Delinquent is a situation where a borrower is late or overdue on a payment, such as income taxes, a loan,a mortgage, an automobile loan, or a credit card account.
There have been traditional thinking of what could be the causes of loan delinquency, on this traditional way of thinking, people think loan delinquencies are caused by external factors. Some of the factors that they consider are illness or death in the family, calamities, weather conditions, poor economic conditions, price fluctuation and poor business practice of the client.
For the institution that has this way of thinking, they believe they can’t do anything about it since they are out of their control. And for them, loan delinquency becomes the big challenge in the business and to some lead to business failure.
There is another way of thinking, the way that if institutions will choose to think that way, they will see that they can do something about the loan delinquency issue. They call it a “modern way of thinking” the factors for loan delinquency. In this way, factors for loan delinquency are internal ones, they are within their control of a Microfinance, SACCOs, a Credit or Cooperative union. Some of the factors are poor product design, poor service delivery ( time to disburse the loan), poor client selection and poor loan management. Poor Product Design
A Microfinance, SACCOs or a Cooperative union should work on their loan product designs to make sure that they fit the requirement of their clients, failing to do that might cause the client to take a loan just because they are in need and not because they are okay with the terms of the loan and how it should be paid. It is advised for institutions to have different products possible and to manage them well enough to know which one is performing well and which one isn’t. Poor Service Delivery
Great service delivery to financial service providers should always be in their objectives. In order to be able to accomplish that, they should put strategies to eliminate delays of loan disbursements, inconvenience of clients to must always go to their offices for every service and so many others. With good systems implemented, they can accomplish this and other bonuses to their customers and hence reduce the possibilities of loan delinquencies. Poor Client Selection
You really have to know a person you are giving your money right!, KYC as an important key in the financial service industry, should be well managed. An institution should make sure that it has good facilities to get all the necessary information about the client and a way of knowing when they are given false information possible. When they fail on making a decision on whether to give a loan or not they are creating high probability on whether the loan will be returned or not. Poor Loan Management.
If loans are not well managed, the chances of the late payments increase. An institution should put strategies of making follow up on the nearing due-payments before they become overdue. Some of the ways can be to send SMS to clients about their coming payments, easy access of loan information to loan officers whenever needed in order to make close follow up, always to have a clear organization picture of how the loan repayments are performing and others many.
Knowing the cause of the problem and be aware that it is in your control is 50% of the solution, if you were still in a traditional way of thinking, start thinking differently and you will see many options of solving the problem.
Singo Africa Limited has worked hand to hand with several institutions on solving the above factors and more for the financial service providers to provide the best service possible. Through consultations and implementation of our product Amala App Suite, we will work together on eliminating the internal factors that are within your capabilities and get the outcome of good loan performance and happy customers. Contact us and we will be delighted to work with you.
