Renewal Scoring

1. Introduction – Renewal Process

This document establishes the functional and technical specifications for the implementation of a
renewal segmentation tool in AMfB. The primary purpose of this tool is to support the credit
evaluation process for renewal client’s second or subsequent cycle clients of AMIS MICROFINANCE
BANK (AMfB). Additional to supporting the credit evaluation process, the tool can be used for client
retention strategies, cross selling of products and risk focused customer service strategies.
This document constitutes the guide to implement the segmentation tool, including the detail of each
one of the variables of the tool as well as the adjustments to the current process and the system and
operative support necessary to run the tool in AMfB.

2. General Objective

To provide AMfB with an automatic system that allows segmenting the current portfolio using a
segmentation tool that quantifies the risk level of the client. As mentioned, additionally to supporting
the loan renewal process, the score is intended to support the development of marketing strategies,
based on the evaluation, keeping the good clients, and improving customer service.

Specifically regarding the loan renewal process, the expert scorecard will provide enough guidelines to
decide which of the following procedures should be used with the client:
 The full evaluation is a detailed cash flow evaluation to determine the household surplus.
 The detailed evaluation is required to understand various factors influencing the client’s
household surplus.
 The rapid evaluation also requires client visit by the RM but it is less rigorous and it is done to
cross validate the changes that has occurred post loan disbursement. The rapid evaluation can
be done for second or subsequent cycle clients.
 Pre – approved disbursement without evaluation

The full evaluation and rapid evaluation requires client visits by the RM and hence the data collected in
both the evaluations are verified data. However, in case of pre - approved loan client is not visited
(Verification visits for verifying existence of the business); however, the client fills in some basic
information on the business & home when he receives the pre-approved disbursement at the branch.
This pre-approved information obtained from the client at the time of disbursement is non-verified
data so it needs to be compared with previous data base. If very different, next renewal for the client
will require full evaluation.

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3. Renewal Process

A high-risk client may require a more detailed evaluation before underwriting the loan; however, a
client whose has shown ‘good’ repayment behavior can be considered for simpler evaluation. The
segmentation tool helps optimize resources to gain operation efficiency.

The renewal process can be broken down into five stages. Each stage is critical and it is the
responsibility of the owner of the process (stages) to monitor the performance of the process. The
segmentation allows rapid evaluation of the low risk clients and retains the full evaluation process
for the high-risk clients.

3.1. Global Process Description

1) The Risk team is the owner of the process.

2) The renewal segmentation tool is being run every month.
3) The client payment behavior and profile information is considered for segmentation.
4) The renewal list (Resting Client 6month) – client and segment are made be available every
second working day of every new month for the branches to act on.

4. Segmentation Scorecard Definition

The variables that will be constructed from the database fields are:

Variable Fields source

Client age
Average delinquency days last quarter
% days late/ term in last loan
installment and dividing it by the term in days
Number of months as client in AMfB
Maximum delinquency days last quarter
Birth date to Current date rounded in years
Last trimester installments’ delinquency days
divided by three (assuming that there is
information of at least three installments paid)
Percentage calculate for the former loan of the
client, adding the delinquency days for each
First disbursement date to Current date in
months
Last trimester installments’ delinquency days
(maximum reached – not cumulative)

Ahead is the proposed calculation for the scorecard:

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Variable Characteristic Weight

<= 30 -30
Client age 31-65 0
0 +100
> 0 & <= 2 0
Average delinquency days >2 & <= 6 -20
in last quarter > 6 & <= 10 -50
> 10 & <=25 -60
> 25 -100
0% +100
> 0 & <=6% +50
% days late / term in
>6 & <= 25% 0
former loan
> 25 & <= 47% -20
> 47% -50
3 to 6 months 0
Number of months as 7 to 12 months 20
client of AMfB 13 to 24 months 50
> 24 months 80
0 to 8 100
Maximum delinquency 9 to 18 50
days by installment in the 19 to 30 0
last quarter 31 to 45 -50
> 45 -100

A detailed description of each one of the variables and categories included in the scorecard is made
below.

CLIENT AGE

Name Age
Characteristic RATING
<= 31 -30
Other 0

AVERAGE DELINQUENCY DAYS IN LAST QUARTER

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1. Look for the client id (CIF/CEF + Branch)

2. Look for the total unpaid or paid installments in the last quarter.
3. When the installment was paid-off before the date agreed, so the days of difference is
negative, the value of delinquency days is 0
4. Calculate the average delinquency days for the installments of point 2
5. According to the variable value, the client application receives one of the following
ratings:

Name Average delinquency days last quarter.

Characteristic RATING
0 +100
> 0 & <= 2 0
>2 & <= 6 -20
> 6 & <= 10 -50
> 10 & <=25 -60
> 25 -100

PERCENTAGE OF DELINQUENCY DAYS / TERM (IN DAYS) FOR THE FORMER CLIENT’S LOAN

1. Look for the client id

2. Look for the total unpaid or paid installments in the last loan for the client.
3. Add the delinquency days for each one of the installments of point 2.
4. When the installment was paid-off before the date agreed, so the days of difference
is negative, the value of delinquency days is 0
5. Calculate the division between point 3 / term of the last loan in days.
6. Apply percentage
7. According to the variable value, the client application receives one of the following
ratings:

Name % delinquency days/term for the

client’s last loan
Characteristic RATING
0% +100
> 0 & <=6% +50
>6 & <= 25% 0
> 25 & <= 47% -20
> 47% -50

NUMBER OF MONTHS AS CLIENT OF AMfB

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1. Look for the client id

2. Look for the first disbursement for the client and the date that disbursement was
done.
3. Calculate the difference between the current date (date the score is applied) and the
first disbursement date in months.
4. According to the variable value, the client application receives one of the following
ratings:

Name Number of months as client of AMfB

Characteristic RATING
3 to 6 months 0
7 to 12 months 20
13 to 24 months 50
> 24 months 80

MAXIMUM DELINQUENCY DAYS INSTALLMENTS IN LAST QUARTER

1. Look for the client id

2. Look for the total unpaid or paid installments in the last quarter.
3. When the installment was paid-off before the date agreed, so the days of difference is
negative, the value of delinquency days is 0
4. Calculate the maximum delinquency days for the installments of point 2
5. According to the variable value, the client application receives one of the following
ratings:

Name Maximum delinquency days in last quarter

Characteristic RATING
0 to 8 100
9 to 18 50
19 to 30 0
31 to 45 -50
> 45 -100

i. Policy Segments

Based on the calculation of the scores, the following classifications will be assigned for the client:

Renewal Classification Score calculation

Very Good – AA- Preapproved 151 thru Highest

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Good - A-Rapid 81 – 150

Adequate – B-Detailed -49 – 80
Inadequate – C-Full -149 to -50
Reject – D-Reject -150 to the lowest

Based on the calculation of the scores, the following increase in term and loan amount classifications
will be assigned for the client:
Renewal Classification Increased Term Increased Amount
Very Good – AA- Preapproved +3 Month Multiple by 1.5
Good - A-Rapid +3 Month Multiple by 1.3
Adequate – B-Detailed + 0 Month Multiple by 0.9
Inadequate – C-Full +0 Month Multiple by 0.75
Reject – D-Reject +0 Month Multiple by 0