DELINQUENCY MANAGEMENT

What is delinquency, arrears, late payments, overdue, past due, and default?

The terms are often used interchangeably but generally arrears, past due and overdue refer to an amount that has not been paid that has become due.

Delinquency means: * Is a situation that occurs when loan payments are past due * It occurs when one loan payment is one day late * It refers to the rate of arrears or the fact that a loan is in arrears, e.g. “this loan is delinquent” means it has an amount that has become due and has not been paid.

Arrears - is an unpaid, overdue debt or an unfulfilled obligation. It is a state of being behind in fulfilling obligations. Default refers to a loan that is not expected to be paid back and/or has been written off. It occurs when a borrower cannot or will not repay his or her loan and the MFI no longer expects to receive payment. The MFI may continue its collection efforts. Usually a loan is declared in default when the borrower has stopped payment on a loan for more than 2 or 3 due dates. The time period is determined by the MFI.

The defaulted amount depends on how much is outstanding when the borrower stops making payments. Amounts that will have to be written off or counted as loan may be different from the defaulted amount depending on the ability of the MFI to collect any collateral or on a guarantee.

Zero percent delinquency is an obstacle and a reasonable goal but requires the commitment of the whole agency. Acceptance of a delinquency level above zero percent is the decision of the institution itself and a decision that has its own costs.

Causes of Delinquency and Default

Ultimately the microfinance institution itself is responsible for delinquency (even when the proximate cause seems external to the MFI) because it sets its own principles, promotes its own repayment culture,