1.0 INTRODUCTION

1.1 Purpose and Scope of this Manual

The purpose of this Credit Policies and Procedures Manual is to create a set of standardized policies and procedures for the lending activities of AMPLE Microfinance Bank Ltd (“AMPLEMFB”). The Policies and Procedures have been designed to assist the Credit Department, as well as other departments of the Bank in the performance of their duties. The general objective of this credit policy guide is to provide good guidelines for creating and maintaining high quality risk assets through an organized and orderly process for initiation, analysis, approval, disbursement, monitoring and collection of loans. Each Loan Officer (“LO”) is responsible for their own loans throughout the credit cycle from initial identification of prospective borrowers to complete repayment of outstanding amounts. This Credit Manual provides a detailed description of all stages of the lending process. All staff are required to strictly adhere to the rules outlined herein as a means of reducing risks.

1.2 Code of Conduct

• The LOs and all staff shall always behave respectfully towards borrowers. When meeting/phoning or in any discussions with clients, he/she should start by saying the name of the AMPLE Microfinance and then his/her own name (Showing identification as appropriate). The LOs and all staff should keep the appointments that he/she has made. If for any reason he/she should be unable to do so the borrower(s) in question must be notified in good time.


• Credit Staff should maintain a professional distance in his/her dealings with borrowers. He/she should always bear in mind the fact that if problems arise, he/she will have to scrutinise the borrowers’ activities and may have to initiate legal proceedings. This is a particularly important consideration in cases where the applicant is known to the Credit Staff – and indeed, where appropriate that the application be handled by a different Credit Staff to avoid conflict of interest.


• All information regarding the borrower is to be treated in strict confidence. Confidentiality includes taking care not to store files in places that are accessible to the public.
  
  
• Orderly file management makes it possible to get more work done in the same amount of time, which is ultimately has a positive impact on operations.

2.0 CREDIT MANAGEMENT STRUCTURE AND POLICIES

2.1 General Principles

• (a) The credit process for AMPLE Microfinance Bank Ltd will encourage the decentralizations of all credit decisions/approvals from the Board of Directors (“BOD”), Board Credit Committee (“BCC”), Management Committee (“MCC”).
• (b) The Loan officers will initiate credit relationship, which will structure and package the deals for Recommendation/approval by the appropriate authorities. The day to day management of the relationship rests with the initiating officer.
• (c) To ensure timely approvals and general efficiency, credit initiators shall obtain full information/documentation so as to complete analysis of the credit within a maximum of five (5) working days from the date of receipt of the request, which shall be stamped on the application. The objective is to ensure that final decisions are taken and communicated on applications within a maximum of one week, irrespective of the nature and location of the credit.

2.2 Credit Authorities

2.2.1 Board of Directors (BOD)

The Board of AMPLEMFB has overall responsibility for the Credit Policy and subsequent revisions of same. Other specific responsibilities include the following:

• Approving significant revisions to credit policy
• Establishing portfolio distribution guidelines in conformity with existing Regulations
• Approving AMPLEMFB’s credit management structure.
• Establishing credit approval authorities including the level of delegation.
• Approving changes in the legal lending limits and risk limits used in the bank.

2.2.2 Board Credit Committee (BCC)

The Board Credit Committee (BCC) is a standing committee of the Board. The BCC therefore exercises the Board’s responsibilities on credit and credit related issues as outlined in the Board Manual which will include:

• Approving changes in lending rate in consonance with Government regulations.
• Approving Target Market Definitions and Risk Acceptance Criteria for the lending units.
• Approving provisions for non-performing loans based on presentation by the CEO and in line with existing regulations.
• Approving new financial products initiatives.
• Approving the rating grid for credits and the credit process.

2.2.3 The Managing Director/Chief Executive Officer

The CEO is responsible for reviewing and recommending all credit items which are to be submitted to the Board Credit Committee and;

• Establishing guidelines for pricing of credit facilities to be approved by the board.
• Approving all credits, which are within his/her approval limit.
• Reviewing the portfolio diversification in line with guidelines given by the BCC.
• Reviewing credit related systems and their implementation.
• Monitoring portfolio risk and managing decisions to improve
• Reviewing and recommending write-offs based on the presentation of the Recovery Department, which are recommended by the Recovery Committee.
• Reviewing provisions for non-performing loans based on the presentation of Credit Administration department and regulatory guidelines as well as Board approval.
• Ensuring implementation of all credit policies and procedures by all staff.

2.2.4 Management Credit Committee (MCC)

The Management Credit Committee (MCC) is the highest advisory body to the CEO on credit issues. The CEO chairs it or a member appointed by him/her. Members of the MCC include CEO and all Departmental Heads, Head of Internal Audit/Risk Manager, Officer next in rank to the Head of Internal Audit/Risk Manager as Secretary. The Committee shall meet once in a week.
All extensions of credit above individual approval limits must be recommended by the majority of at least 3 authorised members of the MCC which must include the CEO, and Head of a Business Group/Branch Manager other than the one originating the credit.
Other responsibilities of the MCC include reviewing for referral to the CEO, all credit and credit related issues as follows:

• Credit related systems and procedural issues.
• Issues affecting credit process efficiency and/or effectiveness.
• Annual reviews of the Credit Policy to be conducted by the RISK MANAGEMENT and Audit Departments
• Credit process elements rated unsatisfactory by the RISK MANAGEMENT and Audit Departments
• Suggestion to the Credit Policy as may be submitted by any staff/group.

2.2.5 Loan Officer

The Loan Officer as the link between the clients and the institution is responsible for initial contact with the client. The Loan Officer shall conduct preliminary appraisal of the potential client.
His/her other responsibilities include:

• Ensuring policies and procedures are adhered to at the branch including conducting field studies, loan application and appraisal process.
• Delinquency management.
• Identifying problematic loan early and finding ways of mitigating the risks.

2.3 Approval Limits Policy As approved by the Board, the approval limits for AMPLEMFB shall be as follows:

BOD: Above N5,000,000.00
BOD Credit Committee: N1m – 5m.
Management Credit Committee: From N10,000 – N1m

2.4 Loan Provisions and Write-Off Policy

2.4.1 Provisioning Policy

• It is AMPLEMFB’s policy to write-off immediately any portion or all of a credit facility (including an overdraft) judged to have become uncollectible. And in any case not less than annually.
• The write-off of principal does not cancel the obligor indebtedness to the bank.
  Therefore, write-off must never be communicated to the customer. Write-off is approved by the Board on recommendation of the Board Credit Committee and the CEO.
• The recommendation for the write-off of a particular loan will originate with the LO using a request to write-Off Loan form, which shall also be endorsed by both the Operations and Finance Managers/Management Credit Committee.
• Only the Managing Director can propose a Loan for write-off to the Board
• A written-off loan will appear in the bank’s books while the loan tracking will be kept off balance but continues to be followed.
• Recovery of write-off credit remains the responsibility of the assigned Relationship Manager. A write-off should not diminish collection efforts as recovery of write-off asset is extremely important.
• The recovery efforts shall cease when it becomes clear that there is no realistic prospect of recovery and the cost of recovery efforts exceed the benefits to be derived from recovery of the credit facility.
• Cessation of Collection efforts does not affect the obligation of the customer to AMPLEMFB, and is not communicated to the customer.

2.5 Institutional Limits and Credit Exposure

The lending activities of AMPLEMFB, will be carried out within the constraints imposed by the lending limit and risk limits.

• The applicable legal lending limit will be communicated to all appropriate units by the CEO. The principal of consolidation applies in assessing adherence to the legal lending limit. All credit facilities to a borrower must be aggregated with all credit facilities extended to any related party to the borrower
• It will be the responsibility of all credit staff to ensure that outstanding on all credit elationships under their supervision are kept at all times within the legal lending limit. Situations, which might be construed as violating this limit, will be immediately referred to the CEO for review and determination of the appropriate course of action
• No credit facility shall in aggregate exceed 20% of the institution’s total loan portfolio
• All credit facilities require approvals before they are offered to customers. No additional exposure should be created under an expired facility or limit.
  Every exposure created under a facility limit must have an expiry date.

2.5.1 Types of Credit Exposure

Facilities and, therefore, the exposure are structured to minimize risks. Guidelines as given hereunder shall be followed:

• Credit lines: These expire within 6 months from the date of approval. Current line facilities may be structured to allow drawings by way of overdrafts and short-term advances depending on the customer’s business cycle, but the maturity of any credit exposure should not extend beyond the expiry date of the facility.
• Term Loans: Include any non-revolving facility where the final maturity extends beyond one year from the date approved.
• Leasing Facilities: A lease facility must be structured to allow the Bank to promptly and effectively repossess the leased asset in the event of a default by the customer.

2.6 Credit Approval Process

The Credit approval process starts from the receipt of customers’ request by the lending units and the processing of same, which culminates in the approval of a credit facility by the appropriate approval authority. The process ends with the communication of an approval of facility to the customer through an offer/commitment letter.
The processes are as follow:

1. The Loan Officers move out to seek or receives walk-in potential loan customers into the bank
2. They assess the customers’ whether they are eligible to obtain loan from the bank based on their detailed information.
3. A credit check is carried out to assess their credit status/history e.g. do they currently have any outstanding loans?
4. Based on the results from step 3, a complete KYC (Know Your Customer) is carried out where all necessary forms and documents are collected from the customer.
5. A physical visitation is carried out on the site of business and the residence of the customer to authenticate his / her ability to pay back.
6. The Loan Officer signs the customer application form and the Head of Credit recommends accordingly.
7. The Risk Manager, Business Development Manager and the Head of Operations will also review the loan and sign accordingly
8. The customer’s request will now be forwarded to the Management Credit Committee (MCC) for approval.
9. If the loan is beyond the MCC limit, the committee will recommend the loan to the BCC for final approval.

2.7 Loan Application Form and Loan Appraisal Form

Loan Application forms and Loan Appraisal forms are signed by the Loan Officer and then reviewed/recommended for approval by the Head of Credit. The forms are thereafter forwarded to appropriate authorized individual or committee including the BCC where necessary.
The objective is to ensure that decision is taken within one (1) working day from the date of receipt, which shall be stamped on the application.
Thereafter, reviewing/recommending officers should attempt to process within one day each. The objective is to ensure that a decision is taken on each credit request within one (1) week of the receipt of same.
Before a Loan Officer commits the bank, verbally or otherwise to an extension of credit to any borrower, a proper approval is required from the appropriate lending authority.

2.8 Discouraged Loans

The Bank specifically discourages the following types of credit facilities:

• Loans that bailout or replace other lenders who wish to withdraw.
Loans to political candidates, parties or other political organizations Loans to gambling enterprises. Loans relating to armament activities. Loans or guarantees/bonds in respect of criminal cases with courts or tribunals.

2.9 Pricing of Credit Facilities Guidelines

• When pricing a loan, the Bank should bear in mind the market factors and competition, financial standing/credit worthiness of Page 9 the borrower, the loan purpose, tenor and risk involved to arrive at the total yield and Return on Assets.
• Interest rates chargeable on credits will be such as to earn a return commensurate with the level of risk being assumed by the Bank. At the same time, the rates shall be as dictated by market conditions and/or statutory requirements.
• Penalty Interest shall also be charged on excesses over approved limits and past due repayments.
• Various types of fees and commissions shall accrue to the Bank on AllCredite.g.agency/management/commitment/advisory/renewal/arrangement/consultancy/vending-fees/discount/turnovercommissions etc.
• Interest, Commission and Fees structure shall be determined and advised to all credit operators by the Board, through the Assets and Liabilities Committee (ALCO) from time to time. All operators are expected to adhere to the advised structure. Deviations will have to be formally approved.
• Interest shall be accrued and charged periodically but not less than monthly. Fees and Commissions may be charged upfront or at other specific intervals.
• All charges shall be debited to a customer’s account, but some fees or commissions have to be paid before the commencement of a facility the customer shall be required to lodge such funds in the account.
• In all cases the effective interest rate shall be clearly communicated to the clients, all fees, commissions, interest rates shall be clearly communicated to the clients.
• All fees, commissions, interest rates and their calculations must be transparent and understood by the client.

3.0 Portfolio Planning, Management and Reporting

3.1 Portfolio Planning.

1. Each year, the MCC will develop details of expected net credit growth and sectoral allocation of credit exposure of the Bank.
2. The plan will take into cognizance with the provision of credits and monetary policy guidelines, current size of the bank’s portfolio, etc. The monetary net growth and sectorial exposure allowed will therefore be distributed among the loan group
3. At periodic intervals, the MCC will evaluate returns on Credit and sectoral exposures on the basis of which it will issue directives that are aimed at ensuring compliance with portfolio expectations.

3.2 Relationship Management

• The Head of Credit and other team members (Loan Officers) must maintain regular contact with customers to monitor the changing environment and its effect on the credit risks and opportunities.
• The Relationship Manager/Business Development Officer/Loan Officer will prepare an annual plan detailing the level of customer contact proposed and the general strategy to be adopted for the relationship.
• Credit reference (where possible) must be obtained on all new customers and annually in the case of old customers

3.3 Collateral Inspection and Evaluation

• Management of secured credit requires frequent periodic evaluation of collateral held and verification of the adequacy of margins.
• Internal reporting is supplemented by physical inspection of the collateral. These inspections should be performed at credit initiation, and at least annually. The more volatile the price movements of the collateral and weaker the obligor’s financial performance, the more frequent the evaluation should be.
• Outside independent appraisers should be used where we lack adequate internal collateral valuation capacity. Where tangible assets are taken as security. They must be properly insured and AMPLEMFB named as loss payee.
• LOs will be required to inspect physically, the security and support documentation pertaining to their accounts at the time of each annual review. Evidence of compliance with this requirement will be recorded on the Loan Appraisal Form. Credit Administration Department will withhold implementation of the facilities until the provisions of this clause have been satisfied.

3.3.1 Classification of Securities

Security could be classified into possessor and proprietary. A proprietary security is one that transfers the title or the proprietary rights in the property to the creditors. It may or not include the right to take possession e.g. mortgage

3.3.2 Evaluation of Securities.

The adequacy and acceptability of a collateral security to a lender depends on a number of factors including.

1. The nature of the credit facility sought.
2. The amount of the credit facility.
3. The duration of the credit facility.
4. The integrity of the credit borrower.

3.3.3 When to require security several conditions some of which are listed below might necessitate the putting in place of collateral;

• Borrower is new to the Bank.
• Borrower has erratic sales and earnings.
• Borrower fails to clean up account upon expiration of current line facility.
• Very high leveraged borrower with assurance to liquidate all debts to lenders.
• Borrower has a weak secondary source of repayment.
• Borrower is not in a group.

3.4 Release of Collateral / Security

Before collateral / Security can be released during or after the tenor of the facility, the Operation Officer / Cash Officer must ensure that the Bank is not disadvantaged, and that approval has been obtained.
Releases may change the character of the facility from a secured to an unsecured facility.

3.5 Substandard and Problem Loans

Recognition of credits that have deteriorated to, or are approaching “problem” status is a high propriety for Loan Officers. Any time there is significant adverse change in the financial or business condition of a customer, or if a customer is not meeting its business plan, all credit facilities for that customer should be reviewed promptly to determine required action.
Potential problems should be identified, appropriate risk-rated and placed on Management attention in sufficient time to permit restructure and improvement of the bank’s position. It is the responsibility of Loan Officers to identify promptly, credits that fall into these categories and review them with appropriate strategies and action plans to restore them to performing status.

4.0 Delinquency Management and Recovery System All credit facilities shall be disbursed in time and be regularly followed up to ensure good maintenance of the assets and efficient recoveries.

4.1 For Group Loans

A Group loan is a facility availed to a group of between 5 and 10 members with common objective. Where a loan ccount becomes irregular, it is first desirable for the LO to exercise peer pressure in recovering delinquent loans for group guaranteed lending and to make regular visits and hold discussions with individual clients rather than using legal methods. The LO is strongly encouraged to adopt the following steps in making recovery of delinquent and overdue balances.

• Regular follow up (once a month compulsory) of clients by the LO at their business and residential premises.
• Providing statements of accounts regularly.
• Discussions with group members on the loan performance of each of their members.
• Raising the issue of default during the group meetings and ensuring that the group and subsequently the group members takes up the risk of default by one of its members.
• Meeting with clients as soon as default occurs and making an immediate visit to borrower’s house or business premises as soon as default is noticed.
• Seizure of assets by the guarantors (i.e. Group Members).

4.2 For individual loans

• Regular follow up (Once a month compulsory) of clients by the LO at their business and residential premises.
• Providing statements of accounts regularly.
• Discussions with the client on their loan performance and raising issues of default during the regular meetings.
• Meeting with clients as soon as default occurs and making an immediate visit to borrower’s house or business premises as soon as default is noticed.
• Seizure of pledged assets by the recovery officers of the bank.

4.3 Follow up and Recovery

For both group and individual Loans The officer should closely watch the following aspects of the client upon Loan disbursement:

• Whether loan was used as originally proposed with maximised outputs.
• Personal and individual discipline in attending meetings and keeping to agreed obligations.
• Trend of production and sales in client’s business.
• Tagging and verification of asset for insurance purpose in case of leases.
• Change in value or location of other securities pledged by client to group.

The LO shall visit all clients regularly as part of the customer care service and also to get any early signs or warning of a potential default. While visiting a delinquent client, the officer shall carefully document the discussion with them, the clients’ point of view on the delinquency and undertakings to specific deadlines agreed if action is required, and their attitude/mood at the time of visit. A Call Memo should be completed within 24 (Twenty-four) hours of the visit. A copy of the memo should be kept in the clients file, which can help the officer or someone else who takes over the portfolio to spot the intentions of the loan applicant if he or she is giving inconsistent promises or reasons for falling behind in his/her rental payment.
An Overdue Follow-up form will be developed to help the officer systematically analyse and document visits to a delinquent client. While visiting delinquent clients for follow up, the LO shall obtain the following nformation:

• State of the client’s business/asset, whether it is open full time
• whether there is a significant drop in working capital (stock),
• whether he or she has relocated the business, and
• the state and presence of the items pledged as collateral.
• The client’s acknowledgement of the exact amount that is overdue and any additional amount to be collected in penalties.
• Amount of cash immediately available with the client towards recovery of the amount overdue (Issue receipt of the spot) and a time-bound proposal to make good the amount overdue or delinquent.
• The LO’s view of the clients’ proposal towards recovery.
• Client’s prioritized alternative proposals towards loan recovery, including a mutually agreed point at which AMPLE Microfinance Bank shall step in and pursue its interests without further reference.
• Client’s prioritized alternative proposals towards loan recovery, including a mutually agreed point at which AMPLE Microfinance Bank shall step in and pursue its interests without further reference
• Client’s commitment and state of attitude to the group for group guaranteed loans and individual members, and his or her willingness to continue with group.

4.4 Dealing with missed payments.

The LO being the person on the ground is the best placed to judge what action would be most effective in collecting a missed payment.

4.4.1 Group Loans

For group guaranteed loans, the group officials shall ask the client(s) who have missed a single or have made partial instalment payment to explain to the group the following:

• Why he/she has not brought his/her instalment.
• What plans he/she has to make good this instalment
• Declare his/her willingness and ability to pay the next due instalments together with the instalment arrears.
• Request the members to assist him/her in making the required instalment.
• When he/she shall make good the missed instalment.
• Outline how he/she will get the necessary cash to pay off the amount in arrears.
• The group meeting shall not adjourn until the matter has been resolved and is fully documented.
• The group may in addition decide to immediately constitute a follow-up team to visit the member to review his or her willingness and ability to continue with the group.

During a missed payment follow-up visit, the follow-up team shall review the finance asset, key security or other securities that the client had pledged to the group when he or she was taking the present loan. An important objective for the visits is to obtain a verified promise of how and when the client intends to pay the missed payment. The follow-up team may decide to take away with them the financed asset, or other security pledged by the client during the visit based on their assessment of the situation.

4.4.2 Individual Loans

For individual Loans, the LO shall ask the client(s) who have missed a single or have made partial instalment payment to explain the following:

• Why he/she has not brought his/her instalment.
• What plans he/she has to make good this instalment.
• Declare his/her willingness and ability to pay the next due instalment together with the instalment already in arrears.
• When he/she shall make good the missed instalment.
• Outline how he/she will get the necessary cash to pay off the amount in arrears.

The LO shall ensure that the client explains all these at minimum and plan of action is agreed and documented. The LO shall also review the financed asset, key security or other securities that the client had pledged to the group when he or she was taking the present loan.
An important objective for the visits is to obtain a verified promise of how and when the client intends to pay the missed payment. The LO may decide to take away with them the key security, or other security pledged by the client during the visit based on their assessment of the situation.

4.5 Dealing with Default Loans

Once a client is declared in default, he or she shall repay all the outstanding loan balance at once.

4.5.1 Dealing with Default in Individual Loans

• In the first step to recover the loan balance, the LO shall recover an equivalent amount of the outstanding balance from his or her savings.
• If the total amount of the clients’ savings is not sufficient to cover the outstanding balance, the LO shall recover what is still outstanding from other group members’ savings in equal amounts enough to cover residual balance in full.
• The LO shall start the process of recovering securities pledged by the client.

4.5.2 Dealing with Default in Group Loans

• For group guaranteed loans, where members have paid for a defaulter from their own savings or any other source, the LO shall take the following procedure:
• The group guaranteed shall pass a resolution to issue the client who has defaulted with a seven-day Notice of Default and Intention to Recover Debt Notice.
• If the client does not settle his or her outstanding loan balance within seven days of the notice, the group shall proceed with administrative and legal proceedings to sell the securities pledged by the client to group to meet any shortages.
• Where the proceeds from the sale of security exceed the outstanding balance plus costs, the client shall be given back the balance after all his or her obligations to the group.
• Where the proceeds from sale of the asset and security are less than the outstanding balance plus costs, the group shall bear the loss.
• In the event that a whole group defaults, the LO shall immediately inform the Branch Manager or mmediate supervisor and take the following steps:
• The officer should start by discussing with selected group members or a sub-group of sympathetic members about how they could recover the outstanding debt to the group
• The officer should not recover the debt from the savings of the good clients in the group until all efforts have failed.
• As a second step, the officer together with the loyal members should approach the local administration to ask for their help in recovering outstanding debt.