The purpose of this Credit policy is to outline guidelines of the SACCO’s credit & advances activities. This is designed to primarily assist the credit and operations departments, in performing their duties. Its key objective is to ensure thorough loan appraisal and proper monitoring of all outstanding loans.
This policy establishes the guidelines to be followed in the lending process in order to maximize the achievement of the following objectives:
In order for an individual to be declared creditworthy, the person shall, as a minimum, meet the following basic requirements:
The SACCO shall offer its credit services to individuals or entities that meet the requirements for membership and comply with the policies and requirements of creditworthiness. Every SACCO member shall be entitled to submit his loan applications before 10th of every month and receive a response thereto, either approving or denying it within the same month.
The SACCO’s loan portfolio shall consist entirely of recoverable loans. Therefore, the granting of loans shall be based primarily on the member's ability or capacity to repay, and not only on the quality of the security offered by the borrower. Although the latter will also be taken into account, it will not be a determining factor in granting the loan. Likewise, the security shall be taken into account provided it is first mortgaged or pledged to the SACCO and has been legally secured in favor of the SACCO.
Every loan shall be amortized or paid off according to the original agreement and, for no reason or circumstance, will the due dates set forth in the initial contracts be restructured, extended or amended without the authority of the full board. All of the loans shall return to the SACCO with their respective payments of principal, current interest and maintenance of the monetary value, as well as the respective late interest, if called for. The loan shall be recovered and/or repaid in cash or cash equivalents. Therefore, by all possible means, cash recovery of the loan shall be the goal. Accordingly, collection by the SACCO will be bold, efficient, and effective. Equally important, legal action taken by an attorney and court action exists as second attempts at collection. Pledged or mortgaged securities will be the portfolio’s last line of protection and not the first.
A credit service per se is risky because several variables come into play, some of which can be controlled by the SACCO while others are beyond its control. Therefore, the Sacco shall maintain an adequate balance between safety in granting a loan and the competitiveness and quality of the service offered by the SACCO in terms of disbursement installments and record processing. This balance shall be achieved by an analysis process according to the amount placed at risk by the SACCO, i.e., the larger the amount requested, the more thorough the SACCO’s analysis and demands.
The SACCO shall periodically evaluate the quality of its portfolio and, at the same time, make adequate provisions for its protection. The SACCO provision will evaluate 100% all loans delinquent for more than 12 months and 1% for loans delinquent between one and 3 months. After having exhausted all collection measures, including the completion or stagnation of court action, the SACCO shall charge off loans rated unrecoverable. For the protection against and adequate handling of bad loans, the SACCO shall adopt as its policy and standard an adequate estimate of the portfolio and shall charge off these bad loans against the shares and savings of the borrowers and guarantors of these loans.
An ongoing analysis of the members' true needs shall be maintained and new credit products shall be developed or the existing ones readapted. This is for the sake of ensuring a timely and adequate response to each member’s individual situation. The SACCO shall be a financial adviser to each of its members and, prior to granting the loan, shall orient the members or applicants regarding their true capabilities and the amounts and deadlines most suitable for both the SACCO and the member.
The total amount of the SACCO’s disbursed and outstanding loans shall not be less than 70% of the SACCO's total assets. These proportions are established on the basis of the need to maintain an adequate level of liquidity to satisfy the demand for savings withdrawals by the users and set up an adequate structure in the loan portfolio.
The SACCO shall provide a debt/ loan disclosure information to members highlighting loan charges, interest rates, other charges and penalties. Members shall be required to sign and take a copy of the loan disclosure document.
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