AML & KYC

Credit Risk Management : 

A Presentation to Kashf Microfinance Bank Limited Operations Staff Atif Sarwar Aamir Abbas Hina Ghaffar Credit Risk Management

The Magic Lamp : 

The Magic Lamp Name Which branch do you work at? How long have you worked for Kashf? Your expectations from this course AND THREE THINGS YOU WANT TO CHANGE AT WORK

Norms of Group Behavior : 

Norms of Group Behavior What attitudes/ behavior you expect of every one over next three days?

Objectives of the Course : 

Objectives of the Course Understand that every Operations Manager and CSO is a Risk Manager Understand that how risk can be managed during the Disbursement Review new policy regarding Safe Custody of Loan Files

Course Outline : 

Course Outline Session One: Introduction of Credit Risk Management (CRM). Session Two: CRM during Disbursement

Session One : 

Introduction of Credit Risk Management Session One

Learning Tasks : 

Learning Tasks At the end of the session you will be able to: Define the Process of Risk Management independently Understand the importance of risk management Define Credit Risk Management

Defining Risk : 

Defining Risk “Risk is the possibility of adverse event and its potential for negative implications to the KMBL/MFI”

Where is Risk? : 

Where is Risk? Risk is an integral part of financial services Issuance of loans - Risk of borrower default Collection of deposits and on-lend them to other clients - Clients’ savings being put at risk Cash transactions or investments - risks of loss of funds

What is Risk Management? : 

What is Risk Management? Risk management includes: The prevention of potential problems The early detection of actual problem The correction of actual problems should they occur.

Risk Management Process : 

Risk Management Process 1. Identify Risk 2. Measure and prioritize risks 3. Design policies to manage risks 4. Implement policies and assign responsibility 5. Monitor effectiveness 6. Revise policies and procedures

Risk Management Process : 

Risk Management Process Risk management is an ongoing process because circumstances change over time.

Defining Credit Risk : 

Defining Credit Risk “Credit risk is the chance that an MFI may not receive its money back from borrowers”

Credit Risk-Most Serious Risk for KMBL, Why? : 

Credit Risk-Most Serious Risk for KMBL, Why? Unsecured Loans Contagious effect Main source of revenues

Loan Life Cycle : 

Loan Life Cycle Origination Underwriting Closing Servicing Time Payoff Initial Contact Risk Management

SESSION 2: : 

CREDIT RISK MANAGEMENT DURING LOAN CLOSING (DISBURSEMENT) SESSION 2:

Objectives : 

Objectives By the end of the session participants will be able to: Understand how risk can be managed during Loan Closing/ Disbursement Understand the importance of PDC’s & legal documents Understand the importance of messages to be delivered at the time of disbursement.\ Understand new policy of Safe Custody of loan files.

Disbursement Process : 

Disbursement Process VIDEO

Safe Keeping of Loan Files : 

Safe Keeping of Loan Files Activity: Divide in a group of 4 participants each Each group is given an index card Make a presentation on the topic written on index card Present in front of class.

Process Flow of Safe Keeping of Loan Files: : 

Process Flow of Safe Keeping of Loan Files:

Documents in a Loan File: : 

Documents in a Loan File: The following must be available in KKKK Loan File: Page of Client Personal & Business Information & Guarantor Information. Page of Household composition, Utility Bills Information, Other Loans Information, Financial Analysis including Business Balance Sheet & Household Balance Sheet. Page of Income from Trade / Services or Manufacturing (Daily / Weekly Sales Analysis / Purchase Analysis / Sales in Good / Average / Bad Days), Business Purchases Monthly Analysis , Purchases Pattern & Record of Finished Goods / Raw Material (This is the status of Present Inventory in hand) Page of Cash Flow Summary

Documents in a Loan File: : 

Documents in a Loan File: Page of Risk Rating Matrix, References of Applicant, Applicant’s Character Check, Loan Officer’s Recommendations and Decision of Credit Committee. Page of Assets in Guarantee (If guarantor’s assets detail is also taken then use separate page, one for client & one for guarantor but it is not mandatory) Page of Location Maps (Showing Location of Client’s Business & House, It is good practice and preferable to prepare the location map of the guarantor as well)

Other Annexure required in KKKK File : 

Other Annexure required in KKKK File NADRA Verisys & E-CIB Report of Client Annexure-G as per SBP Prudential regulations BM Screening Form Debit Authority to deduct Insurance & Processing Fee from Customer Account

Other Annexure required in KKKK File : 

Other Annexure required in KKKK File Copies of Paid Utility Bills (At least two, one should be of electricity of Client’s Business & Home and they should not be three months old from the date of disbursement. Repayment Schedule (Signed with thumb impression of both Client & Guarantor) Repayment Behavior History (In case of repeat clients only) Copies of Valid CNICs and recent photographs of client, guarantor and Co-signor (if applicable).

Other Annexure required in KKKK File : 

Other Annexure required in KKKK File CSO & Operations Managers Checklist of documents duly completed and signed. Copy Guarantor Salary Slip (In case of Salaried person) Copy of Income Proof / Salary Slip of any other person / family member in Client’s home, who is contributing income in order to meet client’s household expenses. (Take if applicable) Disbursement Receipt

The following must be placed in safe separate from KKKK Loan File : 

The following must be placed in safe separate from KKKK Loan File (1) Loan Agreement (2) Guarantor Agreement (3) Pronote (AVAILABLE IN QANOONI KITABCHA)- PLACE THEM IN STRONG ROOM / VAULT after making entry in Safe in / Safe out Register) (4) Post Dated Cheques & Other Legal documents of Property/ Certificates in case of Collateral of Loans of Rs. 100,000 & above (if applicable)

Co Signor? : 

Co Signor? Where should we take Co-Signor’s signature? How can we check from the file if the client has a co signor?

Should we explain legal documents to clients? : 

Should we explain legal documents to clients? Important points that should be explained to clients: Promissory Note: This is Promise to Pay Agreement between you (client) & the KMBL mentioning your name, address & CNIC that you are promising to pay the total loan amount along with all service charges back to bank when ever bank is demanding its money back. By signing it off now you are liable to pay the written amount

Legal Agreement : 

Legal Agreement This is Legal Agreement between you (client) & KMBL mentioning Your name, address & CNIC & agreement that you are agreeing that you have taken ------- amount as a loan from KMBL. Your yearly service charges will be __________%. Your tenure of repayment will be ______________ months. Your EMI will be Rs _________________. You are giving a guarantee that loan amount will only be used for the business purpose. You will be liable to pay instalments at the bank and will maintain your deposit receipts for future references.

Legal Agreement : 

Legal Agreement If you fail to follow any Bank’s policy bank has the right to discontinue this loan and will recover the whole outstanding amount. Rs 100 will be charged as late payment fee per day along with the agreed EMI. This loan is secured by insurance and in case of death of permanent disability your nominees will need not to repay the outstanding loan. Bank has every right to go into legal proceedings if you fail to qualify any of the above stated messages.

Guarantor Agreement : 

Guarantor Agreement This is the legal agreement between you (guarantor) & KMBL mentioning That you are taking the guarantee of total loan amount along with service charges disbursed to Mr________________ on dated ___________. Bank can demand you about the instalment at any time in case of delay faced by the client. You will be liable to pay EMI’s without any hesitation.

Message to Client & Guarantor By Operations Manager : 

Message to Client & Guarantor By Operations Manager Please take this repayment Schedule. On Due Date, you are supposed to deposit your instalment in the bank latest by 12.00 Noon. If you fail to do so, then our Recovery Team will start its action. It is advised that if you arrange instalment early then please do not wait for the Due Date. Deposit it early so that inconvenience and misuse of funds may be avoided for your benefit.

Message to Client & Guarantor By Operations Manager : 

Message to Client & Guarantor By Operations Manager Also note that you all have signed legal documents which mentions that in case of delay of repayments bank has all the authority to recover the full outstanding amount along with legal charges from client, guarantor & co-signor. You have also signed PDC’s meaning by if on due date your instalment is not recovered, bank can lodge an FIR under section 489/ F, which is non bailable offence & you all should be ready for the repercussions.

Message to Client & Guarantor By Operations Manager : 

Message to Client & Guarantor By Operations Manager Guarantor Sahab, you are giving guarantee of the Loan Amount, in case of delay in depositing instalment from the client, you are liable and supposed to deposit the instalment as mentioned in this guarantor agreement. Bank has the right to go in court against you if the promise is not fulfilled by you for repaying the loan in case of clients default.

STEPS TO BE TAKEN ONCE THE APPROVED FILE IS RECEIVED FROM BUSINESS BANKING FOR DISBURSEMENT : 

STEPS TO BE TAKEN ONCE THE APPROVED FILE IS RECEIVED FROM BUSINESS BANKING FOR DISBURSEMENT OM to verify from step 1 to 20 from the OM Checklist. If ok then hand over the file to CSO for further proceedings. Data entry in hplus regarding the Loan Application form by CSO CSO to Check whether the client is fresh or repeat, if fresh then account needs to be opened also. CSO to prepare documents for account opening like account opening form.

STEPS TO BE TAKEN ONCE THE APPROVED FILE IS RECEIVED FROM BUSINESS BANKING FOR DISBURSEMENT : 

STEPS TO BE TAKEN ONCE THE APPROVED FILE IS RECEIVED FROM BUSINESS BANKING FOR DISBURSEMENT CSO to prepare documents for loan disbursement like client & guarantor agreement. Call client, co-signer & Guarantor for disbursement- don’t forget to inform them to bring original CNIC along. Once they are at branch, CSO to first enter data in Hplus regarding the account opening. Once account is opened and authorized, issuance of cheque book by CSO.

STEPS TO BE TAKEN ONCE THE APPROVED FILE IS RECEIVED FROM BUSINESS BANKING FOR DISBURSEMENT : 

STEPS TO BE TAKEN ONCE THE APPROVED FILE IS RECEIVED FROM BUSINESS BANKING FOR DISBURSEMENT Once cheque book is issued, fill in details as per the approved loans EMI & tenure. (CSO). Take signatures and thumb impressions on all relevant documents from client, guarantor & co-signer. Legal documents and PDC’s are covered by CSO. Explain the documents to client & Guarantor After completion of all documents CSO will initiate entry in Hplus system for loan disbursement & will hand over all Legal Booklet, Loan Application Form along with necessary documents to OM & will request Client, Guarantor & Co-signer to also meet with OM.

STEPS TO BE TAKEN ONCE THE APPROVED FILE IS RECEIVED FROM BUSINESS BANKING FOR DISBURSEMENT : 

STEPS TO BE TAKEN ONCE THE APPROVED FILE IS RECEIVED FROM BUSINESS BANKING FOR DISBURSEMENT OM upon receiving of Legal Booklet, PDC’s & LAF along with relevant documents will again review all, & afterwards will give approval of disbursement in Hplus and signs the documentation checklist At this moment of time a strong, clear message should be given by OM to Client, guarantor & co-signor