Session 5

Remedial Management Unit

Remedial Management UnitSession Outline

• Definition & Goals of Remedial Management

• Remedial Management Unit (RMU)

- Functions

- Structure

- Staffing

- Workload• Remedial Management Process

What is Remedial Management?

• The process of instituting effective and practical approaches in the collection and recovery of hardcore delinquent accounts.

Goals of Remedial Management

• Implement preventive measures to minimize losses due to delinquency

• Focus on collection efforts through a specialized unit to manage the recovery process

What is a Remedial Management Unit?

A specialized trained and responsible unit for managing the collection and recovery of written off or hardened accounts.

Functions of theRemedial Management Unit

• Takes over the responsibility of hardcore accounts.

• Relieve branches of “uncollectible” accounts so that they can focus on serving existing productive accounts and generating new accounts

Remedial Management Unit

Structure

• A Remedial Management Unit set up is ideal for banks with multi-branches

• A single unit bank may opt to assign an experienced account officer or collector solely for remedial management functions

Remedial Management Unit

Staffing

• Recommended Staffing for the RMU:

1. Unit head, preferably from among experienced Microfinance supervisors, to be based in the head office

2. At least two dedicated Collection Officers with experience and demonstrated success in resolving delinquent or problem accounts

3. RMU reports to the President or Head of Lending Operations

Remedial Management Unit

Workload • As a rule of thumb, the RMU has 200 or

more accounts• The ideal caseload per Collection Officer

is 100-150 delinquent accounts• Unit Head assigns geographic areas to

Collection Officers for efficiency in loan recovery efforts

Classify Accounts Pre-collectionPreparation

Create IncentivesFor Staff

RMURemedial Management Process

Recommend Accounts

to RMU

Evaluation of Accounts

by RMU

File Transfer

CollectionProcess

DevelopingPaymentPlan

PerformanceMonitoringReports

InternalControlMechanisms

Remedial Management Process

1. Classify Accounts & Recommend to RMU

BRANCH LEVEL• AOs alert MF Supervisor/Branch Manager when an

account becomes difficult to collect or “hardened” • MF Supervisor/Branch Manager evaluate the status of

account• All possible measures are taken in the field to recover

account• When collection options are exhausted……

MF Supervisor/Branch Manager recommends loan

write off to RMU

Remedial Management Process2. Evaluation of Accounts by RMU

• RMU and senior management review recommendations from branches to write off loans

• RMU validates recommendation for loan write off at the branch level

a) review of account folders

b) discuss the status of the account with the AO, supervisor and branch manager

• Senior management validates loan write off and the account is “transferred” from the branch to the RMU

Remedial Management Process3. File Transfer

• Account files transferred from branch to the RMU

• A Statement of Account for each account transferred to the RMU should be prepared and filed in each credit file.

• The account transfer is formalized to reflect the RMU’s responsibility for loan recovery or resolution

Remedial Management Process4. Pre-collection Preparation

• RMU classifies accounts according to:• Collectible• Uncollectible

• Collection officers should focus initially on higher potential collectible accounts

• Collection officers organizes field visits

Remedial Management Process5. Collection Process

• RMU staff visits borrower with written off or hardened accounts at least twice a month

• RMU staff follows up on collection agreements and propose an approach to recover the account;

• Recovery activities are organized per area to maximize the minimum target of 15-25 clients per Collection Officer;

• Collections should be turned-over to the branch or office where the CO has completed the collection;

• Collection reports are organized daily or weekly as procedures dictate

Remedial Management Process 6. Developing Payment Plan

Payment Terms Amount Collectible

I. Full settlement w/in 60 days after notice.

1. Principal balance only.

II. Full settlement of account in single payment over 60 days

1. Principal balance, plus2. Accrued interest up to date of

payment

III. Settlement of account on staggered basis

a) 3 months w/ monthly payments

b) 4 months w/ monthly payments

1. Principal balance, plus2. Accrued interest, plus3. 25% of penalties due;1. Principal balance, plus2. Accrued interest, plus3. 50% of penalties due

Remedial Management Process7. Creating Incentives

A commissioned-based incentive scheme should be developed to motivate the RMU to recover hardcore accounts in its portfolio:

• 10% commission for accounts considered collectible

• 30% on accounts considered uncollectible• All staff facilitating the collection of bad

accounts should be considered for incentives

Remedial Management ProcessInternal Control

• Control and custody of credit files • Preparation and review of final Statement of Account• Designate approving authorities on final settlement option

and rescheduling of payments• Timely turn over of collections to nearest branch office• Monitoring of collections and other cash management

issues• Separate MIS listing of written off accounts

Remedial Management ProcessPerformance Monitoring Reports

• Daily collection and follow up reports

• Weekly performance reports

• Monthly Status Reports of Collections

Remedial Management UnitTo summarize....

• RMU is an effective and practical approach to collect and recover hardcore delinquent accounts.

• To be effective, RMU must be a separate, specialized unit with its own portfolio of hardened accounts.

• RMU must have goals and targets and reporting mechanisms.

Thank you!