What is Individual Lending?

Why do we want to provide

individual lending Loans?

 Loan product designed to meet the varied
financial needs of micro and small
entrepreneurs
Built with wide flexibility in repayment

period, purpose into which it can be put into

and businesses that can access it.

JCS Individual Loan Training

Operations Department.
 Retail shop owners
Second hand clothe sellers
Food vendors (Mama lishe, fish mongers,
etc)
Carpenters and metal fabricators
Bars and restaurants
Pharmacists, vet and agro shops
Boutiques, beauty shops and saloons
Tailors
Hardwares
Etc.

JCS Individual Loan Training

Operations Department.
 You are not necessary selling a banking
service, your customers already assume
you are a bank.
Instead, you are selling a relationship. And

in most cases, that is where you need the

most work.

If you are selling a service, you are selling a

relationship.

JCS Individual Loan Training

Operations Department.
 Mapping the operational area
Branch staff training
Developing the marketing message
One-to-one visits to potential customers
Meeting business people of target clients
Responding to inquiries

JCS Individual Loan Training

Operations Department.
 Given to one person
Size is larger
Require cash flow analysis for repayment

capacity
Required type/larger amounts of

COLLATERAL
Monitoring
 Your customers are looking for end result.
Remember, customers dont buy products

and services; they buy benefits or value

they expect to derive from those items.

Jcs Individual Loan Training -

Operations.
 We seek to ensure that credit is accessible to small
businesses who have been historically un-banked
by evaluating repayment ability using a cash flow
as the predominant way to determine credit
worthiness.
We seek to improve on our products to clients
graduation from the group based lending
To support us in meeting individual and branch,
regional and corporate targets
We seek to expand the job market.
We seek to provide increased return to JCS
additional income streams.
 Some Credit risks may be the same as in a
group lending product, but our risk
mitigating strategies will change with
the changed methodology.
Loan monitoring and reporting activities need
to change to help us monitor risk levels.
The step by step analysis on the credit cycle
helps in evaluating the risks
Loan Capital requirements are higher
 Efficient systems and skilled human resource.
All the steps of the credit cycle need to be
observed to ensure that the least risk is
taken.
Individual lending credit appraisal should be
done individually and jointly.
More than one person must be involved in
making the final decision to lend.
 Efficient systems and skilled human resource.
All the steps of the credit cycle need to be
observed to ensure that the least risk is
taken.
Individual lending credit appraisal should be
done individually and jointly.
More than one person must be involved in
making the final decision to lend.
 MFIs around the world have found that granting
individual loan products to graduating current micro
credit members is higher risk.
This higher risk and delinquency is attributed to:
a lack of other sources of cash to draw on during
difficult times;
an inability of the member to handle a larger loan;
diversion of funds into other economic activities or
family needs;
inadequate analysis of the business by loan officers who
usually handle group loans;
poor borrower selection, due to the good character
reference from the many micro-credit loans.
(Shore Bank Report in Bangladesh 2001)
HOW DO WE CUSHION OURSELVES AND AVOID GETTING IN
TO THE SAME TRAP?
 MFIs around the world have found that granting
individual loan products to graduating current micro
credit members is higher risk.
This higher risk and delinquency is attributed to:
a lack of other sources of cash to draw on during
difficult times;
an inability of the member to handle a larger loan;
diversion of funds into other economic activities or
family needs;
inadequate analysis of the business by loan officers who
usually handle group loans;
poor borrower selection, due to the good character
reference from the many micro-credit loans.
(Shore Bank Report in Bangladesh 2001)
HOW DO WE CUSHION OURSELVES AND AVOID GETTING IN
TO THE SAME TRAP?
Efficient lending process is based on 5 basic
steps:
Client Screening
Credit Analysis & Loan Write-Up
Approval
Disbursement
Monitoring & Collection
Each step of lending process must be properly
documented in the loan file (standardized
forms, check lists, legal documents etc.)
 MFI,s perspective
Help to determine clients need for financing the
business operations and its ability to repay the loan
(Cash needed to fulfill the business plan and Cash
available for debt service)
Help to structure the loan properly according the
seasonality of the business or nature of the project
loan term.
Borrowers perspective
An important component of the business plan
Determining the projected sources and uses of cash
(receipts and disbursements)
Demonstrates capacity to repay debt
Operations
Measuring the cash inflows and outflow
arising from core business operations
Investing
Addition to equipment, other assets and
equity
Financing
Changes in debt, loans or dividends are
accounted for in cash from financing
NB: Credit Risk is the risk that the borrower may not be
able to repay our loan from cash, and that secondary
sources will not cover the debt.
Credit Analysis Helps us to;
Understand the business
Define the level of credit risk
Evaluate the risk, Is it worth taking the risk?
Mitigate & manage the risks
A few sources Credit Officers will use to
perform their credit analysis are:
Customer
Documentation
Site visit
External checking

The Credit Officer must check, check, and

then check again, in each area!!!!
The objective of this review will be to ascertain if
the customer will be WILLING and ABLE to repay
the loan.
 CHARACTER History? Is the borrower
WILLING to pay?
CAPACITY - Is the borrower CAPABLE of paying
us back?
CAPITAL - Is there a sufficient owners investment?
CONDITIONS The industry? Does the
economic environment support this business?
COLLATERAL Fall back? Is there a sufficient
SECONDARY source?
 Personal traits of the borrower indicating
the willingness to pay honesty, integrity
ethics and past behaviour. This is the most
important.
Character assessment is one of the difficult

Cs to analyse and is often subjective.

JCS Individual Loan Training

Operations Department.
 Ability to meet obligation cash flow projections.
Ability to generate enough cash flows to pay the loan.
Ability to manage the business effectively
In addition to analyzing financial statement you might
look at tax statements, press cutting, management
experience.
Capacity to repay a loan is analyzed through the
following ratios:
Inventory turnover in days
Current ratio
Quick ratio/Acid test
Installment to net profit

JCS Individual Loan Training

Operations Department.
 The net worth (wealth) of the borrower. The
control of the business assets between the
owner and creditors.
Assets might be revalued to market price, lien
attached and contingent liabilities included.
In the loan application form provide absolute
measure for capacity under the breakdown of
sources of finance in the balance sheet.
Specifically the following ratios in addresses
it:
Loan to Capital ratio
Leverage ratio (debt to equity ratio)
JCS Individual Loan Training
Operations department.
 Specific assets are pledged so that the lender
can sell to recover the loan in case the
borrower fails to pay.
This should be a second line of security
(secondary consideration).
Take into account, value of the assets in forced-
sale market, legal process to take and realize,
marketability, social value attached to the asset
etc.
This is covered under section 5, which deals
with collateral pledged. A separate learning
session has been designed to address issues of
valuation, verification and charging.

JCS Individual Loan Training -

Operations.
 The general economic conditions beyond
the control of the borrower that can affect
the ability to pay e.g. inflation, war etc.
This is addressed in the loan application

form in assessing the markets and suppliers

of products of the applicants business.

NB: This might affect all firms in the same

way.

JCS Individual Loan Training

Operations Dept.
WHEN TO OBSERVE WHAT TO OBSERVE HOW TO OBSERVE/GET THE
INFORMATION
1. Pre-loan Contacts

During Enquiry Does s/he give credible Interview the prospective client
information about her/his
personal, family and business
background?
Does s/he, give you the
impression that there is
something that s/he is not
disclosing about self?
Does s/he object to you getting
reference from her/his previous
suppliers/employers/banks/
neighbours/employees?
Is s/he willing to give you
referees and their contacts?
What is your first impression
of the prospects character?

JCS Individual Loan Training

Operations Dept.
 During business site visits In whose name is the trading license Make scheduled and surprise visits
and/or and the assets intended for security? Interview spouse
Home visits If married, has the spouse been Talk to neighbours
disclosed? Is s/he willing to guarantee /employees/admin/ leaders/other
the loan? business people /current and previous
Does what you observe and what suppliers/bankers/ employers
information you get at site/home Contact referees
agree with what the prospect had told Talk to other MFIs and known
you during enquiry? lenders
Does s/he pay her/his Inspect the securities
employees/suppliers/ other loans and
debtors?
Is s/he respected/accepted by
neighbours/
community/administration/local
leaders?
Are the referees s/he has given
contactable/ supportive/willing/know
her/him well?
Does s/he offer for security some
lesser valuable property while
withholding the more valuable ones?
Does s/he look organized?

JKL Individual Loan Training -

Credit & Risk Dept.
 Are the details about dates/ Verify details of ownership/date of
During loan ownership/ value/location of assets purchase/value/location of assets
unquestionable and in agreement Do financial analysis of the business
preparation and with information given during Check contradictions in materials
enquiry and business/home visits information given by the prospect
disbursement Does financial analysis of the
business confirm verbal information
provided by the prospect?
Has s/he withheld material
information?
Has s/he tried to give you/another
member of staff a bribe to induce the
loan?
How does s/he conduct her/himself
when/if you meet on the streets?

JKL Individual Loan Training -

Credit & Risk Dept.
 Post-loan Contacts

During loan repayment Does s/he repay regularly on time Monitor repayment through the special
without being reminded? loan account
Has s/he diverted the loan? Make occasional business visits
Has s/he removed the pledged asset? View the pledged assets
Does s/he keep her/his promises Talk to other clients/ neighbors/
Does s/he tell habitual lies employees
Does s/he come to inform you if there is
significant changes e.g. relocation of
business/residential premises, change of
type of business or loss/damage of
security pledged?
Does the client become subject of a
court order or auctioneers for non-
payment of other debts.

JCS Individual Loan Training -

OperationsDept.
 During application for next Has s/he been consistent in what s/he
loan does or say
Has she repaid the previous loan
without hustles?
Has there been a compliant from any
circle concerning her/his character
Has there been business growth
Special loan account
Your own knowledge of the client
Other loan officers knowledge
Talk to neighbours /other customers/
employees

In the event of personal/business
crisis of the customer
Did the customer come to explain Your knowledge and records of the
herself/himself before due date? client
Was the problem genuine? Other clients
Was the customer in arrears before the Neighbours and employees
crisis Referees
If rescheduled/refinanced, did s/he Administration
honour her/his new repayment schedule
regularly?

JKL Individual Loan Training -

Credit & Risk Dept.
 Original title deed required
Customers should conduct the search
themselves under their respective lands
office and attach a copy of the search.
The loan form should be completed
accordingly
A valuation report is optional but we
must have a general idea of the value of
the pledged land based on where it is
located.
 The following documents should also be
attached;
Copy of ID
Copy of the PIN certificate
Consent from the lands control board which is
usually free
Full names and ID copy of the spouse
The lawyer will then prepare a charge
document which shall also be signed by the
spouse
Stamp duty as applicable shall be paid.
Customers using title deeds are advised to start the process early
enough (one month to end of current loan or prior to the date
loan is required) because of the processes involved.
 Customer to surrender the original log book
A valuation report is important to determine a
more accurate value of the motor vehicle
A search from KRA to verify if the vehicle is
actually registered in the names of the person
as well as the other particulars
A blank transfer form signed by the owner of the
vehicle
Payment of the applicable transfer fees as per
the rates on the KRA transfer forms based the
motor vehicles rating (cc)
Prescreening
Verificationof eligibility Criteria
Business and site visits
Analysis of cash flow statements
Preparation of summary for credit
committee
 Duly filled in Loan Application form.
Complete Business and Site visit forms.
Dully filled in chattels mortgage.
Duly executed transfer forms and original
property certificates, i.e. for title deeds &
log books.
Duly completed cash flow analysis
document
Hypothecation of goods form
Deed of guarantee
Simple deposit form / Memo of deposit
Check List form
Loan Approval
Credit Analyst verifies application and
attachments as per the check list
Credit Committee (CC) reviews the case
Verify repayment capacity and financial ratios
etc
CC approves, rejects or defers application
Disbursement
If approved resolution is entered in MIS
Contract (offer letter) is prepared.
Money is disbursed after customer
accepts and returns offer letter.
 MIS produces daily status reports of
individual borrowers.
Loan officers keep diary of their

customers repayment dates to remind

them in advance.
Visit or contact clients who fall behind

repayment schedule immediately.

Follow up costs to be determined and

borne by customer where default occurs.

JKL Individual Loan Training -
Credit & Risk Dept.