John Patrick M.

Valenzuela
BSENTPL 3-2

Delinquency Management

Activity 2

1. How does delinquency affect MFI sustainability?

Delinquency refers to the failure of borrowers to make loan repayments on time. When
delinquency rates increase in microfinance institutions (MFIs), it can have a negative
impact on their sustainability

 Financial Losses: Delinquency leads to a decrease in loan repayments, resulting

in financial losses for the MFIs. These losses can undermine their ability to meet
operational expenses and fund future loans

 Capital Constraints: Increased delinquency rates can limit the availability of

capital for MFIs, as investors may become hesitant to invest in them. This can
restrict the institution's growth and its ability to serve more clients

 Increased Costs: Delinquency requires MFIs to allocate additional resources for

loan recovery efforts, such as staff time and legal expenses. These costs can be
substantial and adversely affect the institution's financial health

 Reputation and Social Impact: High delinquency rates can damage the reputation
of MFIs and erode trust among their clients and stakeholders. This can make it
challenging for them to secure future funding and expand their outreach in
underserved communities

2. What are the 5C's of credit?

 Character: Assessing the borrower's trustworthiness to repay the loan based on

their credit history, integrity, and past financial behavior.
 Capacity: Evaluating the borrower's ability to repay the loan, considering their
income, employment stability, and existing debt obligations.
 Capital: Assessing the borrower's financial resources and assets that can be
used as collateral or provide a safety net in case of default.
 Collateral: Evaluating the borrower's assets that can be pledged as security for
the loan, providing assurance to the lender.
 Conditions: Considering the external factors (economic, industry-specific, etc.)
that may affect the borrower's ability to repay the loan.