Delinquency Prevention Strategies

Question 1

Delinquency Prevention Strategies

Answer 1

Institutional Culture
Client Orientation
Staff Incentives
Delinquency Penalties
Enforcing Contracts

Question 2

Under institutional culture

Answer 2

● A critical delinquency management method involves cultivating an institutional culture that embraces zero tolerance of arrears and immediate follow-up on all late payments.
● MFIs can also remind clients who have had recent delinquency problems that their repayment day is approaching.

Question 3

Under client Orientation

Answer 3

● A logical step toward developing a zero-tolerance institutional culture is to communicate this concept to each new client before she/he receives a loan.
● An orientation curriculum should be prepared along with graphics and teaching aids to simply and clearly describe the terms of services being offered, the expectations of each client, and procedures that will be followed in the case of arrears.

Question 4

under staff incentives)

Answer 4

● Creating staff involvement in discouraging delinquency, through a staff incentives system, can be effective.
● Financial incentives entail minimum portfolio quality criteria for incentive eligibility and should have a greater weight for portfolio quality than for portfolio quality.
● In addition, staff should carry bad debt in their portfolio for a significant period of time (at least six months) to ensure that they are held accountable for making credit decisions.
● Non-financial incentives include branch and loan officer competitions and special recognition for top performers.

Question 5

under delinquency penalities

Answer 5

● Clients should be penalized for late payments
● This could include:
o Delinquency fees pegged to the number of days late
o Limiting access to repeat loans based on repayment performance

Question 6

Under enforcing contracts

Answer 6

● An MFI will quickly lose control of portfolio quality if it fails to enforce its contracts. MFIs should not have any policies in their contracts that they are not prepared to enforce.
● While certain accommodations can be made for borrowers who are willing but unable to repay, any uncooperative behavior from delinquent clients should quickly escalate to the most severe penalties that the MFI could enforce, including the use of the local judicial system if appropriate.
● Clients should be oriented to penalties and delinquency procedures before receiving their first loans, so they know exactly what to expect if their loans become delinquent.