motivation by Territory manager:In case a delay/default case is not shorted out in the same day at the level of CSO and Branch Manager the Territory Manager follows up on immediate next day. They study the exact reason of default and group dynamics. He may speak to the family member of defaulting clients, take help of other centers running in the village or engage elderly person/opinion leaders to ease out the process of recovery.
  5. Regional Manager level follow-up: In case the combined effort of CSO/BM/TM fails to yield any result to curb the delay/default the Regional Manager (RM) follows up the center with in maximum two subsequent center meetings. He uses his expertise to solve the matter by critically analyzing the effort put in by the operation team working under him. He prepares and presents the cases of overdues during the monthly meeting of operation leaders. In case the default is due to any kind of severe stress or causality within the family of borrower and the same is not being resolved by using peer pressure/joint liability, the RM recommend the case to his seniors to grant some more time for . But technically there is no re-scheduling of loan happens.
  6. ZM/AVP/VP level intervention:The senior member of the operation “the Zonal Manager/AVP/VP” observe and assess the case based on the criticality and recommend it to the Chief Operating Officer (COO).
  7. Intervention by Chief Operating Officer (COO) In case the client is willing to pay but in need of more time/lean period the same is considered appropriately by the COO and reasonable time is given to the borrower. However there is no provision for re-scheduling the loan in the system or no fresh agreement gets executed to with the defaulting client. It shows as overdue account in the system as well as company books of accounts.
  8. Written intimation: Incase overdue cases are not resolved even after continual follow up and client motivation, written notices are issued to some clients selectively.
  9. Provision of Bad-debt and write up: Company maintains a reasonable provision to write up bad debts and doubtful assets as per the regulatory requirement. The senior management reviews the portfolio performance periodically and writes up non performing accounts. However the written off loans are also followed up sincerely by the operation team.

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