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Implementation of a Tailored Credit Product at an MFI in Georgia

While analyzing the portfolio quality 3-year trend, the impactiive® Associate in charge of the finance department for an established Georgian MFI (GEM) that had been operating for 12 years in the market, discovered a strange pattern of increasing levels of portfolio at risk (PAR) during the Summer months.

This observation was elevated to the Management Board and discussed with credit staff in the field.  A special report was prepared to explain further the type of loans and locations, which negatively affected the overall Summer months’ PAR.

The impactiive® Associate oversaw the creation of a working group composed of employees from different departments to research the issue. After 5-6 weeks of investigations, analysis and interviews with clients, the following contributing causes for the affected loans were identified: 

  1. Clients herded cattle in the remote areas during Spring and Summer seasons and lacked physical access to financial infrastructure during that period. 
  2. Clients with crops did not generate sufficient cash flow to cover loan instalments before the harvesting season (even interest only payments).

The Credit Department representatives confirmed that the existing loan products did not allow more than 3 months grace period, while interest payments were still due during the grace periods. The working group identified the need for a loan product with an extended grace period with no payments (principal or interest). 

The impactiive® Associate developed the methodology to generate loan repayment schedules, which allowed for grace periods (no principal or interest payments) of up to 9 months with equal monthly payments thereafter. The product was subjected to rigorous screening from a credit risk perspective, due to not having any scheduled repayments or formal monitoring for up to 9 months. This practice was unprecedented and not typical for GEM or other competitors in the market.  In order to mitigate the increased risks, the overall volume of loans was limited to 5% of the total loan portfolio in the pilot phase.

The new loan product was called “Zero-Grace Loan”, and the credit department incorporated the product profile with Supervisory Board approval. 

The Zero-Grace Loans were then launched during the next Spring season and were well received by the target clients. The disbursement limit of 5% was reached during the initial two months of the product launch. 

Two years after the Zero-Grace Loan introduction, the impactiive® Associate conducted an analysis of the results. The analysis showed an overall portfolio PAR smoothing during Summer months, and the product did not demonstrate materially higher levels of PAR compared to the regular loan products. Consequently, the disbursement limit of 5% was increased to 10% of the total gross loan portfolio. The portfolio at risk for the Zero-Grace Loans product was tracked separately, and the product remained under continuous strict monitoring rules. 

Retail banking products have been increasingly commoditized. It is critically important to stay sensitive to the clients’ needs and strive to serve those needs better by adjust product features proactively, even when it means going beyond traditional banking practices. The conventional approach for the target rural loans was to require regular monthly payments from clients, even including interesting payments during grace periods. This simplified the loan monitoring process for the MFI, but it placed a burden on the clients. This was the major takeaway from the Zero-Grace Loan introduction.  The impactiive® Associate was instrumental in creating a win/win for the MFI and the clients. Technological advancement grants more ways to expand thinking far beyond the common frames and helps to create innovative products ahead of the clients’ immediate needs and wants. 


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