Loans Appraisal Guidelines

Group assessment

a. Verify past group records (Watch for backdated records to avoid

being cheated!)

b. Verify whether the registration certificate is genuine.

c. Attach list of initial and current members with the ID Nos.

d. Probe further to establish stability of the group.

e. Observe whether the group rules and regulations constitution are

being adhered to.

f. Verify past records on group activities.

i. Level of participation

ii. Attendance at group meetings

iii. Conducting of group meetings

iv. Enforcement by the group on rules and regulations.

g. Verify the existence of the following records;

i. Correspondence

ii. Minutes

iii. Members attendance

iv. Collections: Savings

a. Fines & penalties

• Verify from the minutes and impromptu visits

• Attach list of members and their individual activities i.e. Name,
type of Business, Location etc.
• Probe members randomly (not officials) and verify from past
records (minutes)
 • Observe how officials conduct the following:

i. Enforce rules and regulations

ii. Roles and responsibilities of officials
iii. Promote individual member participation
iv. Handle disputes, discipline

v. Handle meetings

• Investigate on positive and negative aspects on why group

officials have been in office for too long (relate it to the
constitution)

The Client

Name and Date of Birth – verify from available identification papers

Age: (Take caution on dangers of lending to very young and very old
clients though, not all such clients in this category are risky).

Marital Status: Be careful about singles without dependants.

Experience has shown that married people are more stable and reliable.
Where one has many dependants, there is risk of diversion of funds,
hence default.

Nationality: Where there is suspicion there is need for

verification from independent sources.

Residence: Investigate and verify from group members/other sources.

Length of Residence: Length of stay in the residence will indicate stability

of the client; i.e. a person, who has stayed in an area for a longer period,
indicates stability.

Home district: For future reference in case a client absconds

(chiefdom, village,)

Year started business: Number of years in business will give an

indication of experience of clients in business generally.

No. of years in current business: Will give an indication of business

stability and experience of client. Investigate change of business and
diversification to avoid experiencing new business ideas.
Ownership: Use the licenses to verify ownership of business or any
other available. The same information can be obtained from neighboring
businesses and also impromptu visits.

NB: Partnership may be difficult to handle in case of default

Other Relevant Information

• Repayment – 100%
• Savings - 100%
• Meeting attendance – over 90%
• (Refer to consolidated register or group records for this information
• If performance is below the indicators above, justify need for loan
approval

• Relations and participation of members

• Is the member social, co-operative, time conscious, respectful etc? If
not be careful.

Market Assessment

• Observe if the business has no fixed location and verify with records.
• Verify by:
(i) Probing
(ii) Investigating
(iii) Records (to establish the market share)

Verify by – investigating & probing (to establish the level of income, and
buying habits, taste and even occupation of customers).

• Observation (to relate the attitude of the client towards the market and
the strategy).

• Observe and Probe (to establish turnover and the cash flows of the
business to enable you to establish how the client will repay the loan).

• Record observation & probing whether the business information is

consistent.

• Establish the inflow and outflow of cash in relation to the loan

repayment requirements e.g. weekly, monthly, etc.
• Observe (to help you assess demand & growth potential).

•Verify records (this will enable the CO establish whether there is need to
consider grace period and evaluate expenses incurred, procurement
Management.

• This will enable the CO to assess the extent of competition and

determine the ability to repay loan.
• To enable the credit officer to establish the frequency and period of
repayment.

Business assessment
• Indicate specific business.

• Establish permanency of the business premises e.g. if rented how long

and is there a lease agreement.
If open air, do they pay daily rates, ownership of space
If it’s owned there should be evidence of ownership.

• Probe to establish the growth of the business and entrepreneurial

capability in relation to current capital.

• Verify and relate the information given to size of the enterprise and the
expenses.

• Verify whether the sales are:

Daily
Weekly; Compute into monthly sales
Bi weekly
Monthly

•Verify the above with available records and establish the fast moving
products, services and relate this to purpose of loan.

•Verify frequency of purchases and relate it to sales and profits.

Profit margin: Net profit x 100

-------------------
Sales turnover

Net profit=Gross sales less expenses.

NB: For profit margin – relate it to your institution’s interest

rate and establish capability of the enterprise to service the
loan.
• Probe and verify the months and amounts to establish the trends of
sales, expenses, amount, overdraft, loan required and ability of the
business to repay the loan (calculate the profit).
• Establish this in relation to current capital, the seasons working peaks.

• Relate the repayment period & installment, grace period to the profits
and seasons.

Security

Refer to client assessment; e.g.

-Is the client honest?
-Ability of the business to repay the loan
-Credit history etc.

The Business: Refer to business

management

-Ability of the business to repay the

loan

Cash collateral:
-Savings requirement (%)
-Fixed deposit certificate (bearer certificate)

NB: If the pledges are not adequate, the client to revise the cash
collateral

The group: Refer to group assessment

-Willingness & ability, quality of the group to guarantee the client.

Pledges: Acceptable pledges (listed in the sworn affidavit or other

recognized legal form).
 Tangible business assets
 Client household goods (verify ownership).
 Commercial plots
  Share certificates e.g. Shares quoted in the stock exchange.

Third Party: For third party guarantee pledges must be listed in a

sworn affidavit through a deed of guarantee.
-Tangible business assets
-Household goods, Commercial plots
-Share certificates

Loan processing
Members are eligible for loans on fulfillment of all FAAST rules and
regulations. The members must also fulfill all their respective group
requirements, which should not be in conflict with ………...
………………….provides loans through the following procedures:
Members are eligible for loans after an initial period of eight weeks of
uninterrupted savings of a minimum of LE 2,000 weekly. During this
period LOs must attend all weekly meetings to supervise savings
collections and prepare members by familiarizing them with the lending

(i) Borrowing Circle

Loans are lent using ……….. standard policy requirement on

disbursement sequence of 2:2:1 (i.e. a group of 5 members, will borrow
in the following order).

After the initial eight weeks of uninterrupted savings, two members in

each Cell are eligible for a loan - two of the remaining members, are
eligible for loans after a further four weeks of uninterrupted savings by
all members, timely repayment of loans and adherence to all………….
rules and regulations.

The remaining one member (usually the chairperson) receives loans after
another two weeks of uninterrupted savings by all members, timely
repayments and adherence to all ……. rules and regulations.

NB: A POSITIVE AND NEGATIVE INCENTIVE IS IN -BUILT IN THE LOAN

REPAYMENT MECHANISM. LATE REPAYMENT BY ANY BORROWER WILL RESULT
IN SUSPENSION OF FURTHER LOANS TO THE GROUP . CREDITWORTHY
BORROWERS CONTINUE TO ACCESS……. 2ND AND SUBSEQUENT LOANS AS THEY
QUALIFY.

(ii) Loan Application

During the fifth week of the orientation period, the LO facilitates the
selection of the first and second lots of borrowers using the following
process:-

The LO requests the group members to identify one member to apply for
loans to the first set of borrowers.

WHERE THERE ARE DISPUTES, THE LO FACILITATES SELECTION OF THE FIRST

LOT BORROWER, THROUGH SECRET BALLOT. THE LO PRESIDES OVER THE
BALLOT BY WRITING ON A SMALL PIECE OF PAPER , THREE 'NO'S AND TWO
'YES’S'. SHE/HE WRAPS AND SHUFFLES THE PAPERS FOR THE CELL MEMBERS
TO PICK. THE MEMBERS WHO PICKS THE 'YES’S' AUTOMATICALLY BECOME
THE 1ST LOT OF BORROWERS FOR THE CELL , AND ARE REQUESTED TO APPLY
TO THE GROUP IN WRITING.

THE APPLICATION LETTER MUST SPECIFY THE INTENDED AMOUNT TO BE

BORROWED AND SIMPLE BREAKDOWN ON THE INTENDED USE.

MEMBERS, WHO DO NOT KNOW HOW TO WRITE , SHOULD REQUEST OTHER

MEMBERS OF THE GROUP TO WRITE ON THEIR BEHALF.

THE APPLICATION LETTERS ARE THEN HANDED OVER TO THE GROUP

CHAIRPERSON.

(iii) Appraisal

All loans must be appraised. The whole group and the LO carry out
the loan appraisal. The appraisals are carried out INDEPENDENT OF
EACH OTHER. The appraisals must be carried out at the business site.

(a) Loans Appraisal by the Loans Committee

The group schedules visits to each of the applicants.

During the visits, the group members establish what the applicant does,
his/her type of business, what the applicant has to offer as security to
the group for the loan, certify ownership of the pledges and hold
discussion on the appropriateness and acceptability of the pledged
securities, family background, etc.

The members then on consensus make their written recommendations

on each of the applicants, for discussion in the sixth meeting.

The report must specify the member's recommendation on loan

amounts, business, commitment of the applicant, pledges/security
for loans, etc. 67

LOAN APPRAISAL BY LOANS OFFICER

 Prepares a list of the selected/elected lst lot loan applicants.
- Receives copies of the member’s applications.

- Schedules loan appraisal visits for each of the applicants for technical
business appraisal.

- During the appraisal, the LO carries along a calculator and a field note
book.

- At the business site the LO:-

- Appraises the viability of the business (i.e. products/service, sales and

purchases, income, profits, etc.).

- From the funding of the appraisals hold discussions with the applicant on
matters related to the repayment period, loan size and interest rate/fees.

- The information collected during the appraisal is summarized in the LO

loan appraisal.

- On the sixth meeting, the LO:-

- Facilitates the discussion of the group appraisal report presented by the

Chairperson to the entire group.

- Presents his/her appraisal report with recommended loan amount to the

entire group. Where there are differences in the two reports, discussions
are held at the group level to determine the amount to be borrowed.

- Group members are given a chance to comment on the loans, and commit
themselves to guarantee the loans.

- The ultimate decision on the loan amount to be borrowed lies on the LO

- Once the amount loan amounts have been determined by the group and
The LO, the applicants are given an opportunity to commit themselves.
The LO summarizes the implications of the resolutions arrived at, and
seeks the groups' commitment to the loans

-The LO informs the applicants on the fees and charges to be paid

upfront both the loan application and the loan insurance fund fees.
The applicants are also informed to make their own arrangements to
 swear the affidavit.

-Between the sixth and the next meeting, the applicants are informed
to pay their fees to group treasurer. The group treasurer pays this
money to the LO who issues a receipt and loan application form for
each applicant during the 7th meeting.

-The loan application form is completed by the 7th meeting.

(iv) Loan approval

The group and the LO approve the loans. During the 7th and 8th
meetings, the LO facilitates the filling of the loan application forms: the
guarantee by the Cell members, and approval of the loans by the officials
signing on behalf of the group and the LO on behalf of FAAST.

Once the above has been done, the LO ensures that the LAF has the
following attachments a duly completed and sworn affidavit; copies of
receipts of pledged securities; and a passport size photograph.

Between the 7thand 8th meeting the LO presents the loan application
to the branch loans committee made up of the branch manager,
accountant and the loan officers. The application has the following
attachments: a duly completed and sworn affidavit; copies of receipts of
pledged securities, a passport size photograph, the group and LO
appraisal reports. The loan officer must also have the entire group’s
loan and savings status report for reference.

The loans committee makes the final decision to approve, defer,

reduce or reject the loan application.

When all the above is done, the LO initiates the disbursement

processing. The following constitutes the LAF process by the branch
Office:-

-The LO attaches the loan appraisal to the LAF with all the
attachments presents them to the Accountant.

-The Accountant verifies the loan documents, by confirming the

calculation of the installments, consistency of applicant names in all
documents, cash collateral and co- guaranteeing by the group, etc.
- If satisfied, the Accountant endorses by signing on the LAF and prepares a
loan repayment schedule for each loan applicant. The accountant also
prepares a Voucher drawn in the name of the applicant as they appear in
the passbook and all other documents.

- The payment voucher, LAF and attachments are presented to the branch
Manager.

- The branch manager then verifies by checking the following:-

The consistency of the names in the passbook, the LAF, details in
i)
the passbook and other related documents.
ii) The calculation of the weekly installments.
iii) The certification and guarantee of the LO-Cell members.
iv) The attachments on the LAF (i.e. sworn affidavit, passbook, loan
appraisal, etc.).
v) The accuracy of the repayment schedule.

- If satisfied the branch Manager authorizes by signing the LAF and

payment voucher and passes them to the Accountant.

- Once authorized, the vouchers and the attachments are sent back to the
Accountant, who enters the details in the Accountant's disbursement
register
- The Accountant then removes the original copy of the PV and issues the
Vouchers, the LAF and attachments to the respective LO, who in turn
signs the Accountant's disbursement registers.

- The LO enters the details of the loan amount in the applicants passbook
and enters the same details in the Consolidated Register.

(v) Loan Disbursement

Loans are disbursed by Vouchers to individual group members. All

disbursements must be done during the groups’ weekly meetings (NEVER
IN THE OFFICE).

Disbursement to the 1st lot of borrowers is done during the 8th week.
The LO:

-Disburses the signed vouchers to the individual applicants.

- Each applicant acknowledges receipt of the voucher by signing on the
LAF, PV and the disbursement return form.
The LO informs the applicant of the first due date, the weekly installment
and directs the applicant to the cashier at SSAEFI for cashing
NB: IF THE APPLICANT IS ABSENT DURING DISBURSEMENT THE LO MUST NOT
RELEASE THE PV TO ANY OTHER MEMBER ON BEHALF OF THE APPLICANT .
-The disbursement proceedings are recorded in the group minute register.

-The LO enters the information in the LO disbursement register.

-At the end of the meeting the LO carries the LAF/attachments, and hands
them over to the Accountant.

-The Accountant attaches the original payment voucher to the LAF,

updates the cashbook and files the documents in the respective group
file for entry into the loan status.

PAYMENT VOUCHERS NOT DISBURSED IN THE MEETING MUST BE

RETURNED TO THE ACCOUNTANT FOR SAFE CUSTODY ON THE SAME
DAY

Session 13 Role of Loan Officer

Introduction
The credit officer (CO) plays a critical role because of the multiple roles of
this position. The CO is expected to be a combination of the following;
• Trainer
• Facilitator
• Counselor
• Debt collector
• Credit officer

The role of credit/loan officer cannot be emphasized enough as he/she is

the link between the customers and the institutions. In other words the CO
is the marketing/relationship manager and it is therefore important that the
CO conceptualize this so that he/she can actualize it.

These cadres of staff are expected to know it all and often times are expected
to be the “jack of all trades”. Whether these staff see themselves as
described above is a matter for discussion.

It is therefore important that CO has the prerequisite skills to perform

his/her role effectively. While the institutions are held responsible for
recruiting and developing qualified staff, the individual staff should also
take the initiative to be knowledgeable and remain informed.
The role of the CO described above is usually not written and therefore is
not part of the formal role. The formal role is documented and summarized
in detail in what is officially referred to as job description.

The job description would normally include the following;

 Job title
 Department
 Job summary
 Specific duties
 Supervision relationships
 Working Conditions
 Job requirements
 Other attributes/Qualities
 Limits of authority

 Accountability

 Contacts

Planning the Operations

The credit officer takes part in planning process through the following
activities:

• Conducting field surveys, enumerate businesses and develop

understanding of operational area.

• Evaluating accessibility to support auxiliary and other services such as

Banks, Police stations, Schools etc.

• Identify other development agencies/government departments for future

collaboration.

• Compiling the report on survey of Area to the customer service supervisor

(credit), who in turn consolidates all Branch reports to the Branch Manager.
Reports must address;

 Potential clients’ feelings towards the Bank

 Current and future potential for Savings and Credit

 Accessibility to the Area

 Accessibility support and other future auxiliary services in the area

 Possible conflicts and constraints

  External factors that could affect Institution's operations favorably

 Presence of other Development agencies

 Providing similar or other services

Outreach & promotion

The CO undertakes outreach and promotion activities by:

• Preparing promotion message

• Preparing promotional materials
• Calling and organizing meetings
• Responding to enquiries
•Working with existing clients
• Re-organizing fragile groups
• Maintaining good public relations & upholding correct image of the
organization
• Organizing seminars for group leaders

Recruitment and intake of clients

The CO recruits clients.

• Respond to enquiries and make scheduled and unscheduled visits to

potential clients for verification purposes

• Make assessment of clients and client business and if satisfied train them

Training

The groups are trained on:

• How to conduct group meetings
• How to take minutes and maintain group records
• How to open and operate a Bank account
• How to formulate a group constitution
• How to access loan application
• Good borrowing principles
• Advantages of shorter repayment periods
• Group character assessment
• Leadership roles and duties of group officials
• Group meeting formats, members rights and obligations
• Purpose and interpretation of individual member records
• Interpretation and operation of institution savings policies and procedures
• Security for loans

Loan processing, disbursement & loan collection

The CO facilitates the process by;

• Appraising the applicants and their groups
• Ensuring that application documents are duly completed.
• Facilitating the disbursement
•Follow up
•Ensuring loan payments are on schedule.

Reporting

Information is important to determine whether the institution is on course

or off course, and so the CO must periodically prepare progress reports for
his/her use and for management use as well.

Other duties
Duties as may be assigned by the manager and may include acting on
behalf of the manager, presentations at conferences etc.