Transcript Remedial Management Unit

Management of
Hardcore Delinquent Accounts
Day II- Session 2
Remedial Management Unit
Remedial Management Unit
Session Outline
• Definition of Hardened Accounts
• Definition & Goals of Remedial Management
• Remedial Management Unit (RMU)
- Functions
- Structure
- Staffing
- Workload
• Remedial Management Process
What are Hardened Accounts?
•
Accounts classified uncollectible, and therefore,
worthless
•
Accounts requiring remedial or legal action as
the only alternative to minimize losses
•
Loan accounts that are typically 90 or more
days overdue
What is Remedial Management?
• The process of instituting effective and practical
approaches in the collection and recovery of
hardcore delinquent accounts.
• Management of problem accounts, where early
detection plays a major role.
Goals of Remedial Management
• Implement preventive
delinquency
measures
to
minimize
• Incorporate monitoring processes to detect when
accounts begin to deteriorate and to classify
problem accounts before they become hardcore
delinquent
• Maximize collection efforts through assigning a
specialized unit to manage the recovery process
What is a Remedial Management Unit?
A specialized unit to manage the collection
and recovery of all written off or hardened
accounts.
Functions of the
Remedial Management Unit
• Transfer the responsibility of recovery to a
specialized unit that has is trained and responsible
solely to the recovery of hardcore delinquent
accounts.
• Relieve branches of “uncollectible” accounts to
focus on serving existing productive accounts and
generating new accounts
Remedial Management Unit
Structure
• A Remedial Management Unit set up is ideal for
banks with multi-branches
• A single unit bank may opt to assign an
experienced account officer or collector solely for
remedial management functions
Remedial Management Unit
Staffing
Recommended Staffing for the RMU:
1. Unit head, preferably from among
experienced Microfinance supervisors, to be
based in the head office
2. At least two dedicated Collection Officers
with experience and demonstrated success
in resolving delinquent or problem accounts
3. RMU reports to the President or Head of
Lending Operations
Remedial Management Unit
Workload
• As a rule of thumb, the RMU has 200 or more
accounts
• The ideal caseload per Collection Officer is 100150 delinquent accounts
• Unit Head assigns geographic areas to Collection
Officers for efficiency in loan recovery efforts
Remedial Management Unit
Remedial Management Process
1. Classify Accounts
2. Recommend Accounts to RMU
3. Evaluation of Accounts by RMU
4. File Transfer
5. Pre-collection Preparation
6. Collection Process
7. Developing Payment Plan
8. Incentivizing Staff
9. Internal Control
10.Performance Monitoring Reports
RMU
Remedial Management Process
Classify Accounts
Pre-collection
Preparation
Create
Incentives
For Staff
Collection
Process
Internal
Control
Mechanisms
Developing
Payment
Plan
Performance
Monitoring
Reports
Recommend Accounts
to RMU
Evaluation of Accounts
by RMU
File Transfer
Remedial Management Process
Classify Accounts & Recommend to RMU
•
AOs alert MF Supervisor/Branch Manager when an
account becomes difficult to collect or “hardened”
•
MF Supervisor/Branch Manager evaluate status of account
•
All possible measures taken in the field to recover account
•
When collection options are exhausted……
MF Supervisor/Branch Manager recommends
to write off a loan
Remedial Management Process
Evaluation of Accounts by RMU
•
RMU and senior management review recommendations
from branches to write off loans
•
RMU validates recommendation for loan write off through
review of account folders and a branch site visit to discuss
the status of the account with the AO, supervisor and
branch manager
•
Senior management validates loan write off and the
account is “transferred” from the branch to the RMU
Remedial Management Process
File Transfer
•
Account files transferred from branch to the RMU
•
A Statement of Account for each account transferred to the
RMU should be prepared and filed in each credit file.
•
The account transfer is formalized to reflect the RMU’s
responsibility for loan recovery or resolution
Remedial Management Process
Pre-collection Preparation
• RMU classifies accounts according to:
• Collectible
• Uncollectible
• Collection officers should focus initially on
higher potential collectible accounts
• Collection officers organizes field visits
Remedial Management Process
Collection Process
•
RMU staff visit borrower with written off or hardened accounts at least
twice a month
•
RMU staff follow up on collection agreements and propose an
approach to recover the account;
•
Recovery activities organized per area to maximize the minimum
target of 15-25 clients per Collection Officer;
•
Collections shall be turned-over to the branch or office where the CO
has completed the collection;
•
Collection reports organized daily or weekly as procedures dictate
Remedial Management Process
Developing Payment Plan
Payment Terms
Amount Collectible
I.
Full settlement w/in 60 days after
notice.
1. Principal balance only.
II.
Full settlement of account in
single payment over 60 days
1. Principal balance, plus
2. Accrued interest up to date of
payment
III.
Settlement of account on
staggered basis
a) 3 months w/ monthly payments
b) 4 months w/ monthly payments
1.
2.
3.
1.
2.
3.
Principal balance, plus
Accrued interest, plus
25% of penalties due;
Principal balance, plus
Accrued interest, plus
50% of penalties due
Remedial Management Process
Creating Incentives
A commissioned-based incentive scheme should
be developed to motivate the RMU to recover
hardcore accounts in its portfolio:
• 10% commission for accounts considered
collectible
• 30% on accounts considered uncollectible
• All staff facilitating the collection of bad
accounts should be considered for incentives
Remedial Management Process
Internal Control
• Control and custody of credit files
• Preparation and review of final Statement of
Account
• Designate approving authorities on final
settlement option and rescheduling of payments
• Timely turn over of collections to nearest branch
office
• Monitoring of collections and other cash
management issues
• Separate MIS listing of written off accounts
Remedial Management Process
Performance Monitoring Reports
• Daily collection and follow up reports
• Weekly performance reports
• Monthly Status Reports of Collections
Remedial Management Unit
Recommendations
• RMU is an effective and practical approach to
collect and recover hardcore delinquent
accounts.
• To be effective, RMU must be a separate,
specialized unit with its own portfolio of hardened
accounts.
• RMU must have goals and targets and reporting
mechanisms.