Introduction

Consumer finance is an important part of the emerging middle class in Nigeria

and a major driving force behind the culture of consumerism. Everywhere you
look credit transactions are occurring; in banks, shops, over the internet and on
the phone. Long gone are the days when it was common to save, maybe for
years, for the things you wanted, and only those considered spendthrifts bought
items on credit.
Business Model Overview
The core business is organised around 5 main functions:
1.
2.
3.
4.
5.

Sales
Risk management
Operations
Collections
Recovery

Customer Acquisition
Risk Management Operations

Collections

Recovery Bad Loan Write-of

Loan Liquidation

Risk Management
The following set of the risk acceptance criteria is recommended to be set at the
beginning. It should be implemented directly in the IT system (preferably not
paid) before any other step to be done.
Value to set KO
Applicants Age

Condition
23 < Age

Applicants Age

Age > 60

Main Occupation
Bank Account
Phone
Pension/Tax ID

Unemployed
No account
No phone
No Pension (employed) /

Comment
Rejection rate has to be
measured and lower age
should be tested when
too restrictive
Rejection rate has to be
measured and higher age
should be tested when
too restrictive

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Value to set KO

Condition
Tax ID (self-employed)
DPD > 1

DPD on any loan

client already
loan
product DTI

has

downpayment
Internal Blacklist
Dud Cheque
Credit
bureau
Blacklist
Credit bureau DPD

no more than 1 loan

pDTI > 50%
downpayment <30%
Yes
>2
Yes
CB DPD > 30

Comment
Good for start; need to be
reviewed after starting
phase
good for start, delete in
the future
need to be monitored on
daily basis, tested and set
properly
valid for POS loans only
paid access; should be
the last check
paid access; should be
the last check

Operations
This third phase of credit management Operations begins once a credit
agreement has been created. It continues until the customer has repaid their
debt according to the terms of the agreement or they become delinquent,
requiring collections action to be taken (the fourth phase of credit management).
The goals of customer management are twofold. First, to ensure that
relationships with customers function as intended and an acceptable level of
customer service is provided. Second, to maximize the return generated from
customers over the lifetime of the relationship. These goals are achieved by
undertaking:
Operational management: This is about providing and managing the
infrastructure required to maintain customer relationships. For example,
dealing with customer enquires, updating account records when transactions
occur and issuing statements of account.
Relationship management: This is about understanding and meeting
customer requirements for products and services over the long term. For
example, regularly reviewing the credit limit and APR for a credit card
customer, and identifying which mortgage customers are suitable targets for
cross selling credit cards, personal loans and insurance.
Collections
Historically, the cost of writing-off bad loans is one of the largest cost associated
with operating any lending business. In other words, the management of the bad
loan write-off process is a critical tool for controling and promoting portfolio
profitablity. Given the centrality of bad loan write-off to the overall profitability
goal of a business, close attention needs to be paid to this side of the business.
Early collections
Early collections strategies are defined for each risk segment (high risk/low risk)
and DPD bucket (1-30, 31-60, and 61-90). Each bucket starts by segmenting
customers into either low or high risk segment strategy. Risk segment generally
drives start of calling and intensity of communication.
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Bucket 1-30
The calling strategy:
For high risk customers in 1-30 bucket starts at 3DPD and call spin rate is 7 days.
Call strategy for low risk segment starts at 15DPD and call spin rate is 10 days.
Spin rate 7 days means that you make one call attempt every 7 days unless
customer is already in promise.
SMS:
That is an important channel in the beginning of collection process where there
are lots of low risk customers who would pay soon anyway. SMS is accelerating
payments from those low risk customers without need to call them therefore its
a great tool how to focus calling capacities where really needed on tougher
cases. Suggested SMS spin rate for 1-30 bucket high risk is 7 days, for low risk is
5 days. This means you send customer SMS every 5/7 days unless hes in
promise.
Very important is to put emphasis on the escalation of the process. It means:
Start with the SMS with soft reminder in the beginning of the bucket for both high
and low risk customer and gradually escalate through harder reminders into Field
visits. This field visits should to start for high risk clients in 15DPD with spin rate
15 days and for low risk clients in 25DPD with spin rate 30 days.
Bucket 31-60
The bucket starts with risk segmentation. It might happen that some clients who
belonged to low risk in 1-30 bucket change to high risk in 31-60 bucket.
The strategies differ in call intensity. The spin rate for the high risk clients is 7
starting at 31 DPD, for the low risk clients the spin rate is 10 starting at 35 DPD.
Main warnings delivered in second bucket in advance are Call to employer and
warning before Late collection unit assignment in case of high risk clients.
However it is important to remind in previous bucket that we dont call to
employers if we reached them on an alternative phone number in the previous
calls to client.
Bucket 61-90
The bucket starts with risk segmentation. It might happen some clients who
belonged to low risk in 31-60 bucket change to high risk in 61-90 bucket.
The strategies differ in call scheduling. The spin rate for the high risk clients is 9
starting at 66 DPD, for the low risk clients the spin rate is 12 starting at 70 DPD.
There are much stricter scripts used for both high and low risk clients. The
escalation of the warnings ends by the information about LC assignment. The
new method used in this bucket is the institution of wage garnishment over the
first 20 DPD (61-80 DPD) in this bucket.
Note:
In case of high risk clients in the 61-90 bucket we suggest to transfer them
directly into late collection, where they could be personally assigned. Low risk
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segment customers would be kept in calling strategy. High risk customers would
be informed about the fact they were accelerated into late collections.
Except standard rules there might be special events which can accelerate clients
into Late (field) stage at any time (DPD). The special conditions are for example:

Consecutive 5 call attempts without RPC

All phone numbers are wrong (non-existing or belonging to somebody else)
Client refused to pay his obligation
3rd promise broken (within current collection cycle, i.e. since DPD1)

Queue engine
Queue engine manages the entire collection process. It generates various daily
lists of delinquent clients for which specific action is supposed to be taken in
particular day. Typical queues are:

Standard call lists to clients

Special call lists for promises, broken promises
SMS
Field visits
Wage garnishment queues
Field queues
Servicing queues for skip-trace and others

Queue engine enables you to manage sophisticated collections process where

different strategies (call scripts, SMS, letters, field visits) are applied for different
accounts and where interdependencies between actions exist. For example if
client breaks promise he will be assigned to promise queue only and he wont be
on standard call list.
Call list queues are assigned to different collectors (or team of collectors) and
processed with different priorities. Each queue can be managed and monitored
(within In-out report) separately so you can see whether your capacity is
sufficient to execute defined strategies.
The input data which are needed to make decision to which queue case belongs
are:

Delinquency status (DPD)

Overdue amount
Risk segment (low risk, high risk)
Number of consecutive call attempts without RPC
Promised period (date)
Promised amount
Promise kept
Days since last contact
Number of promise broken within current cycle

Basically there are two types of queues and strategies:

Dependent on DPD (standard call queues, SMS, field visits)
Independent on DPD, driven by special events (SMS confirming promise was
taken, call list for promise broken, skip tracing, weekend queue...)
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Queue prioritization Example

Recommended priority list for Early Collections (highest priority on the top):

Call
Call
Call
Call
Call
Call
Call

to
to
to
to
to
to
to

client
client
client
client
client
client
client

1-30 High risk

31-60 High risk
Promise broken
61-90 High risk
61-90 Low risk
31-60 Low risk
1-30 Low risk

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 Dunning Strategy
Past
Due
Day
s

Collections Strategy
Strategy 11

Strategy 22

Strategy 33

Strategy 44

SMS1

Letter 1

SMS1

SMS1

SMS1

10

Letter 2/SMS2

Letter 1

Letter 1

Letter 1

15

Letter 3

SMS2

SMS2

SMS2

20

Letter 4

Letter 2

Letter 2

Letter 2

30

Letter 5

Letter 3

Letter 3

Letter 3

45

Letter 6

Letter 4

Letter 4

60

Letter 7

Letter 4

Letter 5

65

Letter 5

70

Letter 5

Letter 6

Letter 6

75

Letter 6

Letter 7

80

Letter 7

1 All first payment defaulters and High Risk Customers

2 Medium Risk Customers with High Outstanding Loan Balances
3 Low Risk Customers with High Outstanding Loan Balances
4 Customers with Low Outstanding Loan Balances (Less than 100k)
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 90

Letter 7

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 Debt Recovery
When collections action has failed to persuade a customer to pay the arrears
on their account, or the relationship with a customer has broken down, then
the account will be transferred to debt recovery Transfer to debt recovery
usually occurs when an account is between 60 and 120 days past its due date
(24 months in arrears), but each lender has its own policy about when
accounts should be transferred. Once in debt recovery the goal is to recover
as much of the outstanding debt as possible in order to minimize the losses
due to bad debt write-off. If a good rapport with the customer can be
maintained then that is all well and good, but it is not a priority.
The main tools used in debt recovery departments are similar to those used in
collections as are many of the outcomes that result. Letters, phone calls,
SMS and e-mails are used to try and persuade customers to pay what they
owe. Thus, the credit dunning process define above can equally be adopted
for the debt recovery stage. The key difference between collections and debt
recovery is typically in the tone and content of the communication with
customers. There is a move away from conciliatory messages that are not
intended to offend more than absolutely necessary, towards stronger
language and threats of legal action. Depending on the structure
implemented, debt collections may include visit individuals homes a
business decision has to be taken with respect to this approach as it is costly
and time consuming.
The other main difference between collections and debt recovery is that in
debt recovery decisions are made about what to do with the debt (rather than
just how to collect the arrears). This could be to:
Continue trying to collect the debt using the in-house debt recovery team.
Refer the debt to an external debt collector. The debt collector will collect the
debt on behalf of the lender, and in return will receive a commission on what
they recover.
Sell the debt to a third party for a proportion of the debts value. The
difference between the value of the debt and the amount it is sold for is then
written-off.
Move to repossess property if the debt is secured. In some situations the
permission of the courts may be required before repossession can occur. For
example, in the UK repossession1 of someones home can only occur after a
court order has been obtained and a final chance to pay the debt has been
given to the customer.
Take legal action via the courts in an attempt to force the customer to pay.
There are usually several different types of legal action that can be taken to
recover debt, including various forms of bankruptcy.
Accept a partial payment to settle the debt in full and write-off the difference.
Partial payment of the debt may be accepted if it is believed that the
customer has only limited assets and that the likelihood of further recoveries
is low.
Write-off the entire debt, taking no further action. This is a common strategy
where debts are small, or if there is little chance of the debt being recovered.

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 Debt recovery is a labour intensive area of credit management. Even with the
most technologically advanced debt management systems there is a
requirement for people to contact customers, negotiate repayments, and
manage the legal process should it prove necessary. Given the scarcity of
resources, there will be a need to prioritize delinquent accounts, so that the
greatest resources are applied to those cases where the most money is likely
to be recovered with the minimum of effort. The most common way to do this
is to rank debts in priority order, using various rules based on past
experience.

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