1 WORI Microfinance Loan Training December 2009. 2 Introduction Today we will teach you all about the loan process. By the end of the day we want you

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WORI Microfinance Loan Training

December 2009

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Introduction

Today we will teach you all about the loan process.

By the end of the day we want you to understand all the policies and procedures.

We will then hand out loan applications so you can begin to fill them out.

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Loan Basics - Definitions

Loan principle – The amount of cash we loan to you. Interest – The amount in addition to the principle you

must repay. We charge interest to cover our costs and inflation.

Loan duration – the period of time from when we give you the loan to when you pay it back.

Payback period – the period of time from when you begin making repayments to when you finish.

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Microfinance Group Structure

Why the group structure?– We are following models used by successful

microfinance institutions around the world.– The group structure has proven to be very

effective.– Repayment rates are usually around 98%.– We are expecting the same from you!

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You are to form groups of 5. Each group has a chairperson. Initially, 2 group members may apply for a

loan. You as a group should determine the order in

which the members receive a loan.

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Microfinance Group Structure – Applying for a Loan

– For the 2 group members to apply for a loan, they must first fill out a loan application form.

– This form is then reviewed by the other members of the group.– If all other members approve it, it is passed on to WORI.

If WORI approves the application, WORI will draw up a loan contract. The contract must be signed and approved by everyone in the group. Before WORI signs the contract, the 2 group members must pass an

oral examination given by WORI on loan policies and procedures. If you pass the examination, WORI will sign the contract and hand out

the loan.

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The initial 2 members to receive loans must be agreed upon by everyone in the group.

The group chairperson must be the last to receive a loan.

After both members of the group who have loans make weekly repayments for 4 weeks in a row, the next two members of the group will receive their loan.

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Say 1 person makes 3 repayments in a row and then misses the 4th…

They must payback the missed payment and have made their last 4 weekly repayments before anyone else can receive a loan.

The other member who has a loan must also continue to make his or her repayments without missing any.

The next 2 members can then receive their loans.

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Once the second 2 members who received loans make 4 repayments in a row (and the first 2 continue to make their repayments without missing any), the chairperson receives her loan.

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If initial clients repay for 4 consecutive weeks, next 2 group members receive loans.

If everyone in the group has made their last 4 consecutive payments, the chairperson receives his or her loan.

chairperson

1.

2.

3.

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Loan Terms

You may request a loan of up to UGS 150,000 (maximum).

The interest rate is 2.5% per month. The loan duration is six months.

-You may choose to repay your loan before the six month period is over; however you still owe us interest for the full six months. This is so that we can properly manage our cash flow and be able to lend to the next person.

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Loan Terms

You must make your first repayment exactly 2 weeks after receiving the loan.– We want you to quickly get in the habit of making

weekly repayments.– We want you to feel pressure to get your business

started quickly and to begin making money.

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Group Meetings

Your group must meet with everyone weekly.– Meeting is run by the group chairperson.– Weekly repayments are collected by the chairperson at the meeting.– If you fail to attend the meetings regularly, you will be disqualified from the

program.– Even if it is not your turn to receive a loan, being at the meetings is of crucial

importance to the group structure. The group structure means group members must support each other, help each other, and learn together.

– If you are not willing to commit to the weekly meetings then you cannot participate in the program.

Those with loans will bring their bookkeeping journal for everyone to review and tell everyone what they did during the week.

At the end of the meeting someone from WORI will arrive to receive the repayment and make sure proper bookkeeping is being done by clients.

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Center Meetings

Occasionally we may call a meeting between all clients from all groups.

This will enable people to trade ideas and provide suggestions, tips, ideas, and encouragement to each other.

Everyone will elect a center chief to chair the meeting.

WORI will also attend.

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Interest Terms

Interest is 2.5% per month. How do you calculate the total interest you

owe?– Say your loan duration is 6 months– Say loan principle is 200,000– Total interest due is:

6 months * (200,000 * .025) = 30,000

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Repaying the Loan

You will make weekly repayments of equal amounts over the repayment period.

Using the previous example: 200,000 loan principle, 2.5% monthly interest over a 6 month loan duration.

Total amount to be repaid is: principle + interest = 200,000 + 30,000 = 230,000

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Repaying the Loan

Loan duration is 6 months (26 weeks), so repayment period is then 26 weeks – 2 weeks = 24 weeks.

You have to repay the loan principle plus interest (230,000 total) over 24 weeks.

Weekly repayments = UGS 230,000/24 = 9,583/week.

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Repaying the Loan

Obviously, you can’t pay 9,583. Every week you will pay 9,600. After 23 weeks of repaying, you pay the

balance on the 24th week. 9,600 * 23 = 220,800 On the 24th week, you would pay 230,000 –

220,800 = 9,200.– Your actual repayment period would then be 24

weeks.

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Repaying the Loan – Repayment Form

When repayments are made, a repayment form is filled out:

DATE EXPECTED OWED

ACTUAL OWED

AMOUNT PAID

EXPECTED BALANCE

ACTUAL BALANCE

CLIENT’S INTITALS

WORI’S INITIALS

Expected Owed – The weekly amount you always owe.

Actual Owed – If you missed a repayment in the past, this is the amount you owe from this week plus your past balance.

Amount Paid – The amount you pay us for the week.

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Repaying the Loan – Repayment Form (continued)

DATE EXPECTED OWED

ACTUAL OWED

AMOUNT PAID

EXPECTED BALANCE

ACTUAL BALANCE

CLIENT’S INTITALS

WORI’S INITIALS

Expected Balance – The amount you should owe, assuming you make all of your weekly repayments in full.

Actual Balance – The loan amount (principle + interest) you still owe us. This is the same as expected balance if you have made all of your previous payments to us.

Initials – You, WORI, and the group chairperson will all initial the repayment form every week to demonstrate that everyone understands the repayments and agrees.

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Repaying the Loan – Repayment Form

Example: (Initials of client, WORI and chairperson in last 3 columns).

Payments Date EXPECTED OWED ACTUAL OWED AMOUNT PAID EXPECTED BALANCE ACTUAL BALANCE0 5/1/09 Loan Given 0 0 230,000 230,0001 19/1/09 9,600 9,600 9,600 220,400 220,4002 26/1/09 9,600 9,600 9,600 210,800 210,8003 2/2/10 9,600 9,600 9,600 201,200 201,2004 9/2/10 9,600 9,600 9,600 191,600 191,6005 16/2/10 9,600 9,600 5,000 182,000 186,6006 23/2/10 9,600 9,600 14,200 172,400 172,4007 2/3/10 9,600 9,600 9,600 162,800 162,800

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Missing Payments

The previous repayment form showed an example of someone not making a full payment on the scheduled day.

What happens if you miss a payment, or cannot make a payment in full?

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Missing Payments – Policies and Procedures

If you miss a payment, or fail to repay in full, the first thing that happens is WORI will meet with you and the chairperson in a private meeting, and discuss what went wrong.

WORI may also decide to visit you at your workplace and see what is going wrong.

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Once you miss a payment or fail to repay in full, the amount you failed to pay will be added to the amount you owe for the next week.

This process will continue week by week until you have repaid all money that you owe.

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No one else in your group may receive a loan until you have repaid all the money you owe.

If you repay everything you owe and you have made your last 4 weekly repayments on time, others in the group can receive their loan.

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What happens if you have not finished repaying by the end of your loan duration?– You will be charged additional interest of 1% per

month plus the original monthly interest of 2.5%, for a total of 3.5% monthly interest until you finish paying the loan.

– A new repayment schedule will be drawn up based on the amount you.

– Let’s look at an example.

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Example: Failing to repay fully during loan duration.

This client still owes 36,000 at the end of the loan duration.

Payments Date EXPECTED OWED ACTUAL OWED AMOUNT PAID EXPECTED BALANCE ACTUAL BALANCE CLIENT'S INITIALS20 - 9,600 9,600 9,600 38,000 38,000 J.D.21 16/6/2010 9,600 9,600 0 28,400 38,000 J.D.22 23/6/2010 9,600 9,600 1000 18,800 37,000 J.D.23 30/6/2010 9,600 9,600 500 9,200 36,500 J.D.24 7/7/2010 9,200 9200 500 0 36,000 J.D.

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A new repayment schedule must be made. WORI will sit down with the client and

chairperson and discuss the new repayment schedule.– In the previous example, it is clear that towards the

end of loan, the client was making enough money to pay the rest back fairly quickly.

– The client and WORI agree on a new repayment period of 1 month.

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A new repayment schedule will then be drawn up, with a repayment period of 1 month, and loan principle of 36,000.– The balance owed becomes the new loan

principle.– The interest owed can then be calculated using

the loan principle of 36,000, a loan duration of 1 month, and 3.5% monthly interest rate.

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New loan interest:1 month * (36,000 * .035) = UGS 1260 Loan principle + interest = 36,000 + 1,260 = 37,260 Weekly Repayments: UGS 37,260/4 weeks =

9,315/week.

• You would pay 9,300 UGS per week

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After paying UGS 9,300 for 4 weeks, you would be left with a balance of:

37,260 – 37,200 = 60. You would pay UGS 100 on the 5th week.

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If the client misses a payment again or fails to repay everything at the end of the loan duration, the same procedure as before is followed. If after a second repayment schedule is drawn the client fails to repay everything owed, the group would have to pay this sum within one week.

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Requesting your Loan

How do you know how much to request?

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Requesting your Loan – Loan Amount

How do you know how much to request?– You need to do research and planning!– Calculate all of the expenses you need for your

business. Don’t forget anything! Remember transportation, and

other such indirect costs. How many of the on-going expenses can you pay with

revenue generated from your business.– Don’t forget that some of your revenue will have to go to

repayments.

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Requesting your Loan – Loan Amount

Make sure you request enough to cover expenses you can’t afford currently using your business revenue.

The loan application requires you to fill out detailed planning information for your business, and may help you decide what amount to request.

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Requesting your Loan – Loan Application

When it is your turn to receive a loan, you must first fill out the loan application.

The loan application has three parts:1. It firsts asks for some basic personal information.

2. It then asks for the amount you are requesting .

3. Finally, it asks for a detailed business plan.

If you have trouble reading or writing, ask other group members or us for help.

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For your business plan, you are required to estimate all of your expenses and revenues from the first 4 weeks of your business.

– You also have to give us a general idea of your expected expenses and revenues after week 4.

We know it is impossible for you to estimate and guess everything accurately, but we want you to do your best.

We will also ask where you plan on selling your product and how you plan on promoting it.

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This will require doing market research.– You will need to price different items you want to buy and

determine how much you will sell your product for.– You will need to research different suppliers of your inputs and

see which are cheapest. If you have a friend in a similar business, talking to them could

help.– You will need to make sure you have thought about all

possible expenses (for example, transportation).– You need to try to determine how much you want to sell your

product for, how much people are willing to pay for your product, and the amount of your product that will be demanded.

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Requesting your Loan – Processing Fees

Application Fee- There is a fee of USH 3,000 for WORI to process the application fee, individual and group loan contracts and the individual repayment schedule.

- This fee is due when you submit your loan application. Commitment Fee:

– To assure WORI that you are serious, plan to repay the loan and intend to adhere to the agreement you signed, we are requesting a commitment fee of USH 10,000 from every group member that is approved for the loan.

– The commitment fee is payable before the loan is paid out to the first group members.

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Repaying your Loan

It is very important to always plan for your weekly repayments.

You need to make sure that when time comes for the repayment, you have enough cash on hand to make it.

For example, if you have 18,000 in cash and need to make a 10,000 repayment in 3 days, don’t spend more than 8,000 of your current cash!

– And then make sure you will be able to earn an additional 10,000 before next week’s payment.

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Repaying your Loan

Save, don’t spend your profits! Save for:

– Repayments– Necessary living expenses– Reinvestments in your business!

It is important you save and not spend your income, so you will be able to continue your business (reinvest in it) after you pay back the loan.

Paying back the loan on time may qualify you for bigger loans with WORI.

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Repaying your Loan - Incidentals – Policies and Procedures

Extended illness or Emergency: If you are unable to run your business for a week or more, there should be enough cash on hand to make weekly repayments (give to group to repay for you). However, if you are sick for an extended period of time the group should make the payments for you and you will repay them when you are well.

Death: In the unfortunate event that you die before finishing repaying the loan, indicate a next of kin who can run the business on your behalf and repay the loan.

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Conclusion

We know we went over a lot of information during this training and you may feel overwhelmed by the information and all that is required of you.

Relax! We and your other group members are here to help you. Have confidence in yourself – if we did not believe you could use

this money to successfully impact your business, we wouldn’t give you a loan.

We have faith that you can run your business successfully and repay us.

If you have any questions, never be afraid to ask us anything.

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Conclusion

GOOD LUCK!!!

Documents

1 WORI Microfinance Loan Training December 2009. 2 Introduction Today we will teach you all about the loan process. By the end of the day we want you