Management of Hardcore Delinquent Accounts

1. Management of Hardcore Delinquent Accounts Day II- Session 2 Remedial Management Unit

2. Definition of Hardened Accounts Definition & Goals of Remedial Management Remedial Management Unit (RMU) - Functions - Structure - Staffing - Workload Remedial Management Process Remedial Management UnitSession Outline

3. What are Hardened Accounts? Accounts classified uncollectible, and therefore, worthless Accounts requiring remedial or legal action as the only alternative to minimize losses Loan accounts that are typically 90 or more days overdue

4. The process of instituting effective and practical approaches in the collection and recovery of hardcore delinquent accounts. Management of problem accounts, where early detection plays a major role. What is Remedial Management?

5. Goals of Remedial Management • Implement preventive measures to minimize delinquency • Incorporate monitoring processes to detect when accounts begin to deteriorate and to classify problem accounts before they become hardcore delinquent • Maximize collection efforts through assigning a specialized unit to manage the recovery process

6. What is a Remedial Management Unit? • A specialized unit to manage the collection and recovery of all written off or hardened accounts.

7. Functions of theRemedial Management Unit • Transfer the responsibility of recovery to a specialized unit that has is trained and responsible solely to the recovery of hardcore delinquent accounts. • Relieve branches of “uncollectible” accounts to focus on serving existing productive accounts and generating new accounts

8. Remedial Management Unit Structure • A Remedial Management Unit set up is ideal for banks with multi-branches • A single unit bank may opt to assign an experienced account officer or collector solely for remedial management functions

9. Remedial Management Unit Staffing Recommended Staffing for the RMU: • Unit head, preferably from among experienced Microfinance supervisors, to be based in the head office • At least two dedicated Collection Officers with experience and demonstrated success in resolving delinquent or problem accounts • RMU reports to the President or Head of Lending Operations

10. Remedial Management Unit Workload • As a rule of thumb, the RMU has 200 or more accounts • The ideal caseload per Collection Officer is 100-150 delinquent accounts • Unit Head assigns geographic areas to Collection Officers for efficiency in loan recovery efforts

11. Classify Accounts Recommend Accounts to RMU Evaluation of Accounts by RMU File Transfer Pre-collection Preparation Collection Process Developing Payment Plan Incentivizing Staff Internal Control Performance Monitoring Reports Remedial Management UnitRemedial Management Process

12. RMURemedial Management Process Classify Accounts Pre-collection Preparation Create Incentives For Staff Recommend Accounts to RMU Collection Process Internal Control Mechanisms Evaluation of Accounts by RMU Performance Monitoring Reports Developing Payment Plan File Transfer

13. Remedial Management ProcessClassify Accounts & Recommend to RMU • AOs alert MF Supervisor/Branch Manager when an account becomes difficult to collect or “hardened” • MF Supervisor/Branch Manager evaluate status of account • All possible measures taken in the field to recover account • When collection options are exhausted…… MF Supervisor/Branch Manager recommends to write off a loan

14. Remedial Management ProcessEvaluation of Accounts by RMU • RMU and senior management review recommendations from branches to write off loans • RMU validates recommendation for loan write off through review of account folders and a branch site visit to discuss the status of the account with the AO, supervisor and branch manager • Senior management validates loan write off and the account is “transferred” from the branch to the RMU

15. Remedial Management ProcessFile Transfer • Account files transferred from branch to the RMU • A Statement of Account for each account transferred to the RMU should be prepared and filed in each credit file. • The account transfer is formalized to reflect the RMU’s responsibility for loan recovery or resolution

16. Remedial Management ProcessPre-collection Preparation • RMU classifies accounts according to: • Collectible • Uncollectible • Collection officers should focus initially on higher potential collectible accounts • Collection officers organizes field visits

17. Remedial Management ProcessCollection Process • RMU staff visit borrower with written off or hardened accounts at least twice a month • RMU staff follow up on collection agreements and propose an approach to recover the account; • Recovery activities organized per area to maximize the minimum target of 15-25 clients per Collection Officer; • Collections shall be turned-over to the branch or office where the CO has completed the collection; • Collection reports organized daily or weekly as procedures dictate

18. Remedial Management Process Developing Payment Plan

19. Remedial Management ProcessCreating Incentives A commissioned-based incentive scheme should be developed to motivate the RMU to recover hardcore accounts in its portfolio: • 10% commission for accounts considered collectible • 30% on accounts considered uncollectible • All staff facilitating the collection of bad accounts should be considered for incentives

20. Remedial Management ProcessInternal Control • Control and custody of credit files • Preparation and review of final Statement of Account • Designate approving authorities on final settlement option and rescheduling of payments • Timely turn over of collections to nearest branch office • Monitoring of collections and other cash management issues • Separate MIS listing of written off accounts

21. Remedial Management ProcessPerformance Monitoring Reports • Daily collection and follow up reports • Weekly performance reports • Monthly Status Reports of Collections

22. Remedial Management Unit Recommendations • RMU is an effective and practical approach to collect and recover hardcore delinquent accounts. • To be effective, RMU must be a separate, specialized unit with its own portfolio of hardened accounts. • RMU must have goals and targets and reporting mechanisms.