Loan Policy

INTRODUCTION
1.1 Background
In REMICAN SACCO loans constitute a major business activity and generate a bigger percentage of the society’s income and equally, taking up the large proportion of management time.
There is a potential of an error or irregularity in this area which may expose the Society to a risk of losing its resources through the borrowers’ ,failure to repay the loans. The implications of the above would be either understatement of loans advanced to members, wrong management accounts, loss of finance to the society and ultimately accounts that will not give a true and fair view of the Society’s loan balances at any given point. This therefore, calls for thorough management of loans in order to ensure that the risk of non full repayment of loans is eliminated completely.
This policy is therefore aims at, addressing the above and serves as the informative guide tool for both members and staff of the society.

1.2 Objectives

The objective of this policy is to provide guidance on the lending procedures to members of the society  as well as act as a reference for the best practices for the identification and analysis of risk in lending propositions and for the monitoring and control of the society loan.

1.3 Regulations

This credit policy is within the guiding laws and rules which are contained in the:

1. The Kenya Constitution 2010
2. Co-operative societies Act 2004
3. Co-operative societies rules
4. REMICAN SACCO By-laws

 Access to the credit policy

The policy will be available to REMICAN Sacco Society Limited members.

1.4 Definition

This policy is guide to action and provides procedures and guidelines on how REMICAN Sacco Society Limited should process loans, member qualifications,applications,approval,disbursement,administration,monitoring and delinquency management.

Guiding principles of the credit policy

1. Loans are given to bona fide members only.
2. Loans are properly appraised and approved.
3. Disbursement of loans is done as per approval terms and conditions .
4. Interest income is collected and recognized in the accounting period that is earned.
5. Proper records on loans are kept.
6. Effective monitoring and control.

AREAS OF LENDING

The following are the major loan products;

• Development
• Education
• Asset acquisition
• Emergency
• Domestic consumable
• Business

GENERAL LENDING

1. A variety of loan products shall be developed after a careful research has been done and demand established to serve the need of members.
2. A member shall be allowed to run all loan products as long as the accounts accommodates.
3. Loans will be disbursed on first come first served basic.
4. Members will be eligible for loans after Six months of membership and also must have paid in full Remican Sacco Society Ltd share capital of Kshs 5000/= and have Members Deposits of Kshs 7200/=.
5. Loan applicant is entitled to two times his/her Saving but subject to lending policy.
6. Savings contribution paid in lump sum for the purpose of securing loans must remain in the Account for at least three months.
7. Guarantor must be a member of Remican sacco and No member will be a guarantor for more than two (2) loans at any given time.
8. All loans forms must be submitted to the office for approval by the credit Manager or any other relevant Authority set to take place, it will be processed within three(3) day of receiving the application.
9. A member who withdraws from the Sacco and rejoins later will be treated as a new member for the purpose of this policy.
10. The amount applied for shall be fully covered by the loanee plus guarantors saving.
11. A dormant member shall not be considered for any loan.
12. If a member decides to cancel his/her after the process has been finalized a fee of Ksh1000/ = shall be charged

LOANS RESHEDULING AND REFINANCING

1. To qualify for top up, the members must have paid the member loan and development loan for at least 6 months.
2. A commission of Kshs 500/= will be levied on the principal balance.
3. The top up amount requested is treated as a new loan.
4. All loans must be fully secured by members savings or a guarantors.
5. No refinancing of school fees loan.
6. No limits for Refinancing of emergency loan.
7. Other terms and conditions of the original apply.

CREDIT MANAGEMENT  

REQUIREMENT FOR QUALIFICATION OF LOANS

1. A member must have completed at least six months active membership.
2. Any boosting of savings by a member shall only be considered for a loan after three months.

LOAN APPLICATION

1. All applications for loans shall be made on prescribed forms by the society.
2. False information on application form shall lead automatic disqualification.

LOAN APPRASIAL

All loans shall be appraised as per the terms and conditions of the loan type.

LOAN APPROVAL /REJECTION

1. All loans beyond back office manger approval shall be approved by the credit committee.
2. No member of the loan approving committee shall be present when his /her loan is being considered.
3. Members will be informed of the decision passed by the credit committee, such a member will be free to submit a written appeal to the management committee within fourteen (14) days from the date a decision was passed by the credit committee.
4. Loans/advances/ overdrafts approval authority levels. Approval authority levels shall be applied.
5. The Credit Committee shall approve loans based on CAMPAR – Character, Ability, Margin, Purpose, Amount and Repayment to analyze the applicant’s character, capacity, ability to pay, capital and collateral offered.

LOAN REPAYMENT

1. All loans repayment shall commence not later than the month following that in which the loan was paid to member.
2. Every loan shall be amortized or paid off according to the original agreement and for no reason on circumstance will be due date set forth in the initial contract be restructured, extended or amended without the authority of full management committee.

• All loans return to the Sacco with their respective payments of principals, current interest and maintenance of the monetary value, as well as the respective late interest if called for.

1. The loan shall be recovered or paid in cash or cash equivalents. Therefore, by all possible means, cash recovery of the loan shall be the Goal.

LOAN SECURITY

1. All loans should be fully 100% secured
2. There will be no maximum number of guarantors, but minimum shall be determined by the terms and conditions of the loans product.
3. All guarantors must be members of the society.
4. The obligations of the previous guarantors shall cease upon completion of the loan or change of guarantors but subject to new guarantor being accepted by the society.

REPORTS

Reports shall be generated at all points of the loan application process.

DEFAULT MANAGEMENT

1. The guarantors shall be notified of the defaulted loan within 14 days after the default occurs.
2. A loan shall be considered to be in default if installment are missed in whole or part and remain unpaid for a period of 30 days.
3. Amount in default (unpaid monthly installment) will attract penalty at rate of 3.5% per month.
   

LOAN RECOVERY

1. The management shall make effects to collect loan considered to be in default.
2. Where the loan and interest balance is equal or less than the member’s savings, it shall be recovered from the savings.
3. Where a member defaults and the society is unable to remove the loan the loan from his savings, the loan shall be recovered from the guarantors.
4. No members shall be allowed to withdraw from the society if in default or has guaranteed a loan in default unit loan is cleared.
5. Communication to loan defaulters shall be made through written notices.
6. Services of debt collectors shall be engaged ninety (90) days after the guarantor fails to honors the obligation.
7. When a member dies while repaying a loan that is not default, the loan balance and interest shall be paid by the insurance upon notification and application.
8. Where a member dies and has a loan that is in default the loan shall be recovered from member’s collateral and guarantors if inadequate.

LOAN LEVEL BASED ON ASSETS

The total amount of the Sacco’s disbursed and outstanding loans shall, not exceed 70% of the Sacco’s total assets. These proportions are established on the basics of the need to maintain an adequate level of liquidity to satisfy smooth and effective running of the sacco  and set up an adequate structure in the loan portfolio.

PROTECTING THE LOAN PORTFOLIO

The Sacco shall periodically evaluate the quality of its portfolio and, at the same time make adequate provision for its protection. The Sacco provision will evaluate 100% all loans for more than 12 months and 1% for loans delinquent between one up to three 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 standards an adequate estimate of the portfolio and shall change off these bad loans against the shares and savings of the borrowers and guarantors of those loans.

LOAN COMPETITIVENESS AND TIMELINESS

An ongoing analysis of the member’s true needs shall be maintained and new credit product shall be developed or the existing one re-adapted. 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, the amount and the deadline most suitable for both the Sacco and the member.

CREDIT COMMITTEE

There shall be credit committee that consist of three members of the management committee none of whom shall be members of the executive committee. The credit committee shall be chosen at a meeting of the managing committee within seven days after election of the management committee.

The Credit Committee Shall:

1. The credit committee shall hold such meetings as business of the society may require, but not less frequently than once a month.
2. The credit committee shall inquire carefully into the character and financial conditions of each applicant for a loan and of his guarantors, if any so as:
   1. To ascertain his ability to repay fully and promptly the obligations incurred by him.
   2. To determine whether the loan is for a worthy purpose and will be probable benefit to the borrower.
   3. The credit committee shall endeavor to diligently assist members to solve their financial problems
3. The Credit Committee shall make such report to the management committee as it may require.

POLICY REVIEW

This policy shall be reviewed from time to time to ensure its relevancy and appropriateness but not later than three (3) years.