The following are the requirements for one to qualify for a loan:
Note that loan applications are subjected to the credit committee for approvals.
Schedule for loans approvals is two sitting every month i.e,
Delinquency causes untold suffering mainly to the lending institution. These include: –
1. Slowing portfolio rotation -delayed repayments will negatively affect the institution’s returns from its investments (loans). This hinders the ability of the society in granting loans to other members.
2. Increase in collection costs; belated repayments of loans may raise collection costs which are inclusive of visits, debt collection service, analysis and legal costs.
3. Threatening long-term institutional viability; delinquency results in the institution losing confidence in terms of its sustainability. The delayed repayments suppress the future growth prospects of the institution as a result of delayed investments in other areas. This leaves the sustainability of the institution questionable.
4. Delayed earnings; every business is driven by earnings from its operations. Thus, when lending, a financial institution expects earnings to be received on or before the agreed repayment date. Any late repayment will subject the institution to suffer from failing to meet its obligations and commitments in time (dividends and interest payments).
5. Loan loss provision; Provisions are liabilities of uncertain timing or amount when it is probable that there will be an outflow of resources. In the case where the financial institution regularly encounters default cases, it has to provide for any uncertain loan losses. The resources set aside will be representative of leakages from the circular flow of income of the institution.
6. Loss of non-recoverable portion of the outstanding loan; in lending transactions firms expect the repayment of the principal and or plus an interest. Some late repayments may become bad debts which are costs to an institution in form of a loss if it happens that the loan has not been recovered. Therefore, these credit losses will repress the feasibility of the institution’s business through the dilution of the firm’s income.
7. Written off loans require decapitalisation of the institution; loans are the assets of a lending institution, as such any written off loans will diminish the assets of the firm against the set aside provisions. This will reduce the firm’s financial position structure which might in turn affect its ability to borrow from other lending institutions for its own purposes.
8. Ever-increasing repayment problems; late repayments are usually associated with penalties and interest increase. In scenarios where the late repayments are not subject to penalties and interest, borrowers may have a routine behavior of not paying their obligations when they fall due causing cashflow problem to the firm.
However, delinquency also affects the borrower’s reputation and hence he or she may face challenges in accessing funds from other lenders especially when blacklisted in CRB. The sources of funds of the borrower will be reduced and as such the operations of the borrowing entity may be negatively affected.