Delinquency (1stSem) Flashcards
A condition that arises when an activity or situation does not occur at its scheduled (or expected) date, and instead occurs later than expected.
DELINQUENCY
Used to describe a situation in which a borrower misses their due date for a single scheduled payment for a form of financing, like student loans, mortgages, credit card balances, or automobile loans, in addition to unsecured personal loans.
DELINQUENCY
Borrower misses their due date for a single scheduled payment for a form of financing
DELINQUENCY
Remedied by paying overdue amount plus any fees or charges incurred
DELINQUENCY
Affects credit score
DELINQUENCY
Borrower fails to repay their loan as scheduled in the terms of their promissory note.
DEFAULT
Triggers the remainder of loan balance due in full.
DEFAULT
Significantly affects credit score and makes it hard to borrow in the future.
DEFAULT
_____ play a critical role in MFI’s _____, _____, _____, and _____.
- Delinquent Loans
- Expenses
- Cash Flow
- Review
- Profitability
COST AND IMPLICATIONS OF DELINQUENCY
_____ mean additional expenses for closer monitoring, more frequent visits to borrowers and a more extensive analysis of the portfolio.
Additional effort to collect delinquent loans
COST AND IMPLICATIONS OF DELINQUENCY
Putting more time, effort, and resources into controlling delinquency may _____.
compromise MFI’s ability to reach new borrowers and expand services or outreach
COST AND IMPLICATIONS OF DELINQUENCY
Delinquency can result in a _____. If loan principal is not recovered at the scheduled time, loans to other borrowers can’t be made.
slower turnover of the loan portfolio
COST AND IMPLICATIONS OF DELINQUENCY
Delinquency can result in _____ which means payment of some expenses may also have to be delayed.
inability to pay expenses due to reduced cash flow
COST AND IMPLICATIONS OF DELINQUENCY
With reduced cash flow, the MFI may be _____ or _____.
• unable to make timely repayment of borrowed funds
• meet the demand for savings withdrawals
The _____ of MFI is affected if interest revenue is not received on delinquent loans.
profitability
The most significant effect on profitability occurs when the _____ is not repaid and loan loss provision must be made.
loan principal
Portfolio at Risk (PAR) Formula
PAR = 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝐿𝑜𝑎𝑛 𝐵𝑎𝑙𝑎𝑛𝑐𝑒 𝑜𝑓 𝑃𝑜𝑟𝑡𝑓𝑜𝑙𝑖𝑜 𝑤𝑖𝑡ℎ 𝑂𝑣𝑒𝑟𝑑𝑢𝑒 / 𝑇𝑜𝑡𝑎𝑙 𝐿𝑜𝑎𝑛 𝑃𝑜𝑟𝑡𝑓𝑜𝑙𝑖𝑜
EFFECTS OF DELINQUENCY ON MFI
- Less income
- Increasing expenses
- Less efficiency (of field staff)
- Decline in image
- Ever-increasing delinquency
- Lost credibility with investors/donors
- Fewer clients
- Decrease sustainability
- Shortened life of MFI
- Restructuring
- Bankruptcy
EFFECTS OF DELINQUENCY ON CLIENTS
- Less discipline
- Less ttrust
- Less motivation
- No possibility to reborrow
- Bad image in the community
- Client not served effectively
- Chain reaction to others in the group (other borrowers stop paying: those waiting for a loan cannot receive it)
- Loss of savings
- More difficult sustaining business and family needs
EFFECTS OF DELINQUENCY ON FIELD STAFF
- Low performance
- Decreasing benefits
- Must focus on delinquent
- No bonus
- Loss of motivation
- Retrenchment/Forced resignation/Downsizing
- Extra effort to motivate clients
- Laziness
Loan installment has not been paid at the period stipulated in the loan contract.
PAST DUE
Late payment, partial payment or a skipped payment.
ARREARS
TRUE OR FALSE
Delinquency occurs when a loan payment is one day late.
TRUE
TRUE OR FALSE
The cost of delinquency are direct, but they are hidden.
TRUE
TRUE OR FALSE
Delinquency is not contagious: the cost can snowball.
FALSE
5 MAIN CAUSES OF DELINQUENCY
• Institutional-related causes
• Client-related causes
• Credit officer-related causes
• Group-related causes
• Externally-driven causes
Institutional-related causes
• Poor product design
• Poor service delivery
• Poor client selection
• Faulty Collection System (Poor loan management)
• Poor credit discipline
• Poor HR practices
• Poor managerial practices
• Credit officer-related practices
Client-related causes
• Illness/ Death in the family
• Poor Client Discipline
• Poor Business Practices
Externally-driven causes
• Calamities
• Natural Disasters
• Poor Economic Condition
• Price Fluctuations
TRUE OR FALSE
In traditional thinking, the causes of delinquency is the fault of the client.
TRUE
