ANTIGUA BARBUDA SEVENTH DAY ADVENTIST CO OPERATIVE by alicejenny

VIEWS: 9 PAGES: 53

									  ANTIGUA & BARBUDA SEVENTH-DAY
ADVENTIST CO-OPERATIVE CREDIT UNION




                      LOAN POLICY




     Market & St. Mary’s Streets, P.O. Box 1708, St. John’s, Antigua




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  Antigua and Barbuda Seventh-day Adventist Cooperative Credit Union Loan
                                  Policy

A.     Introduction                                    3

B.     General Policy Statement                        3

1. General Provision
1.1    Purpose of Loan                                  4
1.2    Eligibility for Loan                             4
1.3    Period of Loan                                        4
1.4    Amount of Loan                                   4
1.5    Rate of Interest                                      4

2. Loan Security
2.1    Security for Loans                              5


3. Management and Officers
3.1    Manager approved Loan                            6
3.2    Separate Independent Loans                       7
3.3    Loans to Committee Members and Staff                  7
3.4    Loans to New Members                                  7
3.5    New and Inactive Deposits                        7
3.6    Credit Union Employees                           7
3.7    Credit Committee/Board of Directors                   7
3.8    Maximum Loan Limit                               8
3.9    Rights Reserved by the Credit Committee          8
3.10   Confidentiality Of Transactions                       8

4. Loan Repayment/Legal Costs
4.1    Repayment Schedule                               8
4.2    Legal Costs                                      8
4.3    Loan Processing Fee                              8


5. Savings/Insurance

5.1    Compulsory Savings                               9
5.2    Insurance of Property/Vehicle


6. Production/Provident Lending
6.1    Special Loans                                    9
6.2    Small Business and Tertiary Education Loans          10
6.3    Loan Disbursement                               10




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7. Refinancing

7.1   Loan Refinancing                                                    11
7.2   Method of Loan Refinancing                                          11


8. Delinquency Control
8.1   Delinquency                                                         11
8.2   Collection Procedure                                                12
8.3   Delinquent Payment                                                  12
8.4   Bankruptcy or Liquidation Proceeding                                       12
8.5   Reduction of the Guarantee                                          12
8.6   Misuse of Loan Resources                                            12

9. Delinquency Recovery
9.1   Restructuring Loan                                                  13

10. Extension

11. Loan Policy Write Off

Appendices
1.    Provident and Productive Loans                                      15
2.    Loans Classification                                                15
3.    Terms and Conditions for Land, Vehicle and Building Loans                  16
4.    Treatment of Securities                                                    17
5.    Loan Application Form and Documents Required                        18
6.    Assessing Member Ability to Repay a Loan                            19
7.    Policy on Granting Mortgages                                               20
8.    Guidelines for Approving Evaluators/Evaluation Forms                       23
9.    Policy on Student Loans                                             24
10.   Lending Policy for Non-Nationals                                    26
11.   Lending to Retirees and Persons Nearing Retirement                         26
12.   Policy Renewal                                                      26
13.   Delinquency Control and Collection                                  27
14.   Loans Written Off                                                   31
15.   Schedule of Charges and Terms for Loans                             34

A.    Introduction

       The following is the Loan Policy of the Antigua and Barbuda Seventh-day Adventist Co-
      operative Credit Union Ltd. This policy sets out the principles and conditions governing the
      granting of loans and is intended to provide general direction and guidelines to Directors,
      Officers, Management and Staff. It is subject to review and change in whole or in part every
      two years from time to time, when considered necessary and in the interest of its members.




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     In order to ensure effective implementation, compliance and enforcement, it is critical that
     members of the Board, Credit and Supervisory Committee, Management and Staff become
     familiar with its contents. It is therefore expected that interpretation of the policy would be
     confined to this document rather than to the memories of the above mentioned parties.

B.   General Policy Statement

     True to its basic Credit Union philosophy and core values, this policy is based on the premise
     that the ABSDACCU should exercise a more liberal lending policy than other financial
     institutions.

     The Board of Directors should make every effort to ensure that this Loan Policy is as flexible
     as possible, while at the same time securing the profitability and viability of the Credit Union.

     Loans for provident and productive purposes may be granted only to members or
     registered co-operatives of the Credit Union within limits and restrictions of the
     Cooperative Societies Act and Regulations and the relevant rules and polices of the Credit
     Union.

     This Loan policy shall be adhered to in order to ensure that:

        •   A competitive programme to the Credit Union’s potential borrowers (is established)
            without jeopardizing the share deposits of its members.

        •   There is consistency in the everyday lending practices and to maintain control of the
            Credit Union’s earning assets.

        •   The Credit Union’s investment in members’ loans is of a high quality and compatible
            with approved lending principles.

        •   The Credit Union’s return on investments is relative to the risk undertaken.

        •   Members will be aware that loans are analyzed according to a written statement and
            are therefore assured and guided accordingly.




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1. GENERAL PROVISIONS

1.1 Purpose of Loan:

Loans will be granted to eligible members of the ABSDACCU for provident and productive purposes.
(Appendix 1 provides an outline of types of Provident and Productive activities.)

Members must be between the ages of 18 and 70.


1.2 Eligibility:
To be eligible for a loan, members must have been registered with the Credit Union for a period of 6
months prior to the application except in extreme emergencies, or as per Section 6.1 – Special
Loans.

To qualify for a loan, applicants must be at least 18 years of age and an active member.

Loans will only be granted to individuals who are members of the Credit Union, pursuant to the Co-
operative Societies Act.


1.3 Period of Loan:
Each loan will have a specific repayment schedule which shall be clearly related to the borrower’s
income and ability to repay and the Credit Union’s policy on certain categories of loans (See
Appendix 2-Loan classification).
Generally, loans shall not be granted for periods exceeding (7) years except those loans listed in
appendix 2.


1.4 Amount of Loan:
In no case will the amount loaned to a single member exceed ten percent (10%) of the Society’s share
capital and surplus.

The Board reserves the right to change the maximum amount which can be loaned to members (loan
ceiling) and the period on loans at any time depending on the liquidity position of the society.


I .5 Rate of Interest:
The monthly rate of interest charged on loans, calculated on the unpaid balance, will be as follows,
except otherwise determined by the Board of Directors. (See appendix 2 – Loans Classification)

   •   twelve percent (12%) for partially secured loans

   •   ten and half percent (10.5%) for fully secured loans



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2. LOAN SECURITY

2.1 Security for Loan:
The Credit Committee or authorized member of staff shall require an applicant to provide security
on the portion of any loan granted in excess of the member’s share capital, savings or fixed deposits.

No loan shall be secured with less than 50% collateral.

The following requirements should be fulfilled before the granting of any loans:

      •   Completion of the loan application by applicant and/or co-maker.

      •   Member should be of a sound character as outlined in (Appendix 6 - Accessing member
          ability to repay)

      •   All loans will be granted within the credit limit, terms, conditions and rates established by
          the Board of Directors.

      •   All borrowers must meet the ability to repay standards as set out in section 4.18

      •   All loans require a written credit history to be maintained in the members’ file.

      •   All loans require the written proof supporting the income which has been stated on the
          loan application.


Loans must be secured by one or more of the following:

      a. Applicants’/Borrowers’ uncommitted savings.

      b. Co-makers endorsement (Co-makers MUST be members or if not must bring in tangible
         security).

      c. Bill(s) of Sale, Caveat(s) on Certificate(s) of Title

      d. Certificates of Fixed Deposits, regular deposits with this or other financial institutions
         provided these are transferred to shares/deposits.

      e. Shares

      f. Mortgage of real estate

      g. Guarantor (see appendix 4)




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2.1.1   The Credit Committee should ensure that there are no prior liens, security interests or
        assignments of the securities being offered.

2.1.2 All legal fees relating to the granting of the loan shall be borne by the member and may be
      added to the amount of the loan required. All legal costs must be discussed with the member
      before the loan is approved and disbursed.

2.1.3 Assignment of salary is not regarded as security. It is however, a helpful collection advice.

2.1.4 Where applicable, a valuation of the property should be obtained in order to ensure that the
      security surrendered is within the value of the loan sought. The member shall pay the cost of
      valuation.

2.1.5 Husbands or wives shall not act as co-makers unless their combined savings approximate the
      amount of the loan requested by either party. Otherwise, the party will not be accepted as co-
      maker without additional security, including another co-maker.

2.1.6 A security register must be properly maintained by the office.



3. MANAGEMENT AND OFFICERS

3.1 Separate Independent Loans:
Additional Loans can be granted as separate loans if a borrower has a previous loan on which
registered security has been obtained and/or if the new loans are for purposes different from
existing loans and provided that new loans are adequately secured and the borrower has the ability
to repay all loans.


3.2 Loans to Committee Members and Staff:
All loans for Board of Directors and Committee members must be within the limits of their share
capital and approved in the normal manner.

However, loans in excess of shares must be approved by the unanimous decision of a specially
constituted joint meeting comprised of the Board of Directors, Credit and Supervisory Committees.
At least half of the total members of the three committees must be present and must include a
quorum of the Credit Committee.

An officer (Committee/Board member) shall not act on his/her own application, guarantee,
endorsement, or on that of his or her spouse or children. The official will not be present while the
application is being considered.




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3.3 Loans to New Members:
New members must wait a minimum of 6 months before they qualify for a loan. Furthermore,
members of less than six (6) months standing in the Society shall not be loaned any amount above
their savings unless authorized by the Board.


3.4 New and Inactive Depositors:
New and Inactive depositors who make lump sum deposits shall not be entitled to loans exceeding
their share balance (including the said deposits) unless such deposits have been with the Credit
Union for a minimum of (3) months.


3.5 Credit Union Employees:
Employees who are members of the Credit Union are also eligible for loans. The procedures for the
approval of such loans are usually the same as for officials of the ABSDACCU. The Loan account of
employees and volunteers should be subjected to periodic review by the Supervisory Committee.


3.6 Credit Committee/Board of Directors:
Approval of loans within the credit limit is the responsibility of the Credit Committee. Loans
requested above that limit will be processed by the Credit committee and referred to the Board of
Directors for ratification.

Members of the Credit Committee should not participate in deliberations or actions on their own
loans, and should disqualify themselves from deliberating or acting on the loan applications of close
relatives or anyone with whom the committee member is having financial dealings, or on
applications in which they are involved as co-makers.


3.7 Maximum Loan Limit:
The maximum amount on loans which may be granted, except for mortgage and other loans, is one
hundred thousand dollars ($100,000.00). This amount is subject to change depending on the cash
flow of the Credit Union.


3.8 Rights Reserved by the Credit Committee:
The Credit Committee is elected from among the members and has the responsibility for approving
all loans subject to restrictions set forth from time to time by the Board of Directors and by the rules
and statutes that govern the operations of the Credit Union.

The Credit Committee reserves the right to (a) Interview all applicants, (b) Interview all co-makers
and/or guarantors and (c) refuse security offered. The Credit Committee is required to follow the
Loan Policy as established by the Board of Directors.




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3.9 Confidentiality of Transactions:
All transactions with members of the Credit Union shall be kept confidential. It is expected that the
Credit Committee should exercise some discretion and show some flexibility in adhering to these
guidelines.



4. LOAN REPAYMENT/LEGAL COSTS

4.1 Repayment Schedule:
Every loan will have a specific repayment schedule. This schedule should be clearly related to the
borrower’s income and ability to repay.

Repayment terms should be established in such a manner that the loan balances decrease at a faster
rate than the expected useful life of goods or services.

4.2 Legal Costs:
All legal fees incidental to the granting of a loan shall be borne by the member and may be added to
the amount of the loan required.


4.3 Loan Processing Fee:
All loans will be subject to the payment of a processing fee.
Loans applied for between, one hundred dollars ($100.00) and nine thousand and ninety-nine
dollars ($9,999.00) will require paying a fee of EC twenty dollars (EC$20.00).
Ten thousand to nineteen thousand nine hundred and ninety nine dollars ($10,000.00 —
$19,999.00), will require paying a fee of (EC$40.00)
Twenty thousand dollars ($20,000.00) and above and all Loans using charges, Bills of Sale and
Caution will require paying 1% of the loan amount.



5. SAVINGS/INSURANCE

5.1 Compulsory Savings:
A condition of all loans granted is that borrowers will be expected, unless otherwise stated by the
Board, to continue saving during repayment of the loan. All borrowers will be required to save on a
monthly basis at least 1.5% of the principal or no less than EC fifty dollars (EC$50.00).

These compulsory savings cannot be withdrawn whilst the loan is being repaid.




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5.2 Insurance of Property/Vehicles:
All insurance policies intended to be used as securities must be assigned to and handed over to the
ABSDACCU.

 The cash surrender value of all Life Insurance and Endowment Polices must be verified in writing
by the insurance company. The insurance company must also verify that there are no prior claims to
the proceeds of the policy.



6. PRODUCTIVE/PROVIDENT LENDING

6.1 Special Loans
Special Loans will be granted to all members of the ABSDACCU for maternity/paternity, Credit
Union convention, and Wedding purposes. The compulsory savings requirement may be waived for
duration of the special loan. All applications for special loans must be accompanied with the
required and relevant documentations.

• Maternity/Paternity:
A loan up to the amount of EC five thousand dollars (EC$5,000.00) can be borrowed by an
ABSDACCU member. Required collateral is 50% of the amount borrowed. Interest shall be waived
for the first three (3) months. Payments on the principal and interest commence in the fourth
month. The interest rate should be seventy five percent (75%) of the going rate of interest.
Repayment should not exceed two (2) years when the fourth month is taken as the first repayment.


• Credit Union Convention:
A loan up to the amount of EC five thousand dollars (EC$5,000.00) can be borrowed by an
ABSDACCU member to attend the regional Credit Union convention. Loans will be granted at a five
per cent (5%) interest rate over two (2) years. The Credit Union will arrange to pay for airfare and
accommodation and the difference given to the loan applicant.


•Wedding/Funeral:
Loans for expenses incurred for wedding and funerals held in the State of Antigua and Barbuda. The
loan must not exceed EC ten thousand dollars (EC$10,000.00). Collateral required should be fifty
percent (50%) of the amount being borrowed. The period of repayment should not exceed two years.


6.2 Small Business and Tertiary Education Loans:
Loans for Small Business and Tertiary Education will be considered as productive loans, which shall
be charged a preferential rate of interest of no more than two per cent (2%) below other loans.

A business loan application must be accompanied by a business plan before the loan is approved.
The Credit Union reserves the right to ensure that cheques are written to the relevant party or
parties with which the borrower is doing business



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6.3 Disbursement:
Loans approved may be disbursed to the applicant by transfer to share/ deposit accounts or by
cheque.

Disbursement of loans must be done by someone other than the person approving the loan.

All security requirements must be satisfied before the disbursement of the loan funds.


The Credit Committee or authorized staff member has the right to pay approved loan funds to the
individual member or to the creditors on his/her behalf.



7. REFINANCING

7.1 Loan Refinancing:
A member desirous of having his/her loan refinanced shall apply accordingly. The Credit Committee
in determining the application shall consider all the relevant facts of the application.

A borrower can be eligible for refinancing after 6 months of the first loan or 50% (fifty per cent) of
the loan is repaid.

In case of borrower default, the co-signer or co-maker becomes liable for the full amount of the loan
co-signed.


7.2 Method of Loan Refinancing:
Interest must be calculated up to the day before the date that the loan is being refinanced. The total
unpaid interest calculated is treated as new money advanced and added on to the principal
outstanding or paid off in full. The new installment is then calculated on the combined amounts.

Where a loan is secured in whole or in part by guarantor(s) or co-maker(s), all parties to the loan
must agree to the re-negotiation and must sign re-negotiation or security documents as necessary.



8. DELINQUENCY CONTROL

8.1 Delinquency:
A loan becomes delinquent when an installment (principal and interest) or the entire loan has not
been fully paid. In this case, the following conditions will be enforced:
• The Credit Union will make no other disbursement to a borrower who is delinquent until such time
that their status is regularized or unless exceptionally approved by the Credit Committee.
• The credit union at the discretion of the Board of directors will add to the loan interest rate a
surcharge equal to the maximum allowed by law, applicable to the unpaid principal.
• It is the responsibility of the staff to carry out negotiations with borrowers in order to avoid, reduce


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and/or eliminate the existing delinquency. In addition, he/she will carry out an exhaustive follow-up
under the terms of the loan policy and the Credit Union’s rules.

• Dividends earned on delinquent members’ shareholdings will be credited to delinquent loans
(principal and interest).

8.2 Collection Procedure:
Management has the responsibility of administering the Credit Union’s loan portfolio and ensuring
that collections of delinquent loans are timely.

The obligation to pay off a loan rises from the time that the transaction is legalized by the signing of
the promissory note and the disbursement occurs. The causes that require total payment of the debt
are summarized below:

8.3 Delinquent Payment:
The delay in a payment of the agreed-upon installment gives rise to the loan being in arrears and
constitutes grounds for demanding the total amount owed. This takes into consideration that the
risk maintained by the Credit Union is for
the total collectible amount, to which end, the agreed-upon acceleration clause shall be enforced.

8.4 Bankruptcy or Liquidation Proceedings:
When the Credit Union has been informed that a debtor member is in the process of liquidation, the
loan must be considered due in its entirety and the immediate judicial proceeding must be
undertaken in order to protect the Credit Union’s interests.

8.5 Reduction of the Guarantee:
When the debtor or one of his sureties has accepted a pledge or a mortgage to secure several
obligations and they have shown deterioration such to the extent that they no longer adequately
secure the risk of the outstanding obligations, or when the death of one or several of the sureties has
occurred, the Credit Union may call for the payment of the amounts owed, according to the
provisions of the promissory note or the guarantee instrument or document.

8.6 Misuse of Loan Resources:
When a member submits a credit application, he must submit a plan, in which he binds himself to
use the resources requested in a specific activity (especially for productive loans). If in the
investment process, the resources granted are sidetracked from their original use, the Credit Union
may demand payment of the outstanding amounts, whether or not the obligations are delinquent.

This policy deserves special attention especially in those cases where funds are sourced from
developmental or other agencies. Failure to meet the requirements stipulated in these agreements
may give rise to both administrative and economic sanctions.




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9. DELINQUENCY RECOVERY

9.1 Restructuring/Rescheduling Loan:
Restructuring is understood to mean when the Credit Union decides to grant a debtor new payment
conditions other than those originally agreed to in the promissory notes or loan contracts of one or
more obligations, because, for various reasons, he cannot meet the original payment obligations.

The changes in the payment conditions require it to be dealt with as a new loan transaction and
require the normal processing of an application and therefore, the signing of a new loan contract
seeking improvements in the loan collection by strengthening the previously accepted collateral.
(See Appendix 13.4 - Delinquency Control)



10. EXTENSION

• An extension is understood to be a peremptory period granted to the debtor to pay one or more
overdue installments. This extension may not exceed twelve (12) days, when the payment is monthly
or every thirty (30) days when it is quarterly or with longer intervals.

• To grant the extension, the debtor must process the application in writing, at the latest, the day
before the installment’s due date, setting forth the reasons for this request and the time required for
its payment; therefore extensions to delinquent installments cannot be considered.

• The Credit Committee or the Administrative Officer to approve these extensions and shall make the
necessary analyses according to the reasons set forth by the debtor.

• Furthermore, to grant the extension, the debtor must be up-to-date in their other obligations
incurred with the Credit Union.

• The extension will be granted one time, that is, the extended period cannot be repeated. Likewise,
the approval of continuous extensions to the same person or debtor shall be avoided, since this type
of negotiation is only for fortuitous and temporary cases of illiquidity.

• When a debtor frequently requests this type of transaction, a thorough analysis must be carried out
to determine the causes and seek other formulae such as restructuring.



11. LOAN POLICY WRITE-OFF:

11.1 a General Policy:
Management will continually review all of the problem loans in order to determine the possibility of
collection. All loans classified as “losses” by the independent audits or in credit evaluations, must be
charged off the books. Likewise, any amounts appearing uncollectible on the basis of the ongoing
evaluation of the problem loans, will be charged off the books, even more so if these problem loans
have been in arrears for more than twelve (12) months.


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The Credit Committee will constantly review the portfolios under their responsibility in order to
determine the possibility of collection and will immediately recommend the write-off of any amount
considered uncollectible.

The staff is responsible for continually tracking each one of the written-off loans by means of
periodic meetings with an Attorney responsible for these cases and they will prepare bimonthly
reports thereon; in these reports, they must include the collection status of the loan, as well as any
change occurring in the collection activity; this report will be sent to the Board of Directors.

11.l b Write-Off of Loans to Related Persons:
Loans will not be written off for persons linked or related to staff or volunteers of the Credit Union.

11.1 c Authorization by the Board of Directors:
The write-off of a loan, the balance of which shall not be greater than one (1%) of the Credit Union’s
reserves, will only occur with the authorization of the Board of Directors. (See Appendix 14.)




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APPENDICES


1. PROVIDENT AND PRODUCTIVE LOANS

Provident loans:
The following loans could be classified as provident loans:
• Land Purchase
• House Purchase Or Construction
• Home Improvement/Renovation
• Furniture and Appliances
• Education
• Debt Consolidation /Payment of Bills
• New/Used Vehicle Purchase and Repairs
• Family Expenses (Medical, Wedding, Funeral, Maternity, Clothing, Taxes Etc.)
• Travel and Vacation


Productive Loans:
The following loans could be classified as productive loans:
• Land Purchase
• Building Purchase/Construction
• Building Improvement/Renovations
• Furniture and Appliances
• Education /Training
• Debt Consolidation/Pay Bills
• New Equipment Purchase (to include: Vehicles, Boats, Farm/Agricultural Equipment and
Processing Equipment.)
• Used Equipment Purchase
• Equipment Expenses Plus Repairs
• Debt Refinancing
• Infrastructure Costs
• Working Capital (to include: Inputs, Raw Materials, Tools, Rentals, Animal or Poultry Purchases,
Land Preparation, Petrol, Transportation, Marketing, Labour)



2. LOAN CLASSIFICATIONS:
• Short Term Loans:
These are loans taken for purposes such as Maternity/Paternity, Conventions, Weddings, Funerals,
Vehicle Repairs, Vacation, and Insurance for Vehicles, Insurance property and Domestic and
Education Expenses etc.). REPAYMENT SHOULD NOT EXCEED TWO (2) YEARS.

• Medium Term Loans:
These are loans taken for purposes such as: Medical, used Vehicle, Furniture and Appliances and



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Other Household Items.
REPAYMENT SHOULD NOT EXCEED FOUR (4) YEARS.

• Long Term: Loans:
These are loans taken for purposes such as Home Purchase/Construction, Home Repair and
Renovation, Purchase or Establishment of Small Businesses and Tertiary Education.
REPAYMENT SHOULD NOT EXCEED TWENTY-FIVE (25) YEARS.



3. TERMS AND CONDITIONS FOR LAND. VEHICLE AND BUILDING LOANS:

• Land (only) Loans:

Maximum amount:                                    -$100,000.00
Duration:                                          -7 years
Interest rate:                                     -12% on the reducing balance
Security:                                          -Members’ shares shall not be less than 15% of the
loan, Land Certificate, Certificate Of Title to be caveat.
Conditions:                                        -Income should be verified
                                                   -Salary deduction
Compulsory:                                        -$100.00 monthly savings


• Building and Home Renovation:
Maximum amount:                                  -$150,000
Duration                                         -7 – 10 years (wooden structure except greenheart)

                                                    -10 - 25 years (greenheart, concrete)
Interest Rate:                                      - 11% on the reducing balance
Security:                                           -members’ shares shall not be less than 10% of the
loan, Bill of Sale, Land Certificate, Certificate of Land to be caveat.

Conditions:                                      -Income should be verified, a job letter submitted,
passport for verification, building estimate and valuation report on proposed property.
                                                 -Salary deduction
Compulsory:                                      -$100.00 monthly savings



• Vehicle Loans:
Maximum amount:                                  -$75,000
Duration:                                        -5years (new vehicles) 4yrs (used vehicles no older
than 4 years)
Interest Rate:                                   -12% on the reducing balance
Security:                                        -Members shares not less than 15% of the loan, Bill
of Sale.


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Conditions:                                       -Job letter, passport, vehicle assessment by a
qualified assessor is required (used car only), comprehensive insurance.
                                                  -Salary deduction
Compulsory:                                       -$100.00 monthly savings



4. TREATMENT OF SECURITIES:

Shares: The amount of shares (savings) and/or fixed deposits hypothecated for a loan shall not be
withdrawn without the approval of the General Manager or an assigned officer. The Credit Union
has the right to place a charge on shares (savings), permanent shares, and deposits for any debt due
by a member.

Bill of Sale: A Bill of Sale is a legal document giving the Credit Union the legal right to repossess
goods if the member defaults in their loan payments. All costs relating to the execution of the same
have to be paid for or be borne by the members. In the event a Bill of Sale has to be discharged by
the Credit Union a standard cost for such transaction will be borne by the member. Bills of Sale will
be accepted on motor vehicles as follows:
100% on new vehicles
75% on vehicles 1-2 years
66% on vehicles 2- 5 years

Insurances Polices: The assignment of insurance polices with a cash surrender value must be
obtained in writing from the insurance company. The beneficiary(ies) will be required to give written
permission for the policy to be used as collateral security.

Land Titles: Certificates of Title which are used as security must be preferably registered in the
name of the member requesting the loan. However, they can be accepted from other members as
well as non-members along with a document assigning the title to the Credit Union. All Certificates
of Title must contain caveats in favour of the Credit Union.


Co-maker: Co-makers are jointly and individually responsible for the repayment of loans they have
guaranteed. A Co-maker is jointly and separately liable for repayment of the borrower’s entire loan
plus interest and other charges thereon in case of the borrower’s delinquency. The co-makers
financial commitments have to be analyzed carefully to determine their ability to meet the loan
payments should the borrower default. Additionally, co-makers need to be members of the society in
order to qualify to act as such.

Guarantors: The Credit Union will accept tangible security from non- member endorsers or
guarantors. The non-member endorser/guarantor is required to sign a separate agreement cross-
referenced to the members’ loan agreement and is liable to the Credit Union to the extent of the
guarantee preferred therein. The endorser or guarantor is required to sign the relevant loan
agreement and is liable to the Credit Union for the total loan should it become delinquent.




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5. LOAN APPLICATION FORM AND DOCUMENTS REQUIRED.

A written application form must be completed with the relevant information necessary to assess the
applicant effectively. The form should be completed in full and include the following:
• Name, address, age, telephone numbers of borrower’s home and work place.
• Nationality, resident and employment status.
• Social Security registration number and/or other identification.
• Name, address, telephone numbers (home/work) of co-maker where applicable.
• Past and present employer of applicant and/or spouse, period of employment and present position.
• List of assets owned (home, auto vehicle etc.)
• List of debts.
• Statement of monthly income and expenses.
• Purpose of Loan.

• Loan amount requested.
• Description of security offered.
• Applicant and Co-maker signature.
• Date of application
• Credit Committee or Loan Officer Action sheet.

The following documents should be considered for submission:
• Passbook
• Recent pay-slip or salary statement from work place.
• Proof of residency (particularly for Non-Antiguans)

• Building Loan: Approval plans, Certificate of Title in member’s name.
• Land: Letter of intent to sell from the seller or owner.
• Debt Consolidation: Credit report, Letter substantiating debt for person.
• Business: Financial statement for previous years
• Cash flow outline for new business: Details of supplies, cost and name of supplier, Project
appraisals and business plan
• Vehicle Expenses: Proforma invoices and estimates for parts to be purchased
• Vehicle (new): Invoice from dealer, Insurance statement.
• Vehicle (used): Mechanical assessment report, Statement from insurance.
• Equipment, Household and Furniture: List of items to be purchased and name of supplier.
•Payroll Deduction: The Credit Union provides an agreement for the employer of the applicant to
sign to be responsible for deducting the portion owed to the Credit Union.



6. ASSESSING MEMBERS ABILITY TO REPAY A LOAN
There is no objective process to determine whether a prospective borrower will have the sense of
responsibility and initiative to repay a loan. In order to develop a better understanding of a
member’s character as it relates to servicing a loan, the following should be considered:

A. Stable and Gainful Employment: The longer a person has been with the same employer or
company, the more likely he/she is in a position to repay the loan.


                                                                                                   18
B. Stable Residence: The longer a person has lived at one address, the less likely he/she will
default on a loan.

C. Savings Pattern: A regular saver represents a person with good discipline.

D. Frequency of Borrowing: Repeated borrowings with a short time frames, may indicate a
need for financial counseling.

E. Credit History: A review of previous loan records with other Credit Unions or creditors may
determine whether a member is likely to be responsible regarding their loan obligations.

F. Borrower Commitment: An applicant who is borrowing for only a part of the expenditure
required may have a greater commitment to repayment of a loan than the applicant who needs to
borrow the full amount.

G. Full disclosure: An applicant who knowingly withholds credit information or falsifies other
information requested on the application form may be a potential bad debtor.

H. Every member applying for a loan must meet an acceptable level of disposable income as
determined by the calculation of a debt to income ratio. However, this debt to income ratio is
determined by dividing a member’s current monthly expenses by current monthly net income. No
member will be granted credit if his/her debt to income ratios exceeds fifty per cent (50%), without
the Board’s approval.

Current monthly income will be based on recent pay stub. The income amount will be determined
following the deduction from gross income.

Example of monthly expenses include:
• Rent or Mortgage payments
• Monthly payments on other installment/loans
• 5 % of current overdrafts
• Anticipated monthly payments for this current loan.
• All other monthly obligations excluding, groceries, utilities, clothing and transportation cost,
(school fees)



7. POLICY ON GRANTING MORTGAGES:

The Antigua and Barbuda Seventh-day Adventist Cooperative Credit Union shall provide mortgage
loans to members for purposes of repairs and construction. Such loans shall be granted for
maximum amounts to be determined by the Board of Directors.

The minimum share required as security is ten percent (10%).

All applications for loans shall be approved by the Credit Committee in accordance with the
procedures set out by the Board of Directors and shall have a maximum repayment period of twenty-


                                                                                                     19
five years (25). The interest rate, which is subject to change by the Board of Directors, will be eleven
per cent (11%) on the reducing balance.

Mortgage loans will be restricted only to residential dwellings and shall only be granted in cases
where members have consented to pledge Certificates of Title for land on which houses are to be
built.

In cases where any existing house is being purchased the society will fund a maximum of eighty per
cent (80%) of the cost. The Credit Union will also carry out regular assessment of property.

Total monthly debt of member including loan installment for loan request should not exceed eighty
percent (50%) of total gross income.

7.1 Mortgage on a Certificate of Title for Land:

Listed below are the steps to be taken in the registration of a Mortgage on a Land
Title:

i)         A registered title shall be deposited with the Credit Union and if this is not possible, (as is the
          case when the loan is being sought to release the title from some other source) a photocopy of
          the Certificate of Title shall be secured, and a written undertaking from this source that the
          unencumbered title (save and except the restrictive covenants endorsed thereon) will be
          turned over to the Credit Union as soon as the mortgage outstanding on it has been settled.

ii)       The Credit Union must receive an independent inspection and valuation report on the
          property, undertaken by an experienced valuator. The fees in this connection are to be paid by
          the borrower.

iii)      If the property is being purchased a sales agreement is required.

          If the loan is being sought to release the title from another source or is for purchase from a
          vendor who owes a mortgage on the title the following applies:

       a) Once the loan has been approved, the Credit Union will refer the transaction to its Attorney-
          At-Law, giving an undertaking to pay the extent of the loan involved once the Credit Union’s
          interest has been registered on the title and the title delivered to the Credit Union’s office.

       b) The Attorney-At-Law handling the transaction for the Credit Union will in turn contact the
          vendors’ Attorney (in the case of a purchase) or the other organization holding the mortgage
          (if a release is being sought) also giving an undertaking on the Credit Union’s behalf that the
          funds will be paid when the Credit Union’s mortgage has been registered and the title
          delivered to the Credit Union’s office.
          At this point, the Credit Union’s Attorney will request the title from the vendor’s Attorney or
          the organization involved.

iv)       Before the mortgage can be registered the original Certificate of Title held by the Titles Office
          has to be investigated to ensure that the duplicate Certificate of Title is genuine. Any


                                                                                                            20
        mortgages, caveats or other interests lodged against the title at the Titles Office will also be
        investigated.

v)      If a recent Surveyor’s identification report has not been provided by the borrower one will be
        commissioned by the Credit Union’s Attorney-At-Law.

        These breaches will have to be addressed before the Credit Union’s mortgage can be lodged.

vi)     If the names of more than one person appear on the title as proprietors, then all such persons
        must sign the mortgage agreement.

vii)    The Credit Union must engage the services of an Attorney to draft the mortgage agreement
        and execute the transaction.

viii)   The Credit Union’s Attorney-At-Law will handle the procedure from the time the Credit
        Union gives its undertaking to pay, to the point where its interest has been noted on the title
        and the title delivered to its offices.

ix)     Once the title is delivered to the Credit Union, it must pay the proceeds of the loan to its
        Attorney-At-Law who will in turn pay the vendor’s Attorney. (The title will remain in the
        Credit Union’s possession until the loan has been repaid).

All costs relating to the transaction must be borne by the member.

7.2 Discharge of Mortgage:

Whenever the loan has been repaid and the borrower wishes to recover his title the services of the
Credit Union’s Attorney will be utilized.

i)       The Credit Union sends a letter requesting that its interest as endorsed on the Certificate of
        Title be discharged or prepares a discharge of mortgage document, have same executed under
        the Credit Union’s corporate seal and submitted to the office of the Registrar of Titles for
        registration.

ii)     If the services of an Attorney-At-Law are utilized, the Attorney-At-Law will prepare the
        discharge of mortgage document, send same to the Credit Union for execution, under the
        corporate seal, and on its return lodge same at the office of the registrar of titles for
        registration.

All costs in relation to the transaction will again be borne by the member.

7.3 Additional precautions to be taken:

i)      The amount to be loaned plus the sum of all superior mortgages to which the property is
        already encumbered shall not exceed two-thirds (2/3) of the appraised value of the property.




                                                                                                           21
ii)    All rates and taxes must be paid up to date and in the case of property taxes a certificate must
       be obtained from the Collector of Taxes certifying that all property taxes have been paid up to
       date.

iii)   The buildings (if any) must be insured against such hazards as fire, flood, earthquake, etc.

vi)    The Credit Union must insist that the receipts for all renewal premiums on the insurance
       policy, as well as all tax receipts are presented for inspection, as long as the loan remains in
       force.



8. GUIDELINES FOR APPROVING EVALUATORS AND EVALUATION FORMS:

As the ABSDACCU provides loans to members for renovation and construction purposes, there is a
need to verify the sum total that is necessary for the satisfactory completion of the construction or
renovation activities.

Additionally, the Credit Union needs to control the disbursement of funds on a phase by phase basis
to ensure that the construction or renovation process goes through all the stages of completion
satisfactorily and within the limits of the loan allocated.

The following guidelines should be followed by all evaluators:

a. Ensure that building cost estimates prepared or reviewed by them are accurate in order to serve as
a basis for deciding on the related loan.

b. Indicate the extent, to which the estimate meets, exceeds or is less than what is required to
complete the renovation or construction process.


c. Submit a breakdown of the phased stages of the project as follows:

       • Mobilization
       • Foundations
       • Frame, upper floor, stairs
       • External/internal walls to beam
       • Roof
       • Windows and doors
       • Fittings and furnishings (cupboards, closets, etc.)
       • Electrical and plumbing
       • Finishes (floor, wall and ceiling)
       • Painting and decorating
       • Drainage
       • External works

d. When requested, provide accurate interim reports to indicate whether:


                                                                                                          22
       • The project is progressing as planned and without material variations.
       • The phased advances have been wholly applied towards the renovation or construction
       process.
       • Additional financing is recommended.
       • In the evaluator’s opinion the advances given have not either wholly or partly been applied
       to the renovation or construction process.



9. POLICY ON STUDENT LOANS:
The ABSDSCCU shall grant loans to members for short term and long term courses of study both at
local, regional and international institutions. The duration of these loans shall not exceed seven (7)
years.

Upon application for a loan, students should submit the following documents:

a. A complete loan application form
b. Two testimonials of good character
c. A Medical report from a medical practitioner
d. Certified copies of achievement certificates (GCE’s/CXC’s), acceptance letter or other evidence by
virtue of which the borrower is qualified for admission to the college.
e. Evidence that the proposed College or University is an accredited institution.
f Evidence that the borrower or parent is registered with the Antigua and Barbuda Social Security
Scheme and has been in insurable employment for not less than one year.
g. Evidence that the applicant is a member of the ABSDACCU.
h. Students already in University/College should submit examination results/grades.

9.1 Terms and Conditions of Loan:

9.1.1 The student must be 18 years of age and the students’ parents must have been in insurable
employment for at least one year.

9.1.2 The student must attend the educational institution on a full time basis and pursue and
complete the programme of study for which the loan is made and must seek approval of the Board
for any change which is thought to be necessary.

9.1.3 They must attend only an approved programme of study at the Educational institution
approved by the Board.

9.1.4 After completion of the programme of study the student must return to Antigua and Barbuda
with reasonable effort to work in the State. If successful, the student must work for at least one year,
for the equivalent of every EC$30,000.00 (thirty thousand dollars) of the loan amount. The
minimum period for which any student shall be required to work in Antigua and Barbuda will not be
less than one year.

9.1.5 If the student is unsuccessful in obtaining work in Antigua and Barbuda the Board shall be
appraised accordingly and may assist in the endeavour. Failing which, the Board may enter into an


                                                                                                      23
arrangement with the student and the guarantor for the repayment of the loan.

9.1.6 The guarantor of the loan must be prepared to adequately secure the repayment of the
principal interest and such other charges as may be considered appropriate.

9.2 Security:

For all student loans under EC five thousand dollars (EC$5,000.00), two guarantors are acceptable
by the Credit Committee.

For loans over EC five thousand dollars (EC$5,000.00) security to cover 1 and 1/5 times the amount
of the loan should be provided by the borrower or his/her guarantor and should take the form of
property, a fixed deposit or any other form of security approved by the Credit Committee.

A fixed deposit and or copies of Certificate of Title will be necessary if property proposed includes a
house, the said house must be insured and the insurance should be assigned to the ABSDACCU.

9.3 Repayment:

For loans over EC five thousand dollars (EC$5,000.00) a maximum of ten years (10) (including the
period of study) is permissible. There is a grace period on repayment of the principal; therefore
repayment will begin on completion of the course of study.

9.4 Interest:

Interest is charged at the rate of not less than two per cent (2%) below other loans on a reducing
balance and starts to accrue on the amount disbursed from the date of disbursement.

Payment of interest during the period of study is compulsory.

9.5 Legal fees:

Payment of fees for registration of document must be met by the borrower.

9.6 Life Insurance:

At least a Term Life Insurance Policy to the value of 1 and 1/5 times the amount of the loan must be
assigned to the ABSDACCU for loans in excess of EC thirty thousand dollars (EC$30,000.00).
Evidence of such a policy should be obtained from the insurance company and submitted with the
application form.

9.7 Amount of Loan:

Except in extenuating circumstances the loan will not exceed:
• EC $30,000.00 for a one year course of study
• EC $60,000.00 for a two year course of study
• EC $90,000.00 for a three year course of study


                                                                                                      24
• EC $120,000.00 for a four year course of study
• EC $150,000.00 for a five year course of study

9.8 Defaulting of Loan:

The loan will become immediately repayable in full:
• If the students’ programme of study is terminated
• If the student fails to comply with the conditions of the loan
• If the part of the loan and/or interest repayment shall be in arrears for more than three (3) months
• If either the student or guarantor defaults on the repayment of premiums in respect of any
insurance assignment for the security of the loan.



10. LENDING POLICY FOR NON-NATIONALS:
Individuals who are citizens and residents of Antigua and Barbuda are eligible to become members
of the ABSDACCU. However, those members who are not citizens of Antigua and Barbuda, but are
resident in the country for period of at least one year will require providing the following documents
on application for a Loan:

• Proof of residency. (Utility bills, passport etc.)
• Passport
• Proof of employment
• Work permit (if necessary)



11. LENDING TO RETIREES AND PERSONS NEARING RETIREMENT:

Members who have attained the age of sixty five (65) years of age can apply for loans; however,
approval will be done on a case by case basis.

The Credit Committee will seek to ensure that the applicant either through a pension or other forms
of income will be able to carry the loan and that they meet the requirements of the CUNA Mutual
Insurance Loan Coverage Policy.



12. POLICY RENEWAL:

The Credit Union’s lending policies will be reviewed and approved by the Board of Directors at least
once per year. This review will consider the following factors:

— Changes in market conditions
— Changes in laws and regulations
— Changes in the Credit Union’s financial position and its lending capability



                                                                                                    25
— Changes in the Credit Union’s strategic plans
— Any other applicable factors

The appropriate changes, if any, will be made and promulgated by the Board of Directors and
communicated to all staff responsible for financial management and credit administration.



13. DELINQUENCY CONTROL AND COLLECTION

13.1 Introduction

13.1.1 Loan delinquency is a member’s failure to service his or her loan when due or failure to meet
the loan agreement terms. Too many delinquent loans could cause the failure of the ABSDACCU.
Through the use of sound lending and collection policies and procedures the ABSDACCU can
control delinquency.

13.2 Preventative Measures

13.2.1 The Credit Committee or Loans Officer will ensure that all applicants are fully aware of their
legal and moral responsibility to repay the loan.

13.2.2 Guarantors and co-makers should be aware of their responsibility, not for repayment of loan,
but to keep in touch with the borrower to ensure that his/her monthly commitments are honoured.

13.2.3 The Credit Committee or Loan Officer will adopt the necessary strategy to determine at the
interview stage whether or not the applicant is a potential delinquent.

13.2.4 The applicants’ credit history will be thoroughly analyzed before a loan is approved.

13.2.5 Loan will be approved on the validity of the request and not on sentiments.

13.2.6 Securities must not only be adequate but must be endorsed with the Credit Union’s lien and
be insured in the Credit Union’s favor and be easily realizable.

13.2.7 Any alias name(s) attached to the applicant will be noted and before a loan is disbursed,
efforts will be made to ascertain that the applicant has registered his or her proper address.

13.2.8 The loan repayment schedule should be so computed that it is within the ability of the
borrower to comply without any doubt.

13.2.9 The loan will be disbursed on the basis of the supervised credit as far as possible to ensure
that the loan is applied to that purpose for which it was intended.

13.2.10 All documents pertaining to the application, granting and disbursement of a loan shall be
properly completed and securely stored.



                                                                                                        26
13.2.11 The ABSDACCU must encourage members who are unable to meet their obligations for
whatever reason to come in and speak with the loan officer.

13.3 Collection Procedures:

13.3.1 Once a payment has been missed or is less than the agreed amount, the member is regarded as
delinquent. A two (2) day grace period is given before a reminder is sent. First notice via phone will
be 2 days after due date.

13.3.2 The second reminder should be sent seven (7) days after the date on which payment should
have been received and will state the date payment should have been received and the installment
amount and copies sent to the co-makers and/or guarantors.

13.3.3 On the expiration of five (5) days after the second reminder, if there is no response, an official
letter will be sent to the member, stating:
1) the due date 2) the installment amount and 3) the fact that a first and second reminders had
already been sent 4) that publication of name(s) may be necessary if no further communication
effort is made on the part of the borrower. Again this should be copied to the co-makers and/or
guarantors.

13.3.4 On the expiration of fourteen (14) days after the official letter, if there is no response, another
letter should be sent to the delinquent member stating that if payment is not received by fourteen
(14) days from the date of the letter, action would be taken to recover securities held against the
loan.

13.3.5 Telephone and personal contact can also be made with the delinquent member during the
notice period.

13.3.6 On the expiration of fourteen (14) days after the fourth reminder if there is no satisfactory
response, the Credit Union will proceed to realize securities held against the loan, including shares
(except permanent shares).

13.3.7 Arbitration proceedings will be initiated if money is still owed after securities have been
realized. While initiating arbitration proceedings, a collector could also be contracted to assist in
collection.

13.3.8 If the delinquent fails to pay one month after the arbitration, steps should be taken to obtain a
court order against him/her.

13.3.9 As a last resort, an order of commitment may be sought from the court by which the
delinquent member may be taken into custody.

13.3.10 A delinquent loan will be written off after all efforts to collect have failed.

13.3.11 All cost in connection with collecting the delinquent loan will be charged to the borrower’s
account.



                                                                                                        27
13.3.12 Records should be kept showing any action taken on each delinquent loan.

13.3.13 Further guidance shall be taken from the supplemental ECEMP COOPS PROJECT
Delinquency Control and Collection Procedures Manual published in June 2006, particularly with
regards to the wording and tone of telephone communication and letters to delinquents, and with
regards to ledger maintenance.

13.4 Requirements and Analysis to Consider Restructuring

13.4.1 The following is required before restructuring:
• Submission by the current debtors and/or new sureties of the loan application and all of the
documentation set forth for the normal processing of the loan.
• An analysis of the loan when the borrower’s financial position is established, and the ability of both
the debtor and his sureties to adequately pay the amount of the new loan.
• In the case of restructuring with collateral, the coverage and suitability of the collateral will be
taken into account, and it will become necessary to order a new appraisal when significant changes
occur in the conditions of the real or personal property or when the date of the prior appraisal took
place more than a year before.
• Information on the amount to be restructured, next due date, final due date, existing collateral,
additional collateral offered, reasons for the restructuring, conditions requested, payment schedule
and other information involved in making the best decision about the approval.
• Opinion of the Administrative Officer on the viability of the restructuring.
• When the obligation to restructure is involved in a collection by legal means, the Attorney’s report
about the status of the proceeding, liquidation of the loan identifying the amount of the fees
incurred, collection expenses, etc., must be annexed.

13.5 Restructuring Conditions

The debtor must agree to the following guidelines:
• When the restructuring only consists of the extension of the originally agreed-upon term, the
debtor must pay all the interest owed and at least 10% of the outstanding principal.

• When one or more of the originally agreed-upon elements are amended, other than the term or
interest rate, provided these changes involve the change in the purpose or subject of the loan, or a
variation in its financing conditions, the debtor must pay at least 30% of the accrued interest.

• When the restructuring does not conform to the preceding conditions, i.e., the term and the
initially agreed-upon interest rate or all the other financial conditions are changed and/or the debtor
does not make the payments described in the two previous items, the Credit Union may not change
the loan conditions, which means that it will be kept in its original state.

13.5.1 Approval Powers: The approval of the restructuring must be carried out, by the in-house loans
committee or the Credit Committee within authority levels.




                                                                                                       28
13.6 Identification and Reporting of Delinquent Accounts:

A comprehensive delinquency list should be produced monthly showing the member’s name, over
what period the member has been delinquent, total loan, total shares, accepted security, date of last
transaction, arrears and action taken. Detailed delinquent loan report should be submitted to the
Board of Directors on a monthly or quarterly basis.

13.7 Restoration Of Delinquent Member’s Creditworthiness:

13.7.1 A member who is not in good standing may not borrow from the Credit Union.

13.7.2 Loan refinancing may only be done with the approval of the Credit Committee and the
preparation of and signing of a new loan agreement by the borrower and co-makers or guarantors
(where applicable). Loan refinancing can be considered if the member has a valid reason for his
delinquency such as illness, loss of job, death of a family member financial difficulties, etc.

13.7.3 No new loan shall be granted to a delinquent member who has been delinquent for over one
(1) month but less than three (3) months unless he has sustained prior to the new loan request, an
impeccable servicing record with the Credit Union for such time as the Credit Committee may
determine.



13.7.4 No new loan shall be granted to a delinquent member who has been delinquent for three
months and over in any calendar year, except upon recommendation of the Loans Officer and with
the approval of the Credit Committee.

13.8 Seized Assets/Repossessed Procedures:

13.8.1 Repossession of collateral accepted as security will be achieved through the submission of a
repossession order to the bailiff.



14. LOANS WRITTEN OFF:

14.1 Record of Written-off Loans in Suspense Accounts

Loans in arrears for more than one year and which are fully provisioned must be written off against
the created provisions and transferred to suspense accounts and must have the following
documentation:

   a) Report from the Credit Committee on the situation of the loan transaction, containing
      balances of principal and interest owed, the specific provision created, guarantees, and an
      opinion on the degree of recoverability.




                                                                                                      29
    b) Report by the Supervisory Committee regarding whether or not the loan that is going to be
       written off is linked to any staff or
       volunteer of the Credit Union

    c) Authorization by the Board of Directors in the respective minutes.

The aforementioned reports and documents will be filed in the respective loan files.

14.2 Reports

a) Quarterly Report to the Credit Committee and the Board of Directors

The Loans Officer will prepare a quarterly report for the Credit Committee and the Board of
Directors, describing the current situation of all problem loans for a significant amount, the write-
offs made and the possible write-offs expected. This report must be reviewed by the (General)
Manager before it is approved by the Credit Committee and the Board of Directors.

b) Report to the Annual General Meeting

The write-off of loans the balances of which are equal to or greater than one per cent (1%) of the
Credit Union’s legal reserves will be disclosed at the Annual General Meeting in the Board of
Directors’ report.

14.3 Loans to Borrowers with Written-off Loans

The Credit Union will not grant loans to debtors and sureties who have loans written off by the
Credit Union, as long as these transactions are not normalized.
If, after the loan has been approved, the Credit Union finds out that the member has incurred what
is described in the preceding paragraph, it will rate it as a Lost Loan (category E), provisioning it
one hundred per cent (100%), regardless of the security provided.

14.4 Payment Assignment Policy

When payments are received by the Credit Union, the following order of priorities must be taken
into account for the allocation of these amounts:

For Agreed-Upon Debts with Overdue Interest

•      Delinquent interest on the overdue balance.
•      Legal expenses entered against the debtor.
•      Amount of the principal payment.

When the debt has been written off and the debtor has to pay professional fees, it is advisable for
these fees to be entered in the books prior to the payment of the loan or for the debtor to directly pay
the professional the fee for the case.




                                                                                                        30
14.5 Continued Collection Efforts

The Loan Officer, together with Management, will continue to make efforts to collect written-off
loans until the benefit expected from these steps does not justify the cost in time and expense. The
Credit Committee will decide when these steps will be terminated.

14.6 Exceptions

Any exception to the policy set forth above must be specifically approved by the Board of Directors.

14.7 Provision for loan losses

Financial institutions must maintain provisions against possible losses arising from their risk
activities. For Credit Unions, the most important of these reserves is the one they have to absorb
loan losses. This reserve takes the form of a “provision for uncollectible loans”.

This reserve is established and renewed by periodic charges against earnings, which generates a
reduction thereof.

The process is designed to maintain the provision at such a level that any relatively unpredictable
loss that can be incurred in lending activities during the current period, but related to loans granted
in previous periods, will not generate an undue impact in a particular financial year.

The term, “estimated losses,” refers to an estimate of the amount of the portion of the portfolio of
loans outstanding (net of non-accrued interest), the collection of which is unlikely; i.e., the net write-
offs expected to be made for a loan, in view of the situation at the time of its evaluation. These
estimated losses in loans shall be in agreement with the criteria for the accumulation of provisions
against losses contained in generally accepted accounting principles.

When there is sufficient information to confirm that a loan or a portion thereof, is uncollectible, the
accounting write-off must be made for these amounts as quickly as possible.

14.8 Loan Provision Policy

a) Maintaining the Provision

The provision for loan losses is established through charges against earnings. The loans or portions
thereof considered uncollectible are charged against this provision; likewise, any subsequent
recovery, if any, will be credited to the provision.
The Board of Directors will make monthly allocations of funds to create reserves to protect it from
possible losses in its loan portfolio, subject to an analysis thereof.

b) Provision Adequacy

The Board of Directors, the (General) Manager, have the responsibility of guaranteeing an adequate
provision for loan losses. Furthermore, the Credit Committee is responsible for providing adequate



                                                                                                       31
and updated information on problem loans to the Board of Directors on an ongoing basis. The
provisions will be such that at all times, they will make it possible to absorb the following:

15. SCHEDULE OF CIIARGES AND TERMS FOR LOANS:


                                             Min.           Max.          Interest
Loan type     Loan Purpose                   Period         Period        Rate %
                                             (Months)       (Months)

Provident     Education/school supplies      12             60
              Funeral expenses               12             24            10

              Medical expenses               12             48
              Family expenses (appendix      12             24
              1)
              Travel/vacation                12             24
              Debt Consolidation             12             60
              Pay bills
              Maternity/Paternity            12             24            9

              Convention                     12             24            5


              Building/Construction          12             300
              Building renovation            12             84
              Education/Training             12             84            10

Productive Debt Consolidation/Pay
           bills
              New Equipment Purchase         12             36
              Computer & supplies            12             24
              Used equipment/repairs         12             24
              Debt refinancing               12
              Infrastructure costs
              Small business                 12             84            10

              New vehicle                    12             60
              Used vehicle                   12             48




                                                                                                 32
ECEMP COOPS PROJECT


  Delinquency Control and
   Collection Procedures



     Manual
                       June 2006




                                   33
Delinquency Control and Collection Procedures:

                                       TABLE OF CONTENTS

Default Risk an Introduction to the Concept and Dangers            Page   2
Factors Contributing to Loss of Delinquency Control                Page   4
Basic Components of Loans and Collection Policies                  Page   5
Delinquency Control Ledger Card System                             Page   6
       Card and Ledger Maintenance                                 Page   6
       Daily Loan Follow-up Procedures                             Page   8

Delinquency Follow-up Action Procedures                            Page   8

       First Notice                                                Page   8
       Second Notice                                               Page   9
       Telephone and Collection Letters                            Page   10
       Final Notice                                                Page   11
       Demand for Payment                                          Page   11

Collections Concepts                                               Page   13


Collection Tools                                                   Page   16

       Form Payment Notice                                         Page   16
       Telephone                                                   Page   16
       Form Letters and Personal Appeals                           Page   17
       Interview Techniques                                        Page   18
       Member Visitation                                           Page   19
       Meeting with Credit committee                               Page   19


Special Section of Co-Makers                                       Page   20

Shares and the Right of Offset                                     Page   21

Starting Delinquency Control Early                                 Page   23

Appendix I             Delinquency Control Card (front and back)
Appendix II            Samples Codes used on cards
Appendix III           Co-Maker’s Declaration




                                                                               34
Delinquency Control and Collection Procedures:

Default Risk an introduction to concepts and the dangers.

       During the past few years I have had the opportunity to visit many credit unions in the region,
and have seen the financial results as well as their delinquency. Certain credit unions have
maintained sound collection procedures, and have been very successful in keeping them under
control. Other credit unions reluctantly sent letters to members after two years delinquency. Why
some have delinquency of under 3% while others are in the 20% range or even higher is the real
question, particularly when they operate in the same economic environment. The reason this has
suddenly become such as issue is ECCB insistence that the credit unions be monitored and measured.

Default risk (the risk that members will not repay the credit union as agreed) is the greatest single
risk of any credit union. This is inherent in the nature of the business of granting credit. That is not
however an excuse to allow this to get out of hand. Credit unions are the trustees of their depositors’
hard earned money, and owe the depositors the following:
1.      Prudent well thought out lending policies which do not put their members funds at undue
        risk or exposure. The rule in the credit granting should be that the members always have more
        to loose than the credit union. In other words the collateral and equity requirement should in
        most cases cover the credit union in the event of default. Members should have equity in
        whatever they purchase.
2.      Proper credit granting practices and procedures go a long way to determine the credit
        worthiness of the members and ensuring that the credit union’s depositors are protected
        against undue loss exposure.
3.      Vidulant consistent collection efforts which tightly control delinquency. Although that is
        focus of this paper, the items in 1 and 2 are the first and most important steps towards
        avoiding number 3 in the first place.

As trustees and stewards of money that does not belong to them, boards, committee members, staff
and management must not take this lightly.

        Many of the credit unions in the region are in serious trouble because of the failure to either
understand or acquire adequate knowledge, as well as in some cases a misguided loyalty to the
burrowers instead of the depositors. Without question, the depositors must always come
first, for without depositors there are no credit unions. Not every member should receive a
loan, just because they qualify in accordance with the policy. Firstly, the request must not be in the
member’s best interest, and secondly they may not meet the character, capacity and collateral aspect
adequately. The credit union philosophy is people helping burrowers. Member who do not meet their
obligations are “helping themselves”, to the depositors money, and this must be stopped.

        Credit unions who have problems with collections will become if they are not already insolvent
and illiquid. Delinquency leads to loan losses and in turn that erodes capital. Too many credit unions
could by their numbers only pay their depositors less than dollar for dollar. The delinquent interrupts
the cash flow and eat away at the liquidity of the credit union.


Delinquency Control and Collection Procedures:

       The Board, Credit Committee, Supervisory Committee, Management and Staff have all
contributed to either the success or the lack of it and must take responsibility. Inability to manage the
members’ money in a responsible and prudent manner is reflected in the care and caution these



                                                                                                      35
individuals and bodies exercise in safeguarding the fund in their interest. As credit grantors all
officers and staff have an obligation to their members, to grant credit intelligently and to ensure that
every member who is able to pay does so.

        Collecting past due, slow and doubtful loan losses must be avoided. The credit union must
hold its borrowing members accountable to repay their obligation as agreed.

        Delinquency can and will be improved through the implementation of “preventative
maintenance” system. Maintaining acceptable delinquency ratios and standards starts and ends with
systematic and consistence control established by various policies and procedures relating to the
business of credit granting. Those controls should be in writing and be made available to all those
individual involved in credit granting. Delinquency control encompasses three places of credit
granting; 1) prior to granting the loans; 2) at the time the loan is granted; and 3) after the loan is
granted. Loans that should have never been approved end up delinquent and loans that could be
collected end up as losses. A well made, properly completed and closed loan is already half
collected. If credit granting and collection policies and procedures are ineffective and inadequate, or
if staff or committed are inadequately trained in credit granting requirements loss of control will
results.

       The following factors affect credit granting:

1.      Delinquent accounts and their relative problems begin on the first day after the due date of the
first payment.
2.      Delinquency is an inherit part of the risk in credit granting and accordingly the risk factor must
be controlled.
3.      A credit union can and in fact must establish delinquency control standards appropriate to its
field of membership, its need to remain solvent, its need to attract capital, maintain adequate liquidity
reserves, maintain members equity, and pay competitive interest and dividends.
4.      Collection activity is a costly activity, reducing the revenue on the loans, and often exceeding
the total revenue the loans may have produced.



Delinquency Control and Collection Procedures:

Factors contributing the loss of delinquency control:

       Invariably, where credit unions do not have delinquency under control, the reason could be
attributed to the following:

1.     Incomplete information when the applications are taken.
       The forms currently in use in most of the EC countries are inadequate even when
       completed.
2.     Weak investigations both external and internal.
3.     Applications and files are not properly reviewed before the decision is made resulting in snap
       judgement decision without sufficient facts.
4.     Too many unsecured or undersecured loans to members who are unworthy of such
       consideration.
5.     Closing loan by inexperienced people, or in some cases experience people close loans in a
       mechanical unimpressive manner.




                                                                                                       36
       At the time of closing the loan it is important to go over all aspect including security,
       repayment and collection remedies. It is a good idea to tell the member to conduct        you
       as soon as possible if he or she will be unable to meet a payment for any reason. This helps
you in the sense that the responsibility now rest with the member. Every member          that lets you
know means one less member to chase.
6.     Overloading borrowers before and after the loan is made without taking into consideration
       income and expenses as well as lifestyle. (Debt ratios)
7.     Granting loans to young people without stability.
8.     Lack of proper telephone technique.
9.     Failure to follow-up delinquent accounts daily.
10.    Weak collection letters.
11.    Accepting promises to pay too readily with no regards to a rearrangement of future payments
       and the future of the account.
12.    Granting extensions that are too long or too often.
13.    Accepting partial payments which invite delinquency.
14.    Failure to train al staff members how to tactfully remind borrowing members of their due date.
15.    Failure to be decisive and take corrective measures at the breaking point.
16.    Failure to answer mail promptly regarding delinquent accounts.
17.    Failure to eliminate skip account through proper planning and tracing persistence.
18.    Failure to properly reconcile problems, misunderstandings or errors to the members
       satisfaction.



Delinquency Control and Collection Procedures:

Basic Components of Loans and Collection Policies:

       LOAN POLICIES must be designed to determine the credit qualifications of individual
members and to meet the needs and provide the services to any “qualified” member, without violating
the laws or sound business principles. Such guidelines would include:

1.     Types of loans.
2.     Maximum time for payment.
3.     Interest rates.
4.     Credit reports and investigations.
5.     Collateral requirements.
6.     Provision for ‘extra” security or co-signer and co-makers.
7.     Insurance requirements.
8.     Terms of employment / term of membership requirements.
9.     Down payment requirements.
10.    Individuals repayment capacity (Maximum limits for debts ratios).
11.    Security instruments required.
12.    Extension provisions.
13.    Refinancing provisions.
14.    Review provision when required.
15.    Monitoring and valuation of security pledge for loans.




                                                                                                   37
       COLLECTION POLICIES must be designed to guide employees and committee members to
provide fair treatment to all members. Such guideline would include the following:

1.     Definition of “past due account”
       A loan that is one day delinquent deserves attention!
       A loan that is 30 or more days delinquents must be reported.
       A loan that is 90 or more days delinquent is in allowance candidate
2.     Who will the collecting and what is their responsibility and duty
       Assigning responsibility to one person is very important.
3.     Delinquency reporting, to whom and how often.
4.     What collection devices will be used:
               (a)     System of monitoring accounts
               (b)     System of notices, telephones, letters etc.
5.     At what intervals will various collection steps be taken:
               (a)     How and when to act on collateral
               (b)     System for disposing collateral
               (c)     Arbitration and legal action referrals
               (d)     All and any other remedies
6.     What special collection records will be maintained?
The method outlined in this document is a tried and proven method using a delinquency follow-up
card system for recording action and activity on each account.


Delinquency Control and Collection Procedures:

Delinquency Control Ledger Card System

        The most important consideration is selecting and implementing a control system that
provides for early determination or recognition that a loan has become delinquent, and that the
system provide for an orderly approach to the follow-up on a daily basis. Effective delinquency
control can only be achieved by some type of action, whether direct or indirect, which creates a
specific reaction (time, date, amount, etc.). A hit and miss approach will render the most efficient
system ineffective.

        IMPORTANT: Any collection activity must be made to all parties involved
               including co-makers, co-signers and guarantors.
It is also important to note that the basic steps and time limitations embodied in the collection
procedure cannot be totally rigid. The person in charge of the collection must decide when to
accelerate the normal collection procedures on any given collection account.

The delinquency control follow-up system in this document is a tried and proven process which will
bring results if used consistently. It can be used for hand posted; machine posted or computerized
credit union equally well. This is done using a delinquency control card, Appendix 1. This system
enables the credit union to keep collection history and related information readily available and
eliminate the need for additional forms. Appendix 2 outlines codes that will cut down on the writing
and save time.




                                                                                                 38
1.     Delinquency Control Card Ledger Maintenance and Control:

        To effectively operate this control system, the credit union should make up a delinquency
control card for each loan that is delinquent, and make a new card for each loan which falls delinquent
once the original cards are made. These are maintained in two sections: Loans which are current and
loans which are delinquent. The current ledger cards (when payments are up to date) are filed at the
back of the ledger in numerical or alphabetical order. The instant the loan becomes delinquent. It is
filed with the delinquent ledger for follow-up.
a)      The Current Loans Ledger contains all of the loans that are up to date but problems may have
existed in the past. The next time the collection officer will be able to use the same card and save
previous time. Do not file delinquent loan cards in this section.
b)      The Delinquent Loan Ledger contains all of the credit union’s loan cards that either have not
met one or more payments, require close monitoring, have collection activity taken place or pending
and so on. These are loans awaiting action.
c)      The delinquent loan file should be filed in the front of the current ledger in a 1 to 31 day
system, according to the next “hold for action” date. The hold for action date is always the next day
for action by either the members or the credit union. For example if the member promise to make a
payment on the 10th, the follow-up card would be filed for the follow-up on the 11th or next business
day to check the account.
d)      The delinquent loan control card must be used to write up any collection activity, recording the
date for the next action. Knowledge of any and all collection activity is essential in deciding how to
proceed i.e. whether to realize on the security, write the file off etc.
e)      All charges such as address, jobs, payments etc. must be recorded on the control cards.
f)      If a card is filled, a new card should be stapled to the old one.
g)      Once a loan is repaid in full, or written off, the card or cards should be filed in that member’s
file. This should be a major consideration in any new application for credit.

Delinquency Control and Collection Procedures:

2.     Daily Loan Follow-up Procedures

       The following steps are required to establish and maintain effective control over the portfolio.
These steps would normally be specifically be assigned to a designated individual. The procedure
begins with the payment due date of the loan payment.

a)      Always verify the payment being made as promised or due – daily. As soon as a payment is
delinquent the card is moved to the delinquent loan ledger.
b)      For the next 5 days, the account should be checked for payment. Each day the account is
checked the card is moved up a day.
c)      If the payment is not received, COLLECTION ACTIVITY MUST COMMENCE. This is outlined
in Delinquency Follow-up Procedures” in the next section.
d)      The ledger is dated in the collection area and the collection activity is recorded along with the
hold date for the next action.
e)      The card is filed back into the delinquent loan ledger under the date recorded for further
action.
f)      A mandatory daily routine would be to pull all of the cards filed for action on that day and
follow-up on the action required. This helps to ensure that loans and actions are not overlooked.
g)      The steps outlined are repeated until the loan is brought up to date, or repaid, or finally written
off.

3.     Delinquency Follow-up Action Procedure:



                                                                                                        39
       Debtors may on occasion intentionally or unintentionally fail to make a payment as contracted.
Form notices should therefore be used to remind the debtors that payments has become or remains
past due.)


a)     First Notice
Where payment is not received within 7 days after the due date, a first friendly reminder is sent by
ordinary mail. These are exception:

       Exceptions are WHERE THE FIRST PAYMENT OF ANY LOAN IS OVERDUE and where
       the credit union has noted that a loan requires special attention. In such cases follow-up
       should be immediate and should be by telephone or letter rather than notice.


Delinquency Control and Collection Procedures:

3.     Delinquency Follow-up Action Procedures: -- continued
Here is a sample of a first notice

                                         Past Due Notice

Re:           Your Loan Account $_________________

In checking over our accounts, we notice that your payment has not been made in accordance with
terms of your Note. This is probably an oversight on your part. Therefore this notice is being sent to
you as a courtesy reminder and we trust that your payment will be remitted immediately.

If you are unable to make payments as you expected, please contact our office.

We will appreciate your prompt attention.

Yours Truly ______________________ Credit Union

per: ___________________________

b)     Second Notice:
       Where payment is not received within 7 days of the first notice being sent, a second further
reminder should be sent, requesting payment and expressing concern over lack of cooperation.
Here is a sample of a second notice:

                                            2nd Notice

Re:    Your Loan Account     $__________________

     Our records show that you have not yet made arrangement to take care of the past due
payments on your loan.

     We again ask that you give this matter your immediate attention by either remitting your
payment in touch with us.




                                                                                                   40
      The money you borrowed represents the savings of your fellow members, and you are honour
bound to return it to them.

       Remember that your credit is a sacred trust. Once marred it is not easy to clear.

       Trusting that you will give this matter your immediate attention.

Yours Truly, __________________ Credit Union

per: ________________________


Delinquency Control and Collection Procedures:

3.     Delinquency Follow-up Action Procedures: -- continued

IMPORATANT:

It must be remembered that another payment will soon be due. If the debtor was unable to handle
one payment, there is little likelihood of the debtor meeting 2 payments in one month.

c.     Telephone or Collection Letter (Letter where telephone contact is not possible).
       Where payment is not received within 7 days of sending a second notice, and no contact has
been made, the credit union collect officer should make every effort to contact the member by
telephone. A letter should only be used if the credit union is unable to contact the member by
telephone. In either cases the contact must be used to convey personalized message pertinent to the
debtors. The tone of the message should be varied to meet the situation and should request the
debtor to visit the office for a meeting at or by a specific time and date. If letters are used, samples are
provided as follows:

       1.      Broken Promise:

       Re:     Loan __________________

       Your loan appears to be still past due. When I talked with you, a payment was promised and I
do not understand why this arrangement was not kept.

       Could you please bring your payment to us immediately or contact me within the next tow
       days.

       2.      Partial Payment

       Re:     Loan ___________________

       Thank you for your recent payment. However it was not sufficient to bring your loan into a
       current position.

       Please forward a further $___________ by ____________.

       If this is not possible, please telephone or visit us today in order to make mutually
       satisfactory arrangement.



                                                                                                         41
Delinquency Control and Collection Procedures:

3.     Delinquency Follow-up Action Procedures: -- continued

       3.     Chronic Slow Pace

       Re:    Loan___________________

       There has been no payment on your above loan since ________________

       This is most unsatisfactory and in your interest as well as ours we ask that you correct it.

       Not only are you paying excessive interest, but you are seriously affecting your chances of
       obtaining further monies from the credit union. It is up to you to ensure regular payment
       are made in accordance with the arrangement made when the loan was made.

       We shall expect a payment of $ __________ to bring your loan up to date, no later than
       ______________ and regular payments on the due date in the future.

d)     Final Notice
       This final notice is an important part. By this time the person who is trying to collect is
       frustrated by the lack of success. This must be the final straw before the credit union gets
       tough.

                                            FINAL NOTCE

       Re:    Your Loan Account $ ___________________

       We are disappointed that you have not seen fit to respond to our previous notices concerning
your delinquent loan.

       Your neglect seems to leave us with no other choice but to consider other measures to get
      this matter taken care of. These measures could include legal action which is often
      expensive as well as embarrassing. Further inaction on your part could jeopardize your share
balances, and opportunity for further credit.

       To avoid such harsh action, we will allow you a grace period of seven days from the date of
       this letter to contact us and make satisfactory arrangements for these arrears.

e)     Demands for payment in Full:
       The OECS model bylaws indicate that interest accrual should cease after a loan is over ninety
(90) days in arrears. Also that same section indicates that the loan should be demanded in full at that
time. Therefore once the loan is over sixty days in arrears, one last attempt should be made by the
chairman of the Credit Committee. The following is an sample from the chairman:




                                                                                                      42
Delinquency Control and Collection Procedures:

3.     Delinquency Follow-up Action Procedures: -- continued

Dear Member;

       The credit union staffs have in accordance with established policy asked me to write to you
before approving further action to collect your delinquent loan.

       I cannot believe that you would intentionally refuse the payment of a just obligation, nor that
you would in the degree jeopardize your standing with us. Before authorising the action, I am writing
this personal letter to you in all friendliness and am asking you to remit settlement in full, or contact
me personally to explain exactly why you are unwilling or unable to pay.

       Of course you are totally indifferent to the consequences, you will ignore my letter, but I do not
believe this to be the case. I am sure that you will aid me in keeping intact the cordial and friendly
relations that exist between us and that you will allow us to maintain the faith and confidence which
we had in you when this loan was granted.

      My telephone number is _____________ and I am enclosing a self-address stamped
envelope for your reply.

       Yours very truly,


       Credit Committee Chairman

option to a more hard core member:

Dear ___________________________

Re:    Loan ____________________
       Balance past due ____________

      Your failure to make definite arrangements for payments on your loan account has been
brought to my attention.

      I am writing this personal letter to you asking you to come in and make satisfactory
arrangement and avoid needless embarrassment and expense to you.

        I am withholding approval for action for one week, and I expect to be hearing from you within
that time.

       Yours truly


       Credit Committee Chairman




                                                                                                      43
Delinquency Control and Collection Procedures:

3.     Delinquency Follow-up Action Procedures: -- continued

Failing response, send a demand for payment in full within 7 days, at the same time
freeze all shares and deposit held at the credit union.

Demand for payment in full should be sent by registered mail and should be the final contact before
proceeding to other remedies like arbitration and or legal system.

IMPORTANT:      ALL COLLECTION ACTIVITY IS RECORDED ON THE DELINQUENCY
CONTROL CARD AS IT OCCURS.

4.     Collection concept:

        A credit union can control poor lending practices, but it cannot control a change in
circumstances. How a collection officer analyzes and handles these two conditions will determine if a
delinquent situation becomes a delinquent problem. There are parties involved, the member and the
collector. First we will deal with the member. There are four types of delinquent members as follows:

a)    Willing and Able
      If the borrower is willing and able to pay, there isn’t a collection problem. It may be an
overdue instalment situation, created by lack of attention by the borrower to deliver the payment
when due. Basically this is a good account but the borrower’s payment habits needs improving.

b)       Willing but Unable
         In this situation there is a collection problem. However, there is also a borrower of good
character and a solution should be possible. In this case acquire all of the facts on the borrower’s
situation and utilize some imagination (credit counselling) to work out a solution that will permit the
member to manage his or her debt load, including the loan of the credit union. In extreme cases this
may involve securing the credit union’s position further, forgoing some payments for a specific time
(i.e. interest only) until the debt loan can be worked into line. Other creditors may also be prepared to
revise their position and accept reduced payments on more extended terms. Basically, the member is
willing and it is a matter of bringing his or her payment in line with debt service ability. This can
include individuals in dire circumstances such as in hospital, unable to work, loss of income and so
on. This is a delicate situation.

c)      Unwilling but able
        This is a genuine collection problem. The credit union’s initial objective would be to motivate
the member to be willing to pay, and if reasonable efforts along this line fail, the next approach is to
use avenues to compel the member to pay. That mean moving from “nice collector” to “tough
collector” more quickly than when the member is willing.

Delinquency Control and Collection Procedures:

4.     Collection concept: -- continued

d)     Unwilling and Unable
       This is a hard core collection problem. The member may lack both character and capacity. If
the member is truly unable to pay, which means that the member also lacks assets which be realized
upon, there is often little that the credit union can do to enforce payment. In most cases this is an



                                                                                                      44
impending loss situation so the credit union position should be in contact with the member and
remained informed about the member’s location, employment and financial position, so that in the
event that the circumstances and or attitude improve, the position could be corrected. Any funds
received reducing the loss potential are a bonus.

The Collector’s Attitude
       The attitude with which the collector approaches the problem will have a significant bearing on
the outcome. These include imagination, challenge, incentive and the right approach.

a)      Imagination
        Collection competence is a set of guides and tools plus imagination and judgement. It is never
routine. The imagination factor cannot be emphasized, as the alternative to the routine approach. A
routine approach creates routine results and cannot be credited with stimulating the desired
collection response from the borrower.
        People are different and will respond differently to the same approach. Utilizing imagination
and judgement to arrive at a conclusion will permit the collectors to identify and follow procedure
which will produce results in each situation.

b)      Challenge
        The goal is not the collection of a single payment, but it is the correction of a delinquency
problem. This basic factor is often overlooked. If the collector set out with the objective of collecting
an overdue payment and considers that this solves the problem. The same problem will probably
occur a month later.
        A collector must look for an overall solution. This boarder approach will permit identification
of the reason for the delinquency problem, correcting it at the outset and if necessary shoring up the
credit union’s position by acquiring additional security to ensure the safety of the account. The
challenge is to educate member into better paying habits.

c)      Incentive
        Collectors must have a personal interest I increasing their knowledge and improving their
skills through experience training and sharing. Find a mentor who has good experience and has had
success.

d)      Collectors Approach
        Simply put, collecting is the same as lending. If a loan is made on the basis of the member’s
verified ability to repay, then repayment or collection must be based on the same verified information.
A collector must recognize that the collection process involves the same skills although the sequence
and procedures differs slightly. A collector’s responsibility extends to al loans on the books,
regardless of who made the loan.


Delinquency Control and Collection Procedures:

4.     Collection concept: -- continued

       i)      Immediate Action
       Each collection problem is viewed analytically and promptly or else it is likely to go wrong.
       THE BIGGEST HANDICAP IS PROCRASTIANTION. If the collector moves swiftly and
       surely, the borrower quickly learns who is in control. While a willingness to cooperate with
any reasonable arrangement should be evident, it should also be clear that         arrangement must




                                                                                                      45
be kept. Remember one cannot influence and antagonize at the same          time. One must maintain a
sympathetic attitude projecting a “willingness to help” approach.

        The key to a successful collection system is action that is immediate, systematic and
        consistence. Evaluate the individual loan amount and determine what action will best meet
the situation.

       ii)     Course of Action
       Before initiating any collection efforts, a collection officer should ensure that he or she has
       a full grasp of the basis on which the loan was granted, and the background information
       available of the delinquent member. In negotiations with members, a number of factors may
influence the course of action. For example, what concessions could be made in the        repayment
and whether additional security might be required or for that matter available.

       iii)     Review of Credit Files
       Review the credit file and confirm the delinquent’s circumstances. This includes confirming
       personal statements as well as credit investigation on a serious delinquency. It is often
       surprising that a borrower who is supposed to be unemployed has actually been working and
       keeping the money or paying otter payments. Discussions with borrowers should focus on
       new information. Changes from the former situation and knowledge of the background details
       will allow the collector to move more quickly to the real core of the collection problem.

Delinquency Control and Collection Procedures:

5.     Collection Tool:

a)      Form Payment Notices
        Form notices are an acceptable commencement procedure, but this process is only effective
with those borrowers who intend to pay and actually have the funds available. A normal “willing and
able” delinquent will respond. This notice is generally sent out within 5 to 7 days of the member
missing the payment. That gives the member a small grace period. This is NOT the right approach if
the first payment on the new loan is delinquent. In this case a telephone call to the member is crucial.
If there is no response, a second notice may be sent 7 days after the first. It should never be accepted
practice to send a second notice automatically, unless the situation is known to the collector. The
disadvantage is that it is common practice in business, and delinquent members are probably quite
used to getting them. The advantages are that the process is simple, and cost effective in term of time
and expense.

b)    Telephone
      This is often the cheapest and most effective method of collection (two way communication).
Whenever and wherever possible, the telephone should be used to resolve collection problem. An
example would be a borrower who has received three first notices in a row. Even if the problem
cannot be resolved over the phone, an opportunity can be made available for an office interview. The
advantages of telephone contact either at home or place of employment are as follows:
      i)      Time saver.
      ii)     One can usually obtain a mutual payment commitment from the member.
      iii)    It is more likely to be as insistent and persistent as face to face.
      iv)     Removes sympathetic factors and distraction




                                                                                                     46
Here are some helpful hints for telephone interview:
       1.      Identify the member. It is most important to confirm the person’s identity since
       exchanging information with the wrong party cannot only be embarrassing, but it is
       a breach of confidentiality.
       2.      Advise who you are and which credit union you represent.
       3.      State the reason for the call. There should be no misunderstanding about why the
               credit union is calling. i.e. the number of payments, the total amount due etc.
       4.      Use the “strategic pause”. This six second pause throws the burden of conversation
               on the member. It also gives the member an opportunity to explain why the
               payments were not made.
       5.      Give the member an opportunity to talk without interruptions. The reason for non-
               payment just might be a mix up in the credit union’s accounting system. LISTEN
       carefully.
       6.      If the member’s plan is realistic, confirm the date(s), amount(s) and from what
       source the payment will come. Check if the repayment is satisfactory with the
       member. Confirm the promise.
       7.      If the member’s plan is not satisfactory, focus the member’s attention on the
               alternative you are recommending. Suggest that you could take pledge shares to
       assist with bringing the loan up to date. This is within the power of the credit
       union, but some members would rather pay up the loan.

Delinquency Control and Collection Procedures:

5.     Collection Tool: continued

       8.      Obtain a satisfactory result – keep control of the conversational and don’t be led
       into irrelevant discussions. Be sure to get a definite commitment if not for the
       payment then for an interview.
       9.      Explain that future payments must be made according to the terms of contract and
               suggest that in the case of future difficulty, the member should call you in advance
               of the due date.
       10.     In closing – Review the discussion and confirm whether or not the commitment has
               been interpreted correctly by both parties. Many members will try to use
       misunderstanding as an excuse to postpone payment when confronted on a follow-
       up.
       11.     Thank the member for the anticipated cooperation. Remember the objective is to
               turn delinquent loans into profitable loans by retaining good will. This might be
       adjusted if the problem is serious or chronic. The card will tell.
       12.     Record on the delinquent loan ledger card.
       13.     Remember, always let the member hang up first.
       Note: Preparing for the interview and other helpful information may be found in
               interview techniques in the office interview section. Overall the approach should
               be quite similar.
If the member has objections, determine what the member objects to, get agreement on the part that
the member is not objecting to, recommend positive solutions to objections and try to reach a definite
conclusion.

c)     Form Letter and Personal Appeals
       These are slightly more expensive than telephone contact, and should be used when telephone
contact is not practical or possible. Use form letter in a manner similar to form notices, but address
the member and the situation directly and personalize it. Remember the objectives are exactly the



                                                                                                   47
same as the telephone contact, only the process of two-way communication is much slower by mail.
Above all answer responses immediately. The advantages of form and personal letters are as follow:
      i)      Simple and direct. (No word should exceed 3 syllables.)
      ii)     Visual impact. (No paragraph should exceed 4 lines)
      iii)    Brevity. (No more than one side of a page.)
      iv)     Flexible. (Retain good letters in files or on a word processor for future use.)


Delinquency Control and Collection Procedures:

5.     Collection Tool: -- continued

d)     Interview Techniques
       The term “interview” includes contact by telephone or in person at the office or member’s
residence or place of work. The techniques offered here can be helpful for any interview. The same
basic process should be followed in each case.
       1.       Analyzing the Problem
                Know to what extent the member is overdue?
                What collection effort has been made in the past?
                What additional information is requires to bring file information up to date with
       the member’s current circumstances.
       2.       The Contact
                Normally the contact would be made at home, but contact at work can be more
       effective for some cases. Make the date and the time clear.
       3.       The Interview
                Review all of the answers obtained, re-assess the situation, and hopefully some
       suitable arrangement can be made with member. Remember the prime objective is
       to bring the loan to an up to date status as soon as possible. Sell the member on the
       idea of why the member should pay, not the reasons the credit union wants to get it
       paid. The collector is striving for a cure, rather than a treatment for temporary           relief.
       If for example the problem is routine, consideration could be given to a) a           payment
       extension b) a change of payment date to one that may be more suitable;                     c) a
       plan for one full payment now and the other spread over a few months until                  the
       loan is up-to-date.
                The solution can include applying part or even all of the member shares held
                against the loan in whole or in part. The credit union can by legislation take the
       shares, but by suggesting it to members, they will realize that the situation is
       serious and may revive payments.

       4.       Collection Interview Tips
                * Be courteous and display good manner at all times. What is said as well as how it
                is said can make a tremendous difference.
                * Be businesslike, use titles to underline the formality and seriousness of the
                situation, and remember the credit union’s public image.
                * Do not use harassing techniques to collect.
                * Do not use threats or sarcasm – it achieves nothing.
                BUT IF YOU MAKE A THREAT OF FURTHER ACTION MEAN IT AND DO IT.
       i.e. legal action.
                * Avoid arguments, as member cooperation is required for a successful conclusion.
                * If promises are broken, follow-up with the member. Otherwise it defeats the
                atmosphere of urgency about the situation.



                                                                                                       48
Delinquency Control and Collection Procedures:

5.     Collection Tool: -- continued

              *Use motivating appeals to give the member some reason for paying.
                    Save money – avoid paying more interest
                    Save trouble – not being bothered all the time
                    Pride – the member’s word is of value
                    Honesty
                    Security – avoid further action or loss of assets
                    Credit Rating – affecting future borrowing potential
                    Self respect – and respect of fellow members and the Community

e)     Member visitation
       Field calls to a member’s personal residue or place of employment can be effective but should
be used as a last resort. This may be of particular benefit if a member has skipped or if there is
security that should be inspected for conditions or for that matter existence. The shock will generally
achieve at least an office interview. First hand seeing is helpful at times.

f)     Meeting with the Credit Committee or the Board
       At times this can be productive. Committee members should be familiar with the situation, the
delinquency policy and procedures, and be familiar with interview techniques. Directors and
Committee members can appeal to the member’s loyalty on a different level, and use the credit union
needs factor more readily.

g)     There comes a time when the “nice collector” must end
       No one likes to see this much less experience it, but there comes a time when there is no other
option. All avenues have been exhausted. The only alternative left is realizing on the collateral
security and following whatever other legal option are available. A registered letter should be sent to
the member demanding payment in full. If the situation cannot be resolved there is no other option.


Delinquency Control and Collection Procedures:

6.     Special Section on Co-makers:

       This section has been misunderstanding in a major way by credit unions in the Region, and
must be clarified. In some situation, a loan applicant may require additional security or shares which
can be provided by another member. The “other member” will co-sign the borrower’s loan application
and promissory note. The needs for a co-maker are as follow:
       Where a member does not have sufficient security for a loan.
       Where a member’s ability to repay is in doubt.
       Where the borrower is below the age of majority, the parent or guardian may be involved.

The critical point here is that the borrower did not qualify for the loan.       There are some very
important principles which govern this process.




                                                                                                     49
      IT IS IMPORTANT TO UNDERSTAND THAT ANY PARTY WHO BECOMES A CO-SIGNER
OR A CO-MAKER OF ANY LOAN NOTE AND RELATING SECURITY IS DIRECTLY INVOLVED IN
THE LOAN AND THE FOLLOWING BASIC PRINCIPLE APPLY:

1.     The loan is joint and all parties must be credit union members.
2.     The loan application is to be signed by all parties, maker and co-maker.
3.     All parties whether maker or co-maker are, totally and jointly liable for the full amount of the
       loan.
4.     Any security pledge may be realized on in any order determined by the credit union. If the
       credit union wishes to take the security pledged by the co-maker first it is free to do so.
5.     All parties remain fully liable until the loan is fully repaid.
6.     All parties must sign any agreement revising the terms of repayment or altering any security.
7.     Any delinquency follow-up and notices, letter etc. must be sent to both parties.
8.     As a party responsible for the loan, a co-maker may provide all or any portion of the loan
       security. A member’s shares cannot be counted twice.
9.     A co-maker is liable for the entire loan totally and jointly for the full value of the loan, and in
       case of default may be called upon to make all or any portion of the loan payment as they
       become due.
10.    In the event of default, any action is taken against all parties involved.

It is important for co-maker to realize that they are as responsible for payment as the borrower. In all
cases a co-maker must sign a co-maker’s declaration. Refer to the sample form in Appendix 3. Co-
makers should be given a copy of the agreement. ALSO, THE CREDIT UNION LENDING OFFICER
SHOULD OUTLINE THE AGREEMENT IN DETAIL, ENSURING THAT THE CO-MAKER
UNDERSTANDS FULLY.

Delinquency Control and Collection Procedures:

7.     Shares and the Right of Offset:

        By legislation the credit union has the right to any monies that a member has in shares or
deposit in lieu of any loans outstanding to the members. This is outlined under section 109 of the
legislation. Section 109 – Subsection (1) states that “A registered society has a lien on a share or any
amount outstanding to the credit of a member or his legal representative for a debt due by that
member of the society”. Subsection (2) states that “A registered society may enforce a lien mentioned
in subsection (1) in the manner set out in its bylaws”. Subsection (3) says “The Board may, in default
of payment by any member indebted to a registered society, apply the sum paid up for the time being
on any shares held by that member in or towards the discharge of the debt so due and any of the
expenses in or about the same, and the defaulting member shall have no further claim in respect of
such shares”.

       What this mean in simple terms is that if a member defaults on a loan, the credit union can use
whatever balances exist in that member’s share or deposit account to make partial or payment in full
on the defaulted loan. If the loan is demanded, the shares and deposits are to be applied against the
defaulted loan. This has been a real problem in the Region for many years. Most of the loans on a
credit union‘s delinquency include members that have share capital and deposit opposite their
delinquent loans. In one case a member had a loan of $8,000.00 and now owed $18,000.00 with
interest, but has shares of $8,000.00. What has happened here is very important to understand.
       1.      The original balance was totally secured, without risk to the depositors. Because of the
               delinquency the membership now stands to loose $10,000.00.
       2.      That loss is not the borrower’s money, it is the depositors.



                                                                                                       50
       3.     That $10,000.00 if paid would go towards making the credit union more liquid (it is
              illiquid now), and if it able to collect overdue payments its liquidity would be in fine
              shape.
       4.     The new allowance for the doubtful requirements in the draft regulations will require
              the credit union to reduce its member equity by $18,000.00. The credit union could
              well face insolvency because of this type of situation.

       The impact of taking the shares to repay the loan would have resulted in the situation being
not only for the member who originally had the money to pay off at least the principle, but it is now
faced with that balance plus $10,000.00, but the balance sheet of the credit union is now negatively
affected, and serious problems have come about. The following shows the difference.
                                           Not taking                   Taking the
                                           Shares                       shares at the outset
Impact on assets                           -18,000.00                   -8,000
Impact on loans net of allowance           -18,000.00                   nil
Impact on member equity                    -18,000.00                   nil
Impact on liquidity                        -18,000.00                   nil


Delinquency Control and Collection Procedures:

7.     Share and the Right of Offset: continued

Granted, the credit union could have lost 3 months interest or $270.00 but the reason for the credit
union’s problems today is lack of collection activity. This kind of situation has adversely affected the
liquidity as well as the capital position of the credit union to the point now that the credit union’s
solvency is now questionable. To make matter worse, the credit union by its inaction has caused its
members to loose $10,000.00 of their depositing member’s hard earned money, and it is not the
borrower who will have to pay the loss when the loan is written off. This is the impact of one account
alone, and there are many others. Not only that the credit union continued to pay dividends to the
member, increasing the cost of the depositors.

       In order to avoid any confusion, credit union Boards should incorporate the following into
their by-laws:

       The credit union has a lien on ay deposits and shares of a member has t the credit union
       together with any interest or dividends thereon for any indebtedness due or accruing due
       to the member whether directly or indirectly.

       No matter who is in default the credit union for any obligation may withdraw any shares or
       deposits, whether they are pledge or not unless the shares or deposits exceed the principle
       amount and any accrued interest owing to the credit union.

        Any interest or dividends due to a member in default to the credit union on any contractual
agreement shall be applied to the indebtedness up to the amount owing as          soon as the amount
is credited to that member’s share or deposit account.

       The credit union may apply shares and deposits, and interest or dividends thereon, on
       which it has a lien (by virtue of the above) in respect to indebtedness without notice to any
       obligation with respect to indebtedness which falls due by the member to the credit union.




                                                                                                     51
Furthermore, the by-laws and lending policies should outline when the interest accrual should cease
and when the loan should be demanded. For example, 90 days for the accrual t stop and 180 days
for the shares and deposits to be credited to the member’s loan account. Any amount on deposit or in
shares should be frozen as soon as demand is made.


Delinquency Control and Collection Procedures:

8.     Starting Delinquency Control Early:

      A good time to start the delinquency control is when the loan is granted. Make sure that the
member understands clearly what the term and condition of the loan are, what the security is, what
repayment is expected and any other conditions. The member needs to know exactly when the first
payment is due, and how much the payments are.

        This can be done very effectively by using a letter of commitment. It outlines clearly what the
responsibilities of the member as well as the credit union. All terms and conditions are outlined in
details along with what the expectations are. A commitment letter is signed by the credit union. This
is a very good tool avoiding misunderstanding.

       One of the items to discuss with the member is the possibility of financial difficulty. It should
be made clear that if at any time the member will not be able to make the payment, the responsibility
rests with the member to advise the credit union in advance as to why, and when that payment will be
made.




                                                                                                     52
           ANTIGUA & BARBUDA SEVENTH-DAY ADVENTIST
               CO-OPERATIVE CREDIT UNION LIMITED


                                   MEMORANDUM

TO:        Board of Directors
           Credit Committee
           Supervisory Committee

FROM:      Chairperson
           Supervisory Committee

SUBJECT:   Regularizing of Accounts




The members of the Board of Directors, Credit Committee and Supervisory
Committee are asked to take note and comply with the following:

Please be advised that effective immediately all officers are required to ensure that
their accounts reflect the following in accordance to Section 13 subsections 2c and
e of the Antigua and Barbuda Seventh-day Adventist By-Laws which states:
         • He (officer) holds one hundred (100) fully paid shares… or five hundred
           dollars in the Society

        • He (officer) has saved, at least ($60.00) per quarter in the past year;

Anticipating your immediate attention.




                                  P.O. Box 1708 St. John’s Antigua & Barbuda
                         Tel: 268-562-3446                       Fax: 268-562-3446
                          http://www.sdaccu.ag                     Info@sdaccu.ag




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