September 2021 Issue No. 84 Managing delinquency

repayments
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Increased Collection Cost

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South Independence Square Street, P.O. Box 898, Basseterre, St. Kitts
 
Tel: (869) 466
-
5048 | 467
-
1019/1591 Fax: (869) 466
-
5317 
 
Website: www.fsrc.kn / Email: [e-mail]
 
 
REFERENCES
 
Bologun, E.D and Alimi,A. 
-
Loan Delinquency Among 
Smal Farmers in Developing Countries.(1990)
CGAP.–
Measuring microcredit delinquency.(199)
Julia Kagan.–
Investopedia Guide to Delinquency Rates 
(2020)
Pearson, R. and Greef, M.
-
Cause of Default among 
Housing Micro Loan Clients( 2006)
For many years, Financial Institutions have endeavored to detain delinquent 
customers and risky new prospects. Financial Institutions may devise mechanisms 
aimed at reducing the risk of loan delinquency.
 
Credit Analysis & Proper Client Selection: 
Financial Institutions can 
restrict bad loans by ensuring loans are granted to borrowers who are
willing and able to repay and are unlikely to become insolvent
. 
Considerations should be made to the borrowing proposition and 
subsequent repayment in isolation from other management mechanisms. 
Borrowers should be screened to assess credit worthiness based on the 
future and the past. The institution is unlikely to encounter delinquency if 
the best suited clients are selected and proper credit analysis is done. 
 
Loan Appraisal:
It includes clearly identifying the intended project and the 
borrower to assist the Financial Institution in assessing the ability of the 
borrower to utilize the loan effectively. 
 
Effective Loan Supervision/Monitoring Clients: 
Financial Institutions 
should take an active interest in their borrowers and monitor their ability 
to finance their debt. This includes measures such as effective 
communication before, during and after loan financing, visiting of 
ongoing projects and the requesting of interim financial data. Consistent 
interaction with borrowers enables Financial Institutions to immediately 
recognize early signs of default and allow for interim measures such as 
extending payments periods, reappraising the borrower
’
s financial 
position and shifting interest rates.
 
Management Evaluation and Training
: The success or failure of the 
lending system of Financial Institutions largely depends on the efficiency 
of management. Management must effectively plan, organize and control 
the lending system and therefore, must possess the qualifications and skills 
necessary on management of delinquency. Continuous training is required 
before and after loan disbursement.
 
Security/Third Party:
This is the Financial Institution
’
s assurance of 
payments in the event of delinquency. It aids in the consistent movement 
of the Institution
’
s cash flow as per loan investment returns thus reducing 
the chance of a slow loan portfolio rotation.
 
Flexible Repayments terms
: Financial Institutions may have fixed and/or 
flexible repayment terms. Repayment terms should not be rigid depending 
on the nature, size, and complexity of the borrowers
’ 
payment. Once the 
loan terms are feasible to the borrowers, it is most likely that repayment 
deadlines would be met.
Delinquency monitoring is an important aspect as it is a 
crucial analytical tool which involves the use of the 
Delinquency Ratio. The Delinquency Ratio refers to the 
percentage of loans within a financial institution
’
s loan 
portfolio with delinquent payments.
There are 3 types of Delinquency Indicators:
