June 2010

Maintaining Client and Loan Information

The whole loan process begins with gathering information when a borrower applies for a loan. The first step in the loan process is to gather information about the client. Collecting accurate and thorough information from the client during the application process is critical. Maintaining this information so that it is up to date and easy to find is also extremely important.

Information from the Application Process and Why We Need It

Here are the key documents required when a borrower applies for a loan. The quality and accuracy of information gathered at the front end assists loan management staff to collect outstanding debt and to prevent loans from going into arrears.

Maintaining Client Information

Once client information has been gathered, the credit check has been done, and the loan has been disbursed, then client and loan information needs to be maintained. In other words it needs to be stored somewhere and it needs to be kept accurately up to date. If there are changes to client or loan information these need to be recorded.

Many micro lenders struggle to maintain information. Many also have difficult reconciling information that is both paper-based and electronic. You need to ensure you put in place effective policies and procedures for maintaining information even though it exists in these two forms.

Why Do We Need to Maintain Client and Loan Information?

Information is vital to the risk management process. Information is necessary to avoid risks, to spot bad loans, and to take early steps to remedy them. Lenders need a system to maintain information content and flow.

• Inability to prioritise risks
  A key part of risk management is prioritising risk. You can do this by ranking the likelihood that default will occur and by estimating the potential cost. Lack of good historic information will make this process more difficult.

• Inability to detect fraud
  If fraud has occurred in the lending institution, it will most likely have an effect on the portfolio. If regular and accurate information is available, fraud related to loan disbursements and repayments can be much more easily detected.

• Inability to generate reports for NCR
  Without accurate information, reporting will be inaccurate and incomplete.

• Inaccurate financial statements
  Inaccurate information on loans will result in sloppy bookkeeping and accounting. This will leave managers with the wrong information for managing the company, and it will create an environment for fraudulent activity.

What is the Best Way to Maintain Information?

To maintain information you need to do much more than simply install a computer system. A computer system will help a lot in storing reports and updates on loans, but management must decide what weekly, monthly and annual reports they need to generate from the information to make management decisions.

In other words management needs to decide what the information will be used for. Deciding what the information will be used for will help you choose:

• Which information is most crucial
• How you want to maintain it
• Who should have access to it

Some Ideas for Maintaining Client Information

• Store all legally binding documents in a file that is secure, clearly labelled and easy to find
• Store client and loan information electronically if the lender has appropriate computer facilities
• Record all communications with clients
• If possible, get clients to sign any report you make of a communication you have with them
• Record all changes to the loan agreement (rescheduling, for example)
• Contact clients regularly to ensure contact details remain current

What Information is ‘Good’ Information to Maintain?

Information helps a lender if it is:

• Relevant: Provides what is needed.
• Timely: Delivered to the staff that uses it in time for them to use it effectively.
• Accurate: Correct.
• Distributed to the right people: Delivered to the staff who actually use it and need it
• Well-formatted: Easy to read and understand.
• Retrievable: Stored in such away that staff can find it.
• Traceable: Written up in such a way that you can see what has happened on the account

Policies and Procedures for Maintaining Information

It is all very well talking about the best way to maintain information, but what policy does your lending institution have in place to make sure you maintain information properly? You have looked at why we maintain information, the best ways to maintain it, and what makes up good information. Now you need to think about policies and procedures that guide a lenders’ information maintenance.

What are Policies? What are Procedures?

A POLICY is set of decisions about how your company operates. Policies are written guidelines that help operations. Policy informs the PROCEDURES you develop. Procedures are written instructions that tell staff how to implement policies.

Each lender must have its own policy and procedures for maintaining information.

Compuscan Academy has developed a learning programme on this subject! If you want to learn more about this topic, please contact Compuscan Academy at Tel: 021 888 6000 or e-mail us at   This e-mail address is being protected from spambots. You need JavaScript enabled to view it