Weekly repayment schedules

Discussion in 'Announcements' started by Julia Kurnia, Dec 19, 2013.

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  1. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Dear all,

    We introduced today weekly rather than monthly loan repayment schedules in Ghana, Kenya and Indonesia.

    The main benefit of this feature is convenience for borrowers in these countries. Sending a small loan repayment installment each week is a better match for the majority of our members' cash flows than having to save up a large amount to pay once a month. Offering the ability to credit small amounts of spare cash toward one's loan balance each week provides many of the benefits of a savings service, without the expensive regulatory requirements.

    An additional benefit is that it will allow new members to build up meaningful on-time repayment scores more quickly. Previously, a new member who cleared his first loan in one or two months would have an on-time repayment score of just one or two installments, and it would take many months for members to rebuild a positive on-time repayment rate after a single late installment. The weekly repayment schedule will score members more frequently, and facilitate accurate judgment of credit risk by providing a more comprehensive and dynamic on-time repayment rate scoring method.

    New loan applications posted after today's date in Ghana, Kenya and Indonesia will now display weekly rather than monthly repayment frequencies. Loan applications posted before today will retain their original monthly schedules.

    We are also retaining monthly schedules in Benin, Burkina Faso, Guinea, Niger and Senegal. The reason is that unlike in Ghana, Kenya and Indonesia where members can send repayments to Zidisha from their mobile phones, members in these countries repay their loans by depositing cash in a bank branch - a time-consuming process that most members would not opt to repeat weekly.

    Please do post any questions or comments about the new weekly repayment schedules here. I look forward to your feedback.

    Best,

    Julia
     
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  2. Mien

    Mien Gold Member

    Good idea! But I'm happy we're retaining monthly schedules in Burkina Faso for now, because of all the bank issues :-/. Looking forward to having a mobile solution in Burkina and the other countries as well though!
     
    Paige Klunk and KirstenShute like this.
  3. Jean Wendpanga

    Jean Wendpanga Gold Member Volunteer Mentor

    Our members really do a lot of back and forth for the disbursement of their loans (mainly in Bobo-Dioulasso). Please find a mobile solution as pointed Mien. Thanks

    KABORE
     
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  4. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Agreed - it is really much easier for most people to not have to save up a large amount and then spend a day going to the bank to deposit it each month. I hope we'll have a mobile solution in the other countries soon.
     
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  5. KirstenShute

    KirstenShute Gold Member

    That sounds like a good idea. It holds borrowers to a schedule, while taking some pressure off, and the phone banking makes it convenient. I'm just wondering how this will affect the way the loan profiles are displayed. When the profiles are sorted in terms of "On-Time Repayments" the borrowers that have made the most payments appear first, and this would seem to give an advantage to the borrowers in Kenya, Ghana, and Indonesia, who will soon start making more frequent payments.
     
  6. Shehi

    Shehi Gold Member Volunteer Mentor

    Thanks julia for frequent changes. I am however worried about the stoppage of 1month grace period. It gave a borrower that reasonable time to streamline his or her income flow after investing. Some loanees will target investing 80% of the loan & leaving 20% on mobile money to repay the first 4weeks. I invite more ideas on this
     
    KirstenShute likes this.
  7. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Dear Mr. Shehi,

    Thanks for bringing up this important concern. Our intent was to allow members to build their on-time repayment scores and qualify for more substantial amounts more quickly, not to restrict members' ability to invest in their businesses.

    It seems that in the majority of cases, loans are used for assets (inventory, a motorbike, equipment, etc.) that begin generating revenue fairly quickly once purchased. Could members not use their existing sources of income to make the small weekly payments after the loan is received?

    Note that in actuality, the grace period is between seven and thirteen days, depending on the day the loan happens to be disbursed and the weekday the member selects to have loan repayments fall due. Our website will not set a grace period of less than one week.

    Best,

    Julia
     
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  8. Sverre

    Sverre Forum Member

    All ideas encouraging repayment on time is very welcome.
     
    mewesten likes this.
  9. Analin Saturria McGregor

    Analin Saturria McGregor Country Liaison Manager, Zidisha

    Quick question about the weekly repayment calendar: do the rescheduling rules remain the same or is there a different rescheduling guideline for weekly calendars? Would a borrower who has his second payment (second week) payment due be able to reschedule if his first payment was made on time?
     
  10. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Hi Analin, the rescheduling parameters have not changed. In order to reschedule, members must have made at least one payment since the last rescheduling. Best,

    Julia
     
  11. Bayle C

    Bayle C Gold Member Zidisha Volunteer

    Hi Julia, one other question about this. Do members have to have paid one monthly installment in full in order to reschedule, or just made one payment (even if its a partial payment)?

    Thanks!
    Bayle
     
  12. Analin Saturria McGregor

    Analin Saturria McGregor Country Liaison Manager, Zidisha

    Julia, thanks for the reply! Bayle, my understanding from the discussion after the new rescheduling guidelines were published is that it can be a partial payment.
     
  13. Bayle C

    Bayle C Gold Member Zidisha Volunteer

    Thanks Analin!
     
  14. qt9998

    qt9998 Gold Member

    Analin,

    You say "discussion after the new rescheduling guidelines were published..."

    Where can we find these new guidelines? How does a borrower actually reschedule the loan? Is there a form to be filled out and approved?
     
  15. Analin Saturria McGregor

    Analin Saturria McGregor Country Liaison Manager, Zidisha

    Hi qt9998,

    Under our old rescheduling parameters, clients had two options to reschedule their loan:

    1) Apply a grace period of up to two months were payments were essentially deferred.
    2) Change the amount of their monthly repayments by increasing their payments (paying their loan in less time) or decreasing the amount (extending the payment timeframe).
    Borrowers were limited to two reschedules per loan cycle.
    Under our current guidelines, only the second option remains (our repayment calendars have also changed from monthly to weekly repayments). Also, in order to be able to reschedule, borrowers must have made a payment on their loan (so someone who has never made a payment would not be allowed to reschedule).
    Borrowers do not need Zidisha's authorization to reschedule (Although we do our best to educate borrowers about the importance of rescheduling their loans and how rescheduling can help them preserve their on-time repayment rates - key to credit limit increases) and can do it on their borrower accounts at Zidisha.org
    The discussion I was referring to is this forum topic:

    https://www.zidisha.org/forum/threads/changes-to-rescheduling-options-for-borrowers.374/

    Does this help?
    Best,

    Analin
     
  16. Roberta Zenere

    Roberta Zenere Forum Member

    Hi Julia,

    I would like to bring to the discussions some complaints that I have received from borrowers here in Ghana regarding the weekly repayment schedule:
    1. the grace period of 1 week is too short to generate enough income that will allow to start the loan repayment. Is this possible to choose a longer grace period?
    2. sneding money through the mobile phone is costly, due to the commissions charged on the transfers. So the higher the nimber of trasfers, the higher the commission to be paid. Is it possible to provide the monthly repayment schedule as an option to the borrower, rather than making this automatic?

    Thank you,

    Roberta
     
    KirstenShute likes this.
  17. Wiredfox

    Wiredfox Gold Member

    I think it would be good to allow borrowers the option to choose between weekly and monthly repayments, providing this information is clearly made available to lenders at the request stage. I would not be happy at the thought that borrowers are using part of the loan for repayments. That way, disaster lies. I would expect initial repayments to come from current income until new assets start to produce a return. In the UK some banks will provide an extended grace period with interest rolled up until assets become productive.
     
    KirstenShute likes this.
  18. Sverre

    Sverre Forum Member

    thanks for your input!

    It should be easy to offer up to 4 weeks grace period. but shouldnt the borrower have som funds to start with himselves?
    If a borrower should want to repay every 2 weeks, it is also posible to repay in advance regarding one week.

    Maybee Zidisha should offer repayments very 14 days?

    Zidisha needs to be hands on regarding repayments, and I am unsure if going back to repayment every month is a good solution.
     
  19. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    This is a challenging debate. In general, microloans have higher rates of repayment when installments are small and frequent than when they are large and less frequent. It is very challenging to save up bulk sums in circumstances where there is much need and many demands on anyone who has spare cash. This rule also seems to be holding true for Zidisha, as our on-time repayment rates have continued to improve since we introduced the weekly repayment schedules.

    The weekly payments also benefit our members - both borrowers and lenders - by providing the data needed to accurately measure on-time repayment rates sooner and more comprehensively. Small frequent payments also make the on-time repayment score more forgiving of one-time lapses.

    If we were to go back to monthly payments, there would be a very long time lag (up to two months) before we knew whether a newly issued loan is on track to repay as scheduled. This would make it more difficult to quickly gauge the impact of any new developments within our lending community on repayment performance.

    That said, we have not transitioned to a weekly schedule in countries where it is very burdensome for members to transfer their repayments, such as Burkina Faso and Senegal where members must travel to a bank branch to make deposits. The assumption was that weekly payments would work better for Ghana because we are using the MTN mobile payment platform there. Roberta, are you able to let us know the exact fee rates borrowers there are paying?
     
    mewesten, Sverre and Jen V like this.
  20. KirstenShute

    KirstenShute Gold Member

    Yes, fees like that would seem a deterrent to repaying more frequently. I understand the benefit of frequent repayments in calculating the % of on-time repayments, but perhaps we should consider the option to repay every two weeks? That is, make it a choice?
     
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