The 5 Basic Steps(Approach) to Secure Lending to Micro-Traders.

By: Tony Elohor Osokpor0 comments

STEP 1: CLIENT RELATIONSHIP ESTABLISHMENT/CLIENT ACQUISITION:

  • SUB-STRATEGY: TWO MODEL APPROACH TO CLIENT ACQUISITION.

  1. Clients who are participatory Members/Investors.

  2. Clients who are external beneficiaries of periodic credit facility – lending to specific needs.

STEP 2: PRELIMINARY ASSESSMENT/CAPACITY MEASUREMENT& QUALIFICATION:

  • Type of business – Fast moving, high turnover goods/services.

  • Scope and size of operation – Monthly turnover, frequency of deposits.

  • Sensitivity of business – Durability of goods/regulatory impediments.

  • Business assessment – Potential for growth and expansion.

  • Strength and weakness analysis – Duration to successful close of the deal.

  • Financial history/projection.

  • Owners character assessment – Who is behind the picture (subjective test questions). Have you ever taken a credit before? Evidence of previous credit performance, etc.

STEP 3: CREDIT NEEDS IDENTIFICATION:

  • Business area of highest activity.

  • Previous capital injection.

  • Profit history / performance.

  • Business cycle/rate of returns.

  • Cash flow projection – effect of additional capital injection analysis.

  • Duration to realize expected margin of capital advantage.

STEP 4: CREDIT CONTRACTUAL PACK & AGREEMENT:

ON THE SUCCESS OF STEP 1, 2&3 BY THE PROSPECTIVE CLIENT, THE FOLLOW SHALL APPLY STRICTLY:

  • Client is required to open a joint account with his/her name and name of the credit manager of the company.

  • Mandate will be both to sign at all times for all withdrawals.

  • Approved facility amount will be availed into this account.

  • Customer to provide two cheques of a separate running personal current account, covering the principal and accrued interest amount + all incidental charges.

  • Repayment will be either by direct payment into the company’s account or cash or cheques – whichever is more convenient.

  • Customer to provide two guarantors with undated cheques.

  • Customer to sign collection agreement with a stand-by loan recovery agent, who is empowered to invoke all clauses of all agreements pertaining to the facility.

  • Customer to sign a stock hypothecation agreement and confiscation of goods in shop if defaulted. To this end, customer will issue receipt covering the total physical goods financed in the shop/business, to aid easy recovery if necessary.

  • Security equity of 10% must be in place before any credit is disbursed.

STEP 5: MONITORING AND RELATIONSHIP SUSTAINABILITY: Our credit officers shall be responsible to do the following immediately after disbursement:

  • As soon as the funds are disbursed into the joint account and all administrative processes concluded.

  • Credit officer will not allow direct access to cash by customer, but customer will provide account details of the third party (vendor) for direct transfer, cheque issuance, or other means of payment for the goods/service to the recipient to deliver straight to customers shop.

  • Immediate, stock taking is done on the spot and a stock hypothecation form covering the total value of stock financed and signed.

  • This is placed in customers file at the office, while a copy is handed over to the customer.

  • Daily cash pickup from the sales at the shop where possible, but if not, at least twice a week cash must be picked up and the joint account funded at the bank of choice.

  • Continuous progress of cash flow/turnover from shop is monitored to forestall diversion.

  • Monitoring trigger: any two consecutive defaults will lead to invocation of the stock hypothecation agreement and the goods left at the shop will be confiscated and sold off to recover the facility, where applicable.

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