The success of every lending operation lies on its ability to identify its ideal customers and know their ability to repay. However, predicting a borrower’s capacity is difficult. This is either due to the absence of required data or limited knowledge of the data needed to determine a borrower’s repayment capacity.



In this article, we’ll cover how lenders can accurately predict borrower’s ability to repay.



<ol>
<li> Define your ideal borrower</li>
</ol>



Every lending institution has sophisticated data that define who its ideal customer is. Regardless of the sector or niche a lender focuses on, an ideal borrower should meet the five Cs of credit. They should have the capacity to repay the loan which is determined through the borrower’s DTI, debt-to-income ratio. An ideal borrower should also have capital, collateral and meet the conditions of the loan.



In addition to these, it is pertinent that they are creditworthy. There should have a repayment history acting as proof that they have taken some loans in the past and have repaid them successfully. Finally, an ideal borrower should possess the character and willingness to repay the loan.&nbsp;



<ol start="2">
<li>Determine a borrower’s cash inflow</li>
</ol>



In addition to the 5Cs of credit, another dimension used to define an idea borrower is cash flow. cashflow is important because capital and capacity most times, don’t translate to cash. A customer can have capital and capacity but no cash flow. This lack of cash flow is an impediment to repayment.&nbsp;



In consumer lending for instance, If the applicant is not employed, meaning that he does not earn a salary, regardless of character and willingness to repay, the applicant cannot meet the obligation. The same applies to SME lending. Business owners who have little or no stock and no cash inflow will be unable to repay even though they have character and are creditworthy.



Another non-financial criterion to consider when mapping an ideal customer is if the borrower meets the condition of the loan. The condition is so extensive and beyond interest rates. It answers the question “how does the applicant manage the business?”&nbsp;



When exploring the non-financial criterion, inquire about the time the business opens, its closing time, how it uses cash and the borrower’s experience managing that kind of business.



Another non-financial criterion is collaterals. When it comes to collateral, most lenders limit themselves to physical collateral. In addition to or in the absence of physical collaterals, lenders can hedge on other non-physical collaterals lenders like guarantors and social capital.&nbsp;



<ol start="3">
<li>Calculate the borrower’s debt-to-income ratio and obligations. </li>
</ol>



In some countries, the law stipulates that a loan should be 33.3% of a borrower’s earnings. To abide by this regulation,&nbsp; examine the borrower&#8217;s obligations including the loans they have with other lenders. It is also important to consider their savings as an obligation. A borrower may have a saving scheme or a standing order that is debited from their account at every particular time. It is important to tie repayment to this savings deduction.



For SME lending, the approach is slightly different. Stock taking and investigation into the borrower’s business and sector help to determine viability.&nbsp;



<h2>How to determine the repayment capacity of SME borrowers</h2>



<ol>
<li>In SME lending, it is imperative that the lender understands the business model of the customer. They need to understand the cash flow; What generates revenue for the business? what are the business&#8217; expenses? For example, the lender needs to understand if the business owner diverts for personal consumption or if all earnings are reinvested into the business.</li>
</ol>



<ol start="2">
<li>Every lender has to be cautious when analyzing an SME’s capacity. This is because the continuous inflow and outflow in the income statement account don’t always reveal the true state of the business. They need to be aware that there is bank cash flow and business cash flow. If these two are not separated,&nbsp; it is difficult to track the money that belongs to the borrower. To track the business cash flow, ask SME owners key questions about receivables and debtors. These questions are important because a business may have cash flow yet 80% is debt that will not be due in 30 days. This will affect their ability to repay.</li>
</ol>



<ol start="3">
<li>Another determinant of an SME’s ability to repay is supplier credit. For instance, A business owner&#8217;s revenue maybe 10 million. Out of this revenue, what actually belongs to the business is just 5 million but the lender has mistaken the 10 million contained in the bank statement as belonging solely to the business and has appraised the business owner based on that. This wrong appraisal will affect the business owner’s ability to repay.</li>
</ol>



This is called overfunding. Going back to our previous example, a borrower who is worth 5 million will appear to be worth 20 million contained in their bank statement while in the real sense, they are only making a commission on those sales, not the actual profits.&nbsp;



<ol start="4">
<li>The next consideration is payables. Payables provide insight into how often borrower pays for their purchases. If they have an extension of time to pay vendors to supply products It’s proof that they have enough liquidity to sustain repayment. On the other hand, if the borrower has high receivables and early payables, the borrower will be cash-strapped and won&#8217;t be able to meet up with their obligations. To lend successfully to SMEs, lenders need to pay attention to these key metrics that show the liquidity of the business and the asset turnover of the business.&nbsp;</li>
</ol>



Asset turnover applies to service-based businesses where inventory doesn’t apply. In that case, lenders have to ascertain how the available assets generate income for the company. This is where the asset turnover activity ratio becomes important.- Here, you list what an asset will help the business produce and how that product will generate profit for the business.&nbsp; These show the financial parameters of that business.&nbsp;



<ol start="5">
<li>Character plays a key role in lending. To understand the value of character in lending, consider the repayment quadrant. It shows 3 categories of customers: those who have the capacity and willingness; those who have the capacity but don&#8217;t have the willingness, however with the right coercion, they will pay because they have the capacity; those who have the willingness but have no capacity. This group will source money to repay; finally, there is the group who have no willingness and no capacity.&nbsp; If you lend to them, you are ready to write off that loan.&nbsp;</li>
</ol>



When lenders categorize these customers based on their repayment behaviour, they can identify who their ideal customers are, the sectors they play in and the optimal amount to lend to them.



Finally, SME lending is tough. It is difficult to predict a customer’s behaviour. Therefore it is advisable to trust your instincts even while working with data.



<h2>Bonus Section: How can new lenders determine customers&#8217; capacity considering that they have no historical data to benchmark?</h2>



Macroeconomic indicators provide the information new lenders need to determine creditworthiness. In addition to macroeconomic indications, new lenders should cap the obligor limit they extend to borrowers. This is necessary as the first loan they disburse is used to give borrowers a credit journey with their lending outfit. 



They should collect as much information as they can from the borrower, and use this data to build a profile for the borrower which is in turn, measured against generalized industry data. This data include the business sector, the performance of that sector, business location, predominant risk in that sector, the customers age and marital status.



Some lenders also consider the borrower’s ethnicity. This is based on the belief that certain ethnic groups excel in certain businesses. That being the case, it is less risky to lend to people who own this kind of business.



New lenders should pay attention to where the borrower’s business is situated. This helps to estimate the number of sales they can generate to accommodate the loan repayment. Others are where they source their goods from, the risk of logistics from point of purchase to point of sale, and the operational expenses within the movement of the product. These are all important as it influences the margin of the business and may affect the gross profit.  Pay attention to other statutory expenses like savings and bills as these also affect the residual income



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Lending is a risky business. While a 100% repayment rate may not be feasible at all times, lenders can greatly increase their repayment rates when they have an accurate model for determining borrowers’ repayment capacity.

How to determine a borrower's ability to repay a loan

How to Determine a Borrower’s Ability to Repay a Loan

There are many requirements for starting a lending business but the most important is finance. Despite its importance, accessing finance is difficult, especially for lenders who’re new in the market.



The value of financing cannot be overemphasized. Without it, it’s impossible to grow a lending business. It hinders loan portfolio growth and makes profitability difficult. With the right information, lenders especially those new to the market can access the financing they need.



This article covers how new lending businesses can access the funds they need to grow their business.



<h2>Sources of funding for a new lending business</h2>



<ol>
<li>Personal Savings: The primary source of funding for a new lending business is personal savings. It is advisable to start with personal savings, reinvest the profit and at a later stage, structure the business in such a way that it is easy to get equity or funds for onlending.</li>
</ol>



<ol start="2">
<li>Deposit: Microfinance Banks can do full financial intermediation. This means that they have borrowers as well as depositors. Regardless of their license and minimum capital, they can solicit funds from the public as a deposit, which they in turn, lend. Considering that most MFBs don’t have the same brand recognition commercial banks enjoy, the challenge therefore, is how to convince the public people to trust them enough to deposit their money with them. Newer MFBs however, have harnessed marketing and branding to attract such deposits in a short time.</li>
</ol>



It is imperative to add that a lender’s license determines the form of funding they can access. A lender with an MFB license can solicit savings in form of a deposit from the general public. A fintech lender, on the other hand, cannot do so because they don&#8217;t have the license to mobilise savings from the general public.



<ol start="3">
<li>Debt: Another source of capital is debt. If a lender collects debt for onlending and has good credit policy in place, they&#8217;d find it easier to access debt because the debt taken for on-lending is cash-generating. This is different from other types of debt which may be used to cover overhead costs, raising the question of how the borrowers will make the money they need to repay. </li>
</ol>



When considering debt, a key question is what type of debt to consider. Some commercial banks have programs that give smaller lenders money for onlending. The major shortcoming of this program is collateral, which is not flexible. Most times, the collateral commercial banks require is landed property. 



In addition to commercial banks, some international institutions (who are not venture capitalists) give lenders money for onlending. The problem with this option is the forex rate. It is risky to take a foreign exchange liability with a local currency revenue as the interest may not cover it. 



Individuals are another source of debt. This is not a demand deposit for savings. Instead, it is a debt to the lender without equity in the business. This is the approach most small-scale lenders use. To access debt from individuals, lenders must ensure that they have transparent processes that elicits trust.



<h2>When should a new lender to source for external funds?</h2>



The best time to explore onlending depends on the lender’s experience and pedigree.  If the lender is highly experienced, they’d find it easier to get external funding from the onset as more people are willing to take a risk and give them the money they need.



For a lender with little or no experience, it is best to start with savings or money from friends or family. This is because external investors are sceptical and need proof that the lender can lend money and recover it. They’d like to see traction backed up with figures between 6 &#8211; 12 months. They need to ensure that there is a process in place to disburse loans and recover them. 



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Getting the finance required to grow a lending business is tough but with the right information, a lender who&#8217;s new to the market can successfully find the funds they need. They need to first start with personal savings, create transparent processes and &#8211; after careful analysis, select the funding that is best for their business.

How to Secure Additional Financing for Your Lending Business

A high default rate threatens the sustainability of a lending business. This might seem unimportant until we realize that when a lending business goes out of operation, the credit gap widens further, making it more difficult for SMEs &#8211; especially those at the bottom of the pyramid and in financially excluded communities &#8211; to access the financing they need to grow their business and rise out of poverty.



For many lenders, addressing the risk of default starts during collections. This is ineffective. The critical job of reducing the default rate should start in the loan process. This is because the default rate will shrink if lenders work hard to identify indisciplined borrowers who don’t intend to repay right from the origination process.



In this article, we will share practical ways to identify indisciplined borrowers who don&#8217;t intend to repay their loan.



<h2>Effective Measures for Identifying Indisciplined Borrowers</h2>



1. Choose a market: A proactive approach to protecting yourself from indisciplined borrowers is to decide on a niche and focus on it. Focusing on a specific market has its risks but you gain leverage as you deeply understand the market. With this knowledge, ou to understand the borrowers, why they need a loan and the type of loans they want. With this insight, you can create a solid customer profile that will enable you to identify unreliable borrowers and steer clear of them.



2. Adopt a group lending strategy: A group lending strategy is another way to guard against unreliable borrowers. The task of finding dishonest borrowers is delegated to the group, which is incentivized to select the most disciplined members as they bear the liability of default.



Group lending model does not eliminate the need for credit officers to conduct background checks and other verification, but you can trust the decision of the borrower group because they consist of people who are in the same line of business or reside in the same community. This level of familiarity enables group members to choose people who are disciplined and who will repay their loans.



3. Adhere to your lending policy: As effective as group lending is, all lenders may not adopt it. There are lenders whose niche is consumer lending or payday loans and record impressive repayment rates, sometimes as high as 90%. The reason for this is clear: they have adopted a lending principle. They’ve carved a niche for themselves and defined the intricacies of the area they play in. They meticulously follow a recorded checklist of things to watch out for when lending to those in this specialized market.



But for certain lenders, this is not the case. In order to meet their targets, credit officers ignore the stipulations of their credit policy and bring in customers who don’t fit the credit policy. The organization suffer consequences of this decision which are short-term growth of the loan portfolio, quickly followed by an increase in the portfolio at risk.



Your credit policy is based on your risk appetite and market insights. Therefore to reduce the incidence of indisciplined borrowers, always adhere to the credit policy and have defined consequences for staff who deviate from it.



4. Credit Checks: In Africa, some countries are still in the process of establishing functional credit bureaus while others have tech-enabled credit bureaus with APIs that can be integrated securely into core lending platforms. Despite these improvements, credit bureaus still have some limitations which is not the focus of this article.



Ideally, a credit bureau should provide basic KYC about the applicant,as well as information regarding previous loans. Some also provide a credit score. In addition to conducting credit checks, <a href="https://evolveblog354019029.wpcomstaging.com/2022/10/19/how-to-choose-the-right-bank-statement-analyser-for-your-lending-business/" target="_blank" rel="noreferrer noopener">examine borrower&#8217;s bank statements</a>. This is because credit bureaus are not always comprehensive as some lenders don’t submit information to the bureau.



So when examining a bank statement, look out for frequent outflow to a particular account. This is because some borrowers have multiple bank accounts for different loan applications. When this is the case, it may be an indicator that the borrower is not being forthright nor are they presenting an accurate picture of their financial history.



Another tip for analysing bank statements is to look out for frequent bank statement requests. This is an indicator that the borrower has a lot of active loans or maybe a serial borrower which increases the risk of default.



<h3>PRO TIP: </h3>



<ol>
<li>When you spool a report, look below a credit report for recent searches made by other lenders. If manay lenders are conducting credit checks on a borrower, it&#8217;s an indicator that they are seeking for loans from multiple lenders or that they have multiple active loans.</li>



<li>When a loan has been disbursed, it is advisable to check the credit reports throughout the loan life span and not only in loan origination. best to check credit reports on a quarterly basis so that you are aware of any additional loans or liabilities that the borrower has taken on. You can then contact them to find out how they plan to incorporate these into the repayment of their current loan.</li>
</ol>



There are different ways to reduce default rates but the most effective is to take a preemptive approach. This approach requires that you have a process for identifying serial borrowers who are out to defraud lenders. This precautionary measure is important because without it, all other collection strategies will not yield the desired results.

How to protect yourself from indisciplined borrowers.

How to Protect your lending business from indisciplined borrowers and reduce default rate

Bank statements are an integral part of the decisioning process. They reveal a borrower’s cash flow and spending patterns, which helps you determine their creditworthiness and capacity.



While a lot of lenders, especially, digital lenders have automated this process, many credit providers such as cooperatives, offline lenders and microfinance institutions still review this process manually. The consequence is a tedious and time-consuming process that is prone to human errors.



In this post, we explain what a bank statement analyser is, explain the benefits of automating the analysis of bank statements and compare some of the providers in the market.&nbsp;



<h2>What is a Bank Statement Analyser?&nbsp;</h2>



A bank statement analyser is a software, usually an API that enables a financial provider to connect to a user’s bank account, retrieving key information like bank statements.&nbsp;



With many providers entering the market, bank statement analysers have improved over the years. And what started merely as a way to retrieve a customer’s bank statements securely has evolved to include other features such as an analysis of the statement, verification of BVN (bank verification number) and additional KYC information.



<h2>What to consider when choosing a bank statement analyzer</h2>



Bank statement analysers are not standalone tools that you can use independently. They are integrations that are embedded into different&nbsp; financial products like core lending platforms.



Therefore, it is critical to ensure that a core lending platform integrates into multiple providers, enabling you to choose one that best fits your business needs.



Thus there is no straightforward answer to the question because each provider addresses a specific need. As a lender, you get to choose a need that directly impacts your business. Having a core lending platform that integrates with many providers is critical because it gives you the option to choose from multiple providers.



<h2>Benefits of Using a Bank Statement Analyser</h2>



Bank statement analysers are invaluable tools for credit decisioning.&nbsp;They remove the drudgery associated with analysing numerous pages of bank statements and increase the productivity and efficiency of credit risk analysts.



They also cut down the time required to review a bank statement, improving credit decision time.&nbsp;



Here are some other benefits of automated bank statement analysis over manual analysis:



<ol>
<li>Less human errors. An automated analysis examines a borrower&#8217;s inflow, outflows, dues and other data, revealing key insights into a borrowers spending pattern and financial wellbeing. Manual scrutiny of these data points is tedious and makes the process vulnerable to errors. The consequence is wrong credit decisioning that leads to higher default rates and lower profits.</li>
</ol>



<ol start="2">
<li>Better customer experience. Another benefit of an automated process is that it makes loan applications easier. Instead of visiting the bank or using a mobile app to generate bank statements, borrowers can immediately generate and submit statements while applying for a loan, without leaving your app or web page. This is more convenient for borrowers and also reduces the incidence of drop-offs.</li>
</ol>



<ol start="3">
<li>Increased accuracy. Compared to manual submission, a bank statement analyser retrieves the bank statement directly from the bank. This makes it difficult for borrowers to falsify, reducing the incidence of fake bank statements that do not reflect the true finances of the borrower.</li>
</ol>



<h2>Types of Bank Statement Analysers</h2>



There are different bank statement analysers but for this post, we’ll focus on two: Mono and MBS [My Bank Statement].



<h3>Mono</h3>



Mono is a new way to get everything related to financial statements quickly from borrowers without long wait times. Mono creates an API financial platform that helps lenders collect and manage bank statements. They also provide account verification, initiate bank-to-bank payments and BVN verification.



Features&nbsp;



<ol>
<li>Bank-grade security and encryption for the safety of a borrower’s bank statement</li>



<li>Access to financial data in minutes</li>



<li>Identity verification before bank statement is issued</li>



<li>Requires OTP for confirmation before bank statement is generated</li>



<li>Bank statement analysis</li>
</ol>



Strengths



<ol>
<li>Flexible pricing model</li>



<li>Collects direct payments</li>



<li>Retrieves bank statements for lending to eliminate manual uploads by borrowers</li>



<li>Accesses transactions, identity and income data on behalf of lender and presents results</li>



<li>Most banks are integrated for easy statement retrieval from these banks</li>



<li>Fast verification time</li>
</ol>



Weaknesses



<ol>
<li>Works only with internet access via mobile app or internet banking</li>



<li>Without API access, BVN cannot be verified</li>



<li>Too many fields for borrowers to fill&nbsp;</li>



<li>Only the lender has access to the Dashboard</li>



<li>Strict keyword analysis that may omit key information</li>
</ol>



<h3>My Bank Statement &#8211; MBS</h3>



MBS is a third-party service provider that enables borrowers to send bank statements directly from their bank. They function by creating a one-page ticket generated by the borrowers&#8217; bank to replace traditional paper applications.&nbsp;



Features



<ol>
<li>MBS provides a basic document for the indicated period</li>



<li>Access to financial data</li>
</ol>



Strengths



<ol>
<li>Bank statements can be generated in a minute</li>



<li>Ensures the authenticity of bank statements by sending the statement directly to the lender</li>



<li>Permits multiple bank statements from different banks to improve requests</li>



<li>MBS does not require internet connectivity to generate bank statements</li>



<li>Bank statement looks great and easy to digest</li>



<li>Requires less information for bank statement generation &#8211; uses only registered phone number and full name</li>
</ol>



Weaknesses



<ol>
<li>Not all banks are integrated</li>



<li>Their website advertises only bank statements for visa services</li>



<li>It is more expensive. It charges per page for every statement generated</li>



<li>Does not have add-on features</li>
</ol>



<h2>Conclusion</h2>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1024" height="371" src="https://evolveblog354019029.wpcomstaging.com/wp-content/uploads/2022/10/Mono-vs.-MBS-1024x371.png" alt="" class="wp-image-115" srcset="https://evolveblog354019029.wpcomstaging.com/wp-content/uploads/2022/10/Mono-vs.-MBS-1024x371.png 1024w, https://evolveblog354019029.wpcomstaging.com/wp-content/uploads/2022/10/Mono-vs.-MBS-300x109.png 300w, https://evolveblog354019029.wpcomstaging.com/wp-content/uploads/2022/10/Mono-vs.-MBS-768x279.png 768w, https://evolveblog354019029.wpcomstaging.com/wp-content/uploads/2022/10/Mono-vs.-MBS.png 1056w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>



Compared to Mono, MBS requires less information to retrieve bank statement. It requests for account name and mobile number while Mono requires users to share their mobile banking details. Borrowers may be unwilling to share this information . It is therefore best to have an alternative.



Mono is a better option if you prefer the insights from a bank statement. If you prefer to analyze the bank statement in-house, MBS is the best option as it simply retrieves the statement without any analysis.



MBS appears to be a better choice for borrowers who use internet and mobile banking while Mono works best for borrowers who rely on USSD for bank transactions.



In summary, Mono and MBS are great tools for retrieving bank statements. However, what should influence your decision is what you are optimizing for: quick statement retrieval or analysis of retrieved statement and other add-on services.

How to choose the right bank statement analyzer for your lending business

How to Choose the Right Bank Statement Analyser for Your Lending Business

Loan repayments make a lending business sustainable.



For a lending business to thrive, there has to be a high repayment rate and a portfolio at risk [PAR] not greater than five percent.



However, lending is easier than collection and as a result, loan collections require a lot of effort. Clearly then, collection methods need to evolve to minimise loan defaults thereby reducing portfolio at risk.



This article will examine loan collection in depth, tools that aid loan collection, and things to consider when deciding on a collection method.







<h2>What is Loan Collection?</h2>



Loan collection is the process of retrieving loans paid to borrowers.&nbsp;



For loan collection to be successful, a lender has to establish a payment schedule, monitor the repayment of the debt, and the borrower’s compliance with the set schedule.



Lenders have to broaden their collection methods beyond manual collection methods since default rates for manual collection is on the rise.&nbsp;



<h2>Implications of Inadequate Collection</h2>



A high default rate negatively impacts your lending business directly. When a lender is unable to retrieve loans from borrowers, it increases the portfolio at risk and can lead to eventual closure of the business. 



Realistically though, not all loans can be retrieved. Nevertheless, it is essential for credit risk analysis to be carried out on every borrower to ensure that a borrower has the ability to repay the loan when due. 



Investing in a core lending platform and monitoring the borrower at certain intervals can be helpful in loan collection.&nbsp;







<h2>How to Automate Loan Collection</h2>



Automating loan collection might seem like an obvious choice.&nbsp;



Yet, to successfully automate loan collection, there are a number of considerations involved.&nbsp;



As a lender, your current needs will assist you to determine the method to try or if you should try multiple methods based on a segmentation of your borrowers.



A loan collection method that is simple to use, easy to maintain and reliable should suit most lenders.







<h2>Benefits of Automating Loan Collection</h2>



Below are some benefits of automated loan collection over manual collection:



<ul>
<li>Reduction of cost</li>
</ul>



Automation can be done at the click of a button. Manual collection requires more logistics than automation in the form of staff training and the dedication of loan collection officers.



<ul>
<li>Reduces errors and speeds up processes</li>
</ul>



Without a doubt, automated loan collection speeds up processing and reduces the incidence of risk related to theft and human error. Automation ensures that all borrowers can be debited on the same day without wearing thin resources related to manpower. Fewer discrepancies result from inaccurate manual errors such as counting cash.&nbsp;



<ul>
<li>Easy record-keeping</li>
</ul>



Record-keeping becomes easier when lenders know how much debt they expect repayment for and the amount received. In most cases, automation provides a single-page view of loan repayment across borrowers making it easy to keep track of loan health performance.&nbsp;



<ul>
<li>Safety</li>
</ul>



Automation ensures that cash does not change hands. The debited amount goes into a holding wallet or the company’s accounts. There is thus elimination of loss of cash or dishonesty by loan officers or borrowers.



<ul>
<li>Reduces manpower</li>
</ul>



Since automation is digital, there is a significant reduction in the use of manpower to collect loans. This further saves time and stress leading to a further reduction in overall expenses of the lender on direct costs that will be incurred traveling to a collection point.&nbsp;







<h2>Types of Automated Loan Collection Channels</h2>



There are two types of loan collection channels discussed here, the Remita debit mandate and tokenised debit cards.&nbsp;



<h3>Remita Debit Mandate</h3>



Remita is a CBN-licensed e-payment gateway used to receive payments. As a business owner, Remita allows you to conveniently receive payments from your customers more quickly. Using nine payment channels, they are trusted by millions of customers including the Federal Government of Nigeria as the default payment gateway.



Remita empowers your customers so that they can pay easily over a period as you grow to include other services. This puts the power in the hands of your customers when they authorise deductions from their bank accounts. When borrowers approve Remita for collections, they agree to be debited on a specific day each month until the loan is completely paid for.



Merits



<ul>
<li>Payment can be received anytime as long as there is a mandate on the borrowers account</li>



<li>Remita has wide adoption ensuring that lenders can receive volume payments</li>



<li>This gateway has the most number of payment channels available on a single application</li>



<li>It is easy to monitor transactions from initiation to payment as a lender</li>



<li>The platform is secure&nbsp;</li>



<li>Developer-friendly APIs, SDKs and plugins that can be integrated into your software</li>



<li>Zero activation fee</li>
</ul>



Limitations



<ul>
<li>High usage fees to lenders</li>



<li>The system has led to an increase in charges through fees to the lender making lenders add extra charges to their overall fees</li>



<li>Remita may sometimes experience downtime</li>
</ul>



<h3> Tokenised Debit Card</h3>



A debit card is a plastic bank card used for payments in place of cash. Tokenisation refers to the process of replacing the actual card details [primary account number] with a unique code called token. Thus a tokenised debit card is a debit card whose card number, three-digit CVV, name and expiry date has been masked by a random token number to avoid being saved by a merchant platform for security reasons.



Using a tokenised debit card gives your borrowers an added layer of security and confidence. When borrowers are certain that their card details are secure, they will be assured to carry out more transactions. Lenders are less burdened by card security since payment processors have more work to do to ensure that borrower information is secure and encrypted.



Merits



<ul>
<li>Offers enhanced security for both lenders and borrowers</li>



<li>The burden of security rests more on payment processors and banks not on lenders</li>



<li>Tokenised debit cards reduce fraud related to digital payments so that payments reach lenders everytime</li>



<li>Customer data is not compromised in the event of a breach from lender website</li>



<li>Makes transactions more secure by including dynamism with each transaction</li>



<li>Provides more secure in-app payment acceptance</li>
</ul>



Limitations



<ul>
<li>The borrower can block the debit card and request a new one thereby cutting off further payments due to the lender</li>



<li>Adds complexity to infrastructure</li>



<li>A tokenised debit card does not eliminate all security risks, especially where there are third-party token vaults</li>



<li>Tokenisation is not supported by all payment processors</li>
</ul>



 In conclusion, each payment method has its merits and demerits. A high default rate might result from an inadequate collection method. While the lack of a thorough framework for repayments can be identified as an indicator for seamless loan collection, lenders are no longer limited to manual collection methods.&nbsp;



As a lender, you need to decide what collection methods suits your business needs to ensure compliance in addition to other methods you currently employ.



Methods such as daily deductions that borrowers see as negligible and thorough credit checks in addition to physical follow-ups with the customer can be invaluable in ensuring that collections are timely and consistent.



Overall, you will need to consider if your borrowers have debit cards that they can attach to their accounts for tokenised debit card transactions. And if a huge chunk of your borrowers have salaried accounts, then Remita debit mandate might be what you need for collections.



You should also factor in a loan repayment strategy to educate borrowers on their loan responsibilities, to empower borrowers to manage their loans successfully through regular repayments.



Leveraging automation puts you ahead of your competition.&nbsp;



Which collection method have you tried to receive payments from borrowers?

How the right collection methods increase repayment rate

How to Increase Loan Repayment Rates Using Collection Channels

<blockquote class="wp-block-quote">
&#8220;With the manual process, managing the loan portfolio was an arduous task and prone to errors. Remember someone has to write and put those things on the system. Now, we’ve automated these tasks. Another benefit is we do less paperwork. In the past, we had to create a space to file the customer&#8217;s paperwork but now these processes can be done via the loan management software provided by Configure.&#8221; 



Afolabi Hassan, CEO, Ihine Microfinance Institution.
</blockquote>



<h2>Can you tell us about Ihine Microfinance institution?</h2>



Let me start with the meaning of the word Ihine. It is an Ebira word and it means &#8220;ants&#8221; in English.



You may be wondering why we named our institution after ants. First, let&#8217;s look at the characteristics of ants. They have foresight, they can plan ahead. As small as these creatures are, when they come together, they can do great things.



So the idea behind the name is, if micro customers can get a little support from us, they can do so much more. Some have been in business for the last 15 years selling commodities like pepper. In fact, when pepper is scarce in the market, they know where to source it from. Some of them have paid for their children&#8217;s education through this small business. We believe that if they have more support, they can do more.



<h2>Have you had any interesting success you’d like to share?</h2>



Yes, even though our business is still young. We have impacted so many micro-women entrepreneurs. We have so many of them around the Ipaja market, that&#8217;s where the business is situated and many of our customers are within this environment, basically the Ipaja market.



Before they came to us, their inventory was very low. At Ihine microfinance institution, we support all business owners no matter how small their businesses are. This is in line with our slogan, &#8220;including all, excluding none.&#8221; We want to be an advocate of financial inclusion, and for this reason, no matter how small your business is, &#8211; so far we see you are serious about your business,- we do our assessment and support you. We have so many people that had little inventory that we supported. They are doing well now.



<h2>How were you running your lending business before using Configure?</h2>



Basically manual. Although we used Excel to support our process. The truth is, for our customers to apply for a loan, they had to come into our office to fill out the form or our loan officers would need to be in the field will fill the form.



For others far away, we send them a soft copy of the form. Imagine the time it takes for them to print it out, fill it and send it back to us. Then we need to print and file as well. So managing the loan portfolio has not been easy as well while using the manual process. So loan origination to disbursement has been manual. Same for repayment. For instance, if a customer defaults for some days, you have to do the manual calculation of the default charges as there’s no loan origination software in place.



Apart from the fact that it is time-consuming, another downside is the cost. For instance, the customer has to print the form in a cyber cafe. But now, with our loan management form, they can apply online directly, or we send the loan link to their mobile phones. Even though they may not be tech-savvy or have smartphones, our staff are on standby to support them.



With the manual process, managing the loan portfolio was an arduous task and prone to errors. Remember someone has to write and put those things on the system. Now, we’ve automated these tasks. Another benefit is we do less paperwork. In the past, we had to create a space to file the customer&#8217;s paperwork but now that these processes can be done via the loan management software provided by Configure.



<h2>Why did you choose Configure?</h2>



After my research, I decided to go with Configure because it is a new company and I believe that they have something to offer. This is because if you’re coming into a space like loan management software, it’s because you are prepared. You must have studied other competitors in the space and defined your competitive edge.



I have over 14 years of experience in microlending and SME and in the course of my career, I have spoken to different loan management companies. I’ve discovered that each software has a limitation, especially in respect to flexibility. I chose Configure after discovering that in spite of the eligibility of my clients or risk appetite, they can actually come up with personalized loan management software for me.



After the meeting with your team, in less than 48hours I was live and in that same day, under 1 hour, I disbursed four loans. So I was like if this team can do something this impressive within a limited time, then its a good company to go with.



<h2>What are the benefits of using Configure? In what ways has it changed your lending business?</h2>



I’ve been using Configure for close to a year now. The first benefit is flexibility. When developing the eligibility criteria for our customers and the risk appetite for our loan product, I discussed with your development team and they told me that they can provide everything I requested for. The fact that they were actually able to do this is a plus.



The other benefit is that it is user-friendly. Someone in secondary school can use it with minimal error. When you compare the cost with others in the same business line, Configure is relatively cheaper.&nbsp;



Another benefit I’ve gotten from Configure is robust reporting and the credit search. I don&#8217;t have to visit another platform to perform a credit search. I like the direct debit mandate too. It makes collection less stressful and gives me multiple benefits from one platform.



I’m also impressed with the team and response time. There was a time when I had an issue around 11 pm. The team did everything within their control to resolve the issue on time.



Still, on flexibility, I like the fact that the team is able to add new features that I need to run my business. This is contrary to my past experience where the vendor said it will take them a year because any change they affect for me will affect other customers in their business line. Admittedly, you may not be able to customize everything for a customer but there are some peculiar features you should be able to make available, especially looking at what is obtainable in the lending space today.



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Replace paper &amp;pen and spreadsheet with a flexible core lending platform, increasing your efficiency and reducing credit decision time.
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How Ihine MFI digitized its lending operations using Configure

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