CREDIT MANAGEMENT POLICIES AND LOAN RECOVERY IN SELECTED MICROFINANCE INSTITUTIONS
Microfinance institutions comprise several financial services for poor and low-income families and for the micro-enterprises. They provide services such as savings, credit, leasing, insurance and cash transfers. The banks, NGOs, credit and savings cooperatives and associations, as well as the non-financial and informal sources are the institutions that provide all the above services. The aim of this program is to reduce the poverty condition of many places in the world. At the same time, to facilitate the poorer clients to build assets, as well as to increase their incomes, so as to reduce their economic problems. This is the main reason that Microfinance helps out rural family circles to plan and to manage everyday. The microfinance policies also include the facilitation of the business development services in order to build financial and business development capacity among rural households, as well as to improve their technical skills, so as to provide local support services for enterprises with emphasis on marketing, and establish linkages between forest communities and microfinance services. Hence, business development services should grow with the development of small-scale enterprises and must meet the ever growing needs of the rural families. The microfinance institutions are initiating the training program for the rural households through funds management, loan application, bookkeeping and accounting; preliminary loan appraisal of small-scale enterprise financial planning; consolidation of small individual proposals into a bankable portfolio of forest-based enterprise plans; and support to microfinance institutions for monitoring and supervising the implementation of small-scale enterprise activities. They even help the risks-related small scale enterprises on the training for producers in quality control, providing commodities that can develop the micro-entrepreneurial skills in how to market their products and services effectively.
(http://www.fao.org/docrep/008/a0226e/a0226e07.htm)
Furthermore, microcredit is given to the low-income borrowers and normally set apart by standardized loan products with short maturities, limited amounts, fixed repayment schedules and high interest rates. Majority of the microfinance institutions entail potential borrowers to save before applying for a loan in order to express their intention to develop a stable and long-term banking relationship with them. When the amount saved reaches a specific level, the lender will let the borrower to loan a certain amount. Microfinance institutions forced savings practice to the borrowers because it is an effective way of helping them to control moral hazard risks, as well as they increase the effective interest rate and restrict potential borrowing. Aside from that, the most characterized microcredit improvement for the borrowers is the use of group lending techniques. This type of lending program reduces information asymmetries which are very widespread to most lending circumstances. In this case, all members of the group are well oriented about the value of credit of every individual in the community. The group techniques can monitor payments as well as monitor the repayments in the group. The group networks build trust and credit relationship among the people in the village, as well as mutual trust and guarantee that everyone can repay their debts on time. Additionally, microfinance institutions provide micro-insurance, a risk management tool that is used for the poor borrowers. Micro-insurance customarily started as loan insurance, but it is now growing to deal with the needs of the low-income market and to cover a variety of insurance products such as health insurance, annuities, endowment and life insurance, crop insurance, property insurance and death insurance fund.
(http://www.fao.org/docrep/008/a0226e/a0226e07.htm)
Correspondingly, in order to meet the objectives of the Microcredit Summit of touching 100 million poorest households in the world. In 2005, various actions were done to add more resources to micro financing. They include the mechanism of channeling funds; especially the government and donor funds, to microcredit institutions through autonomous apex funding organizations that has proven to be efficient, quick and cost effective. The most important condition of funding lies on the government side, most particularly the country must commit itself to help completely the poor families in the nation through an autonomous microcredit fund and to allocate adequate resources for them. The microcredit funds supposed to have practical standards and procedures for evaluating the partner organizations in accounting and auditing, default management, management information systems, human resource development and sustainability. Nevertheless, the strong commitment of the government and the stakeholders to microcredit operations and to its missions and goals, good management, quick and cost-effective implementation of the micro-finance policies, as well as the efficient and effective reporting systems and assessment on the performance of the organizations involved. Obviously, any microfinance systems would not be effective and efficient without a firm decision to implement an innovative guidelines, techniques and practices.
(http://www.microcreditsummit.org/papers/fundspaperfinal.htm)
References:
(http://www.fao.org/docrep/008/a0226e/a0226e07.htm)
(http://www.microcreditsummit.org/papers/fundspaperfinal.htm)
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