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THE COMMITTEE of the CONCERNED SOMALIS (CCS)
ORGANIZATIONS
MANUAL ON MICRO-FINANCE POLICY & PROCEDURE
Roles and Responsibilities:
For the
Credit and Savings Association
By:
Abdillahi M. Hersi
Micro-finance Consultant
March 2013

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CONTENTS
Chapter 1: Introduction
Chapter 2: Loan Policy of CCS
Chapter 3: Management Structure
Chapter 4: Essential Ingredients of Lending Activities
Chapter 5: Micro-credit Management
ANNEXES:
Loan Application Form
Application Receipt & Disposal Form
Micro-credit /Loan Contract
Supervision / Inspection Report
Monthly Progress Report
Monthly Recovery Performance & Over Due Status

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MANUAL ON LOAN POLICY AND PROCEDURE
Chapter No.1 INTRODUCTION
CCS's Mission Statement
CCS dedicates its unflinching efforts to facilitate its members to own and
democratically manage Micro-micro-credit and saving organization and
inspires them to sacrifice personal interest for the progress, growth and
financial sustainability of Micro-micro-credit and savings in Somaliland.
Strategy to accomplish the Mission
This Manual on Loan Policy & Procedures, along with other Manuals on
Operations & Accounting, accompanied by need based & result oriented
training to General Assembly, Board of Directors, Members of Micro-credit
Committee, Executive Directors, Loan Officers & Chief Accountant, and
Shareholders and Borrowers for their capacity building and CCSs' institution
building is an integral part of the Strategy to accomplish the Mission.
Objectives of the Manual
CCS is micro-credit dispensing financial intermediaries. In their effort to
efficiently operate the institution and to respond to the newly emerging
micro-credit needs of the members as well as other borrowers, there is
immediate need for Manual that can lay down the Loan Policy and
operationalize the Lending Procedure. Thus, following are the broad based
objectives of this Manual.
To equip the staff of the CCS and other clients with necessary skills so
as to facilitate them to take decisions on micro-credit disbursement
based on sound principles of micro-credit management
To provide wider perspective and exposure to members of the CCS
Committee, Board of Directors and enlightened members of the
General Assembly in respect of established principles and practices of
micro-credit management and assist them in their capacity building so
that they are enabled to take decisions on micro-credit proposals.
To train members and borrowers of the CCS who are the primary
loan applicants for preparing quality loan proposals that can meet

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sound principles of micro-credit management
Users of the Manual
 Staff of the CCS
 Members of Micro-credit Committees and Board of Directors
 Members and Borrowers of the local associations
Objectives of CCSs in this project:
CCS’s main objectives is to provide easy access to its
members/shareholders micro-credit at NO interest and play a catalytic role
to lubricate the process of small business sector development in two (2) of
Somaliland – Maroodi-jeex (Hargeisa) and Sahil (Berbera). In the course of
time, when CCSs acquire sound financial sustainability, it will endeavor to
provide to its members all types of micro-credit financial services.
In this process, members of CCSs appreciate that it should be its endeavors
to continuously manage these financial intermediaries on the basis of
principles of sound business and financial management.
Since CCSs established in Somaliland, it is registered with Ministry of
Planning and as a non-governmental, non-profit, and non-political
organization to conduct its activities of enrolling members/shareholders and
lending to targeted group of 900 clients (450 each year). The CCSs has its
own democratically elected Board of Directors to implement policies and
programs approved by the General Assembly, which consists of all
members/shareholders.
CCSs have appointed full time Executive Director and Chief Accountant to
manage the operations of CCSs on a day-to-day basis and be accountable to
Board of Directors.
Boards of Directors have appointed Micro-credit Committee to approve
micro-credit proposals of the clients associations.

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Chapter No.2 LOAN POLICY OF CCS
CCSs Loan Policy document is evolved from the 3 decade long experience in
the field of Micro-finance.
Loan policy of CCSs basically sharply focuses on following policy
directives:
• Area of Operation: CCSs lending activities shall confine to and
cover specific geographical area of operations for the purpose of
enrolling members/shareholders, providing loans to borrowers and
canvassing for business.
• Borrowers' Eligibility: CCSs borrowers belong to target group of small
and medium enterprises engaged in sales, processing of agricultural
produce, inputs and service providers for business sector development.
General Assembly can consider addition or deletion of types of activities
pursued by borrowers after carefully discussing the issues.
• Borrower's eligibility and sanction of loan will be guided by
assessment of character, micro-credit worthiness, capital, collateral,
willingness and capacity to repay loan.
• CCSs will not discriminate borrowers on the ground of clan, color,
creed or sex. CCSs will encourage women borrowers if they meet
eligibility criteria and their loan proposals are technically feasible and
financially viable.
CCSs shall not provide loans for refinancing or redemption of
existing debts;
for purchasing consumer goods; for meeting emergent family needs or
personal loans; for investment in equity capital in any enterprise for
speculative trade transactions with agricultural commodities;
• Eligible Projects:CCSs will provide loan for such projects under
small/medium business enterprises as are technically feasible and
financially viable.
CCSs will grant such loans as are quality and productive which means
loans obtained by borrowers must enhance production, productivity
and profitability of business enterprise and that loans are to be repaid
along with service charge.
Purposes of loans, size of loans, exposure limits to each borrower,
service charge, maturity period of loans, repayment terms, and

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collateral required and other conditions relating to loans proposed to
be advanced to borrowers will be decided by Board of Directors.
• Loan Maturity Period: CCSs will extend short Term Loan i.e working
capital loan for a maturity period not exceeding 12 months
• Business Operations: CCSs business operations need to be
financially sustainable i.e all expenses including cost of borrowed funds,
provision for loan losses, operational & administrative cost, imminent risks
etc shall have to be met from CCSs income derived principally from the
service charge to clients on loans provided to them, income from
investments made and if any, fees collected for providing services to clients.
Savings: CCSs shall stipulate the saving amounts for each client
depending on the amounts of loan.
Collateral: All loans need to be adequately secured by the borrowers
and minimum one guarantor of good means as stipulated by CCSs in
order to minimize risks factor at borrower level.
• Loan Limits: Loans up to US$_______ to one single association
• Loan Diversification: CCSs will endeavor to their best to diversify and
balance the loan portfolio among segments of small/medium businesses.
• Micro-credit Contract: Micro-credit Contract document [a legal
document enforceable in the Judicial Court of Law in Somaliland]
stipulating all terms & conditions of loans will need to be executed
between borrower and CCS for availing loans prior to the date of
disbursement of loans. One copy of this document shall be provided to the
borrower for his/her record.
• Supervision & Inspection: CCSs will inspect/supervise end use of
loans disbursed to borrowers and in the event of its misuse CCSs have
the right to recall the loans.
• Responsibility: Lending authority carries responsibility to use the
authority in a proper & prudent manner. Any violation of policy and
procedure must result in restricting or canceling his/her authority or
entailing stringent disciplinary actions.
• Secrecy of Information: All information pertaining to any customer of

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the CCS shall be kept strictly confidential. No information of any
customer shall be disclosed or passed on to anyone including customer's
relatives, except as a result of Court order.
Chapter No.3 MANAGEMENT STRUCTURE
CCS Organization would have following Management Structure to lay down
policy framework, to implement its policies and to supervise that thaes
policies are implemented.
CCS's Management structure consists of two tiers, one of which is
Board of Directors/elected body and other one is Administration
Department/executive body.
BoD which has members elected by the General Assembly is
responsible for formulating business, management and financial
policies and programs for the growth and development of CCS.
BoD is accountable to General Assembly.
Administration Department headed by the Executive Director
[Chairperson] with supporting staff, viz. Chief Accountant, Loan
Officer etc. is appointed by ED.
Administration Department is responsible to carry out the policies and
program formulated by the BoD with the objectives of managing the
day to day affairs of the CCS in such a way that members of the CCS
feel that it is owned and managed by them and it is customer friendly.
Administration Department is expected to put in its best effort to
make CCS's operations viable & financially sustainable.
Broad based functions of the General Assembly, Board of Directors,
Micro-credit Committee & supporting staff of the Administration
Department in relation to CCS's Loan Policy & Procedure are indicated
as under.

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General Assembly
General Assembly is the plenipotentiary and competent body of the
member- owned & managed CCS to elect members of the BoD, Micro-
credit Committtee & Supervisory Commission.
It has the prerogative to direct the BoD to formulate Loan Policy &
Procedure and submit for GA's approval.
GA is responsible to supervise the affairs of the BoD with the objective
of ensuring that CCS retains its characters’ as "members-owned &
managed" and achieves operational viability from the 1 year itself &
progressively financially sustainability.
• GA would require that BoD,at its Annual General Meeting, presents
Annual Balance Sheet and Annual Report for discussion and adoption.
• Presentation of Annual Balance Sheet should focus sharply the steps
initiated by the BoD to make CCS's lending activity operationally
viable, minimizing risk assets and deploying human resources
optimally.
• Annual Report should critically analyze the progress achieved in
respect of Lending Plan as compared to the targets stipulated; identify
factors inhibiting the flow of micro-credit & repayments and make
recommendations to accelerate the flow of micro-credit & repayments.
• Present for approval current year's Annual Business and Financial Plan
covering projections on mobilizing membership & share capital; lending
activities; strategy for reduction in Non-Performing Assets; Income &
Expenses and Profit & reserves.
Board of Directors
formulates Loan Policy & Procedure and obtains approval of
the GA
formulates, on an annual basis, Business Development Plan focusing
annual business growth and strategy to accomplish the business goals
Formulates annual Financial Plan focusing on operational
viability of the CCS in the 1s year and progressively financial
sustainability in subsequent years.
Supervises the Administration Department to ensure that it carries out
its functions of drawing and repaying funds with service charges in

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accordance with the provisions embodied in the " Investment
Agreement and Sub-Micro-credit Agreement" as executed by CCS
with Project Monitoring cycle.
Presents Annual Balance Sheet and Annual Report in the Annual
General Meeting of the GA for discussion and adoption.
Presents, for approval of the GA, current year's Annual Business and
Financial Plan covering projections on mobilizing membership.
• Appoints need based supporting staff of Administration Department
Supervises the Executive Director with regard to his/her managing the
affairs of the CCS.
Approves all loans above US$_________ subject to recommendation by
the CCS field officers.
Micro-credit Committee
The Micro-credit Committee shall have following three members:
The ED of CCS
The Program manager
Loan Supervisor
The Micro-credit Committee shall be responsible for
following:
to interview the Loan Applicant and verify the facts stated in the
Loan Application Form, Business Plan, other documents &
recommendations of the Loan officer and satisfy with his/her
willingness & capacity to repay the loan.
To comply with all the requirements as embodied in the loan policy and
procedure while considering loan proposals of the clients.
To work out Interest Rate Structure on loans to be advanced to
borrowers and recommend to BoD for approval & giving effect
• will review all inspection reports prepared by the Loan officer and
Indicate future course of action on problem loans.
To develop loan products best suited to the emerging needs of the
members/clients and diversify the loan portfolio and submit to BoD for
consideration and approval.
To review the implementation of the CCS's loan policy and procedure which
can increase the flow of micro-credit & enhance repayment of loans and
make recommendations to BoD

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Will be responsible for all loans sanctioned for recovery along with the
Loan officer
To review all loans proposed for restructuring or write off and make
recommendations for the consideration and approval of the BoD.
To monitor the loan portfolio and ensure its growth and quality.
To analyze cases of loan delinquencies on a monthly basis & formulate
action plan for minimizing the incidence of loan delinquency.
To identify training needs of the existing and prospective borrowers, based
on its experience, and organize 2 day training program.
Executive Director
Executive Director is expected to possess requisite qualification and
adequate experience/exposure in the field of Banking & Micro-credit.
Executive Director shall report to BoD & is accountable to BoD in all
the matters relating to Lending activities.
He/ She will implement and monitor day to day administration of the
CCS's lending activities.
It is his/her responsibility to implement loan policy and procedure
stipulated in the Manual, recommend revisions and strategy for
accelerating the performance and developing loan business qualitatively.
He/She is responsible along with the Micro-credit Committee for all
loans made by the CCS.
He/ She is authorized by BoD to sign all legal documents [including Micro-
credit Contract], certificates and correspondence on behalf of the CCS
Chief Accountant
Chief Accountant is expected to possess requisite qualification & adequate
experience/exposure in the field of Book-keeping & Accountancy:
• He/ She will be responsible to Executive Director
He/ She will be responsible for proper maintenance of all Books of
Accounts & record entries in accordance with the detailed instructions
contained in the " Operation Manual & Manual on Accounting"
prescribed for CCS
He/she shall be responsible for proper fund management of the CCS so

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that borrowed funds are lent immediately within a day or two and CCS
should not have to pay interest unnecessary.
Loan Officer
Loan officer is expected to possess requisite qualification and adequate
experience/exposure in the field of Micro-credit and savings.
Loan officer, in addition to his/her role in the process of micro-credit
appraisal, should endeavor to perform following tasks:
To undertake marketing of CCS's lending activities to accelerate
business growth in a planned way
to educate customers about CCS's Loan Policy & Procedure and how it can
facilitate them to increase production and income
to study customers' problems and organize meeting with Executive
Director or members of CC or BoD to resolve them and clarify their
doubts/misgivings
To create atmosphere quite congenial for prompt recovery of loans which
can reduce instances of loan delinquencies.
Relationship Management
Relationship Management for CCSs is very crucial for selecting good
borrowers, securing quality loan proposals, ensuring timely repayment of
loans and ultimately increasing “good clients”. For this purpose the Loan
officer is expected to perform following tasks:
Organize clients meetings as frequently as possible, in a cost effective
manner, in the area of operation
Discuss with them the role of the CCS and its offer for services &
products that can benefit clients, particularly increasing their production,
productivity and profitability.
Make them fully aware of all the terms & conditions as detailed in the
CCS's Loan Policy & Procedure that can help them better understand
the procedure for obtaining loan as well as their obligations.
In the event of clients' having confusion or seeking clarification on
some difficult issues, a meeting with Board of Directors can be
considered necessary.
During these meetings good clients as well as their micro-credit
needs/loan products should be identified.
Some more/additional data & information can be collected that can be
useful for better micro-credit appraisal and understanding realistically

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the local situation to fit in CCS's business policy & program
Problems encountered during inspection of clients' business activities
can be discussed to seek solution to these issues.
Loan Disbursement
A careful study of the Investment Agreement, Sub-Micro-credit Agreement
and Loan Policy and Procedural Manual reveals that a borrower has to wait
for disbursement of his/her loan till the following procedure comprising 12
steps is completed which means disbursement may require a period of one
month or even more.
Prospective borrower visits CCS and contacts Loan officer for
information on availability of loan. Loan officer briefs about
certificates/documents to be produced for his/her eligibility of loan
and, if eligible, issues a Loan Application Form & guides how to fill the
form and attach documents required for processing the proposal.
Prospective borrower prepares loan proposal along with required
documents and visits CCS to hand over the loan proposal
Loan officer appraises the proposal, prepares summary report,
makes recommendations and keeps ready for submission to Micro-credit
Committee's Meeting being the competent authority to take the decision
Micro-credit Committee meets once in a fortnight and takes decision
on loan proposals after taking interview of the prospective borrowers.
All proposals on which decisions are taken by the CC are passed on to
Loan officer for proper recording purpose. Loan officer informs the
Chief Accountant of the CCS in writing details of proposals already
favorably considered by the CC for arranging for funds. Loan officer is
expected to communicate in writing to individual prospective
borrowers about the fate of his/her proposal whether it is sanctioned
or rejected. If rejected, borrower expects the reasons for declining the
request for loan by the CC.
The Chief Accountant of the CCS, in terms of the Sub-Micro-credit
Agreement executed by the CCS, fills up all seven Annexes from A to G
as a part of CCS Micro-credit Loan Application and Sub-Micro-credit
Disbursement Application Form and obtains signature of the ED.
The Chief Accountant sends all these documents to Project managers

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for approval of CCS's Micro-credit Disbursement Application.
The Chief Accountant of the CCS then fills up Sub-Micro-credit
Disbursement Order and prepares the payments.
CCS is expected to transfer the requested funds to the specified bank
accounts at the specified location and branch.
On receiving the funds the Chief Accountant will inform the Loan
officer who would subsequently inform the borrowers to get all
required documents executed before obtaining loans.
Borrowers arrange to register their collateral group and provide
Guarantors.
After verifying that all required documents as stipulated by the CC
while sanctioning loans are obtained duly signed and
certified/notarized borrowers are disbursed loans either in cash or
micro-credited to their bank Account.
Loan officer and the Chief Accountant then account the borrower-
wise disbursements in the respective books of accounts and initiates
process of supervision, follow-up, inspection and ultimately for the
repayment of loans along with interest.
Consultant during the field visits attempted to verify whether CCSs follow
this procedure and assess the time taken between the requests of loan by
the borrower and disbursements of loans. It was confirmed that it takes
around one month for the borrowers to obtain loans.
Chapter No.4 ESSENTIAL INGREDIENTS OF LENDING
ACTIVITY
As CCS's main activity is lending to its members/ borrowers, following are
the essential ingredients of the lending activities.
Borrower's eligibility
He/ She should be residing within the geographical area of operation
of the CCS project area
He/ She should be able to demonstrate experience of profitable
operations in the activities for which loan is required
He/ She should not have any over dues with Government/Local
government or any financial institutions.

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Borrower should be willing to provide correct and updated information
to CCS and understand carefully that false information will lead to
serious consequences
Repay the full amount of the principal loan on or before the date
stipulated in the micro-credit contract
Pay all service charges on or before the date noted in the
micro-credit contract.
Abide by all terms and conditions stipulated in the micro-credit
contract.
Purposes of loans
CCS will provide loans to borrowers for following purposes:
• Loans for small business activities that promote employment.
Fees
The CC can consider levying service charge fees on providing better and
efficient customer services.
Collateral
CCS's lending is based on cent percent repayment of principal that is to be
assessed through critical study of financial data & information provided by
the borrower as also from other reliable sources during the process of
interview. CCS's policy to secure loan by obtaining savings and group-
pressure collateral is necessary to recover loan at the last resort and
minimize risks.
Business Plan
In order to objectively and realistically appraise the loan proposal
formulation of business plan by the prospective borrower for the economic
activity he/she desires to pursue by obtaining loan is very important. The
business plan should facilitate Loan officer and Micro-credit Committee to
assess following:
Past experience to establish applicant's ability and competence to
manage the business activity
Past experience to withstand natural disaster and risks
Applicant's preparedness/ ability to bear and manage financial risks
while conducting the activity

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Applicant's proper understanding of maintenance of books of accounts
to ensure expected level of profitability in the enterprise.
Details of projected production, cost, income, gross margin, rate of
return etc under the activity to be pursued by obtaining loan
Applicant's knowledge & commitment for repayment of loans on time
Loan commitment
A formal commitment indicated in the loan contract is legally binding on
both parties as spelt out in a written document. CCS is legally bound to
provide micro-credit as stated in the commitment document, subject to
borrower's fulfilling all the terms and conditions. The commitment document
should specify the maximum loan amount, method of
disbursement/borrowing, date of expiry of the commitment, terms of
repayment, interest rate, any fees and the collateral to be pledged as agreed
between the two parties. All loan commitments must be written.
Client's responsibilities
CCS's Clients must appreciate & acknowledge that their loans are their
direct and unconditional obligation towards repayment in full. They must
repay these loans according to their Terms and Conditions as agreed upon.
This means that CCS's Clients are responsible to:
Repay the full amount of the loan principal on or before the date
stipulated in their Loan Agreements;
Pay all service charges on or before the date prescribed in their Loan
Agreements; and
Abide by all other Terms and Conditions stipulated in the Loan
Contract.
Loan contract
In addition to the general requirements, loans must have, as applicable, the
following additional controls and covenants:
The loan monitoring process must be sufficient to insure that all of
the loan proceeds will be used for the intended purpose.
The loan contract must allow the CCS to perform an on-site
inspection and audit of the collateral whenever requested. The fCCS
must perform such inspections no less than once every four to six

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months depending upon the types of collateral,.
The borrower is given a loan for a certain purpose. The loan can be
used only for that purpose, unless otherwise agreed upon, and
amended in writing, by the CCS.
The borrower has the legal obligation to repay the loan within the terms of
the conditions set in the contract. If these are not followed, the negative
consequences should be clearly explained. For example they will face legal
actions, bear all cost of court proceedings and will never be eligible for
another loan or further business assistance with the CCS.
Chapter No.5 MICRO-CREDIT MANAGEMENT
Micro-credit management is significantly important to ensure that micro-
credit to be provided to prospective borrowers lubricates the process of
small/medium enterprises. To fulfill this, these functions are expected to be
carried out by qualified, experienced and trained Loan officer of the CCS.
Screening by Loan officer
Loan officer is primarily responsible to appraise all micro-credit proposals
emanating from prospective borrowers. For the purpose of meaningful and
critical appraisal of micro-credit proposals following steps are necessarily
initiated.
Ensure that applicant has applied for obtaining loan in the prescribed Loan
Application Form. Loan officer should carefully go through the LAF and verify
that all the required information and data are furnished in the LAF, along
with copies of following documents:
• Somaliland ID
• Certificate for Place [Address] of Residence
• Certificate of Family Composition
• Business Registration
• Contract on premises, if premises are rented

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Micro-credit Appraisal
Loan officer will carry out micro-credit appraisal taking into consideration
following:
Is the borrower residing within the geographical area of project operation
of the CCS?.
Is the borrower a person of integrity, industrious and committed to
honor the repayment of loan with interest? Loan officer through direct
and indirect inquiry may need determine this aspect of character being
very crucial during the market survey. Other attributes of good
character are absence of criminal record, possessing good reputation
on account of his/her social work & status etc.
Does the study of LAF establish that the borrower manages household
expenses within limits and not having any external debts/over dues
that can jeopardize repayment prospects?
Does LAF reveal that the borrower has saved adequate amount from
his own sources?
Does careful perusal of the business plan establish that the borrower
o Is having business acumen on account of his/her having
received training.
o Can earn sufficient income that can take care of all operational
expenses while conducting the economic activity, pay service
charges on the loan, meet some eventualities, if any?
o Is capable of withstanding financial risk during the course of
conducting the business activity? and
o Loan requirement is adequate for the purpose for which it is
requested?
Does the study of Cash Flow reveal that the borrower has adequate
sources to make repayment of loan on time?
Does the request for loan synchronize with the time of planting of
crops and repayment with the marketing of produce?
Does the term of loan or maturity period of loan adequate [not more
or less] to reflect the time of marketing of produce?
Does the evaluation of group-collateral offered by the borrower justify
that its quality and value is adequate to redeem the debt in case CCS has
to recover loan?

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Loan officer will, then, briefly summarize his/her evaluation aspects and
recommend [Annex-1] either for sanction or rejection of the loan proposal
to the Micro-credit Committee and make proper record in the Loan Receipt &
Disposal Register [Annex-2].
Interview by Micro-credit Committee
The Micro-credit Committee is the authority to approve loans up to
US$______ in case of single borrower. This limit includes the total of loans
and extensions of loans to any of the borrowers. BoD shall approve all loans
above US$________. However, the BoD shall take decision on a loan
proposal of the member of the CC. In case of loan proposal of member of the
BoD above US$_______, the decision shall be taken by the members of the
BoD at its meeting in which the concerned member shall not participate and
be a party to the decision. The CC will interview all applicants and verify
most important attributes having bearing on borrower's willingness and
capacity to repay the loan on time.
As members of the CC possess practical and field oriented knowledge of the
local area which is most crucial for them to take correct decision on
borrower's loan proposal, particularly with regard to assessment of the
character being important ingredient to determine willingness to repay loan.
Besides, members of CC are expected to possess a good deal of field level
experience and knowledge of the social and economic environment of the
geographical area of project operation which should help them assess more
realistically all aspects of borrower's economic activities having direct
bearing on the emerging risks and repayment of loans.
The CC should specifically evaluate borrower's micro-credit worthiness,
capacity through interview process and satisfy about the technical feasibility
and financial viability of the project and managerial ability and risk bearing
capacity of the borrower. Training imparted to members of CC can provide
wider perspective and exposure to them in respect of established principles
and practices of sound micro-credit management. Thus, objective oriented
interview by the CC should facilitate to select right type of borrowers, decide
amount and terms of loan while approving loans.

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Decision by Micro-credit Committee
The CC's decision/resolution should include, purpose of loan, loan amount,
date/s of disbursements, term of loan, dates of repayment of loan, penalty
in the event of default on repayment of interest on the stipulated dates and
other terms and conditions specific to the purpose of loan. All terms and
conditions of sanction must be communicated in writing to borrowers. It
may be appreciated that crop production loan does not necessarily be
disbursed at one time but can be disbursed in stages in accordance with the
cash flow statement.
The Loan officer should properly record all decisions of the CC in the
minutes- book as the Secretary. Minutes should be signed by the all
participating members of the CC in token of having been party to the
decision.
Loan officer should record particulars of all sanctioned & rejected loan
proposals in the Loan Receipt & Disposal Register immediately. All
borrowers should be informed of CC's decision [sanction or rejection]
preferably, through written communication. Borrowers whose loan
proposals are sanctioned should be informed to be in readiness to complete
the documentation procedure.
Documentation and Disbursement
Chief Accountant will arrange for receiving required funds from project
funds and will inform Loan officer who, in turn, immediately communicate
borrowers to visit CCS on the prescribed date & time to receive the loan.
While the Loan officer would ensure that borrowers have submitted all the
required documents complete in all respects along with execution of the
Micro-credit Contract. If loan is disbursed in cash borrower shall sign a dated
receipt for each cash disbursement and it is necessary that transaction is
witnessed by the Loan officer. Loan officer will ensure that borrower receives
one copy of the Micro-credit Contract for his/her information and record and
understand clearly all the terms and conditions of the disbursed loan, more
importantly use and repayment of loan, failing which CCS has the right to
proceed for legal action. Loan officer can educate borrowers in a group when
they visit CCS to receive loans. CCS can consider sticking posters on the
walls on most important aspects of loans for the knowledge of visiting
clients.

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Loan officer would properly file the loan papers and security documents in
safe custody separately.
Loan Supervision & Monitoring
Loan officer should prepare a cost effective supervision/inspection plan of
visiting maximum borrowers pursuing same business in a geographically
homogenous area. He/ She shall carry out inspection/supervision over the
end-use of micro-credit to ensure that borrower uses the loan for the
purpose for which it has been sanctioned and, in any case, does not misuse
the loan. He/ She should verify and satisfy that borrower's activity is
progressing in accordance with the business plan and cash flow statement.
The CC after reviewing borrower-wise inspection reports would consider
taking follow- up action on those loan accounts, which have indicted Early
Warning Signals of potential Sickness. Such accounts would be reported to
BoD periodically once in a month initially for information and seeking BoD's
instructions, if any.
Repayment of Loan
A borrower for the purpose of repayment of loan would contact the Loan
officer who would verify records and direct the borrower for payment to the
Chief Accountant. It would be desirable if an entry is made in borrower's
documents, along with issuing receipts in token of having received the
payments. In case of cash payments, it is desirable that transaction is
witnessed by Loan officer.
Loan delinquency
Loan officer should remind borrowers at least one month in advance of their
due date of repayments in writing. This would help them make necessary
arrangement for obtaining money for repayment of loans. It is also desirable
to hold a meeting of borrowers well in advance of the due date of
repayment of loans and inform them about the date and amount of loan
due for repayment.
If some borrowers have not repaid the loans on the due date, he/she should
immediately contact individual borrowers on the next day and put all
endeavors to collect the loans. Besides, the message of repayment must

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be communicated to them through all possible communication channels
such as, through their relatives, friends, etc. If still some borrowers have
yet not repaid their loans cooperation of members of CC & BoD may be
sought and a plan of action should be worked out to contact defaulters
personally and persuade to repay the loan on a specified day/date failing
which legal actions would be initiated. This should be followed by a written
communication. Each contact with the borrower should be properly recorded
in borrower's loan file. This is a documentary evidence of the efforts put in
by the loan officer and members of CC & BoD to recover dues.
Reporting
The following information on loan shall be reviewed monthly at Micro-credit
Committee meetings and reported to the BOD for decision:
Scheduled payment of all loans over 30 days past due (by borrower and
amount).
Single payment or loans with principal or interest past due over 30 days
(by borrower and amount).
Ratio of past due amounts and past due number of loans divided by outstanding
amount and number of loans in that category of loans with the loan portfolio. A
copy of the report should be sent to the funding agency office.
Problem loans
CCS should carefully study and analyze all loan accounts and prepare the
list of such loan accounts as can provide advance signals of some accounts
likely to be sick. A list of such accounts called" Watch List should be
prepared and updated to include such accounts as and when warranted.
This would reflect health of the CCS from time to time. A detailed report of
such accounts should be prepared and utilized to understand the gravity/
magnitude of potential problem loans in order to draw the required attention
of CCS's BoD and initiate corrective action at the earliest opportunity. These
accounts should be reviewed in depth by the Micro-credit Committee at least
monthly and presented to the BOD for decision.

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Segregation of functions
With a view to maintaining a good degree of internal control following
functions should remain independent. This is expected to guard against
intended or unintended misappropriation or mistakes in the lending process.
• Client contact by Loan officer
• Processing of loan proposal and recommendation by Loan officer
• Loan approval after interview of the borrower by Micro-credit
Committee/BoD
• Management & control of funds by Chief Accountant
• Accounting for loans by Chief Accountant
• Supervision & inspection of loans by Loan officer
• Monitoring of the loan portfolio by Loan officer
• Loan classification & delinquent loan management by Loan officer &
Micro-credit Committee
• Write-off of bad loans is recommended by loan officer & CC & approved
by BoD. Chief Accountant makes proper accounting entries