Portfolio aging is a useful tool use by MFIs to determine if the introduced risk management strategies are effective or not. It also helps provide allowances for potential losses based on the number of days such loan has been in arrears and payment missed.
Portfolio aging is usually regulated by legal banking standards of different countries, with each country having its own incremental range and multiplying the category of portfolio at risk by the prescribed percentage. Summation of the whole categories takes us to the actual provision to be made for the period in question.
Sample: Summary Loan Portfolio and aging Report
Portfolio Data
2015
2014
Total Value of Loan Disbursed 31st Dec
209,000,000
220,000,000
Total Number of Loan Disbursed 31st Dec
402,000
450,000
Gross loan portfolio on 31st Dec
153,000,000
164,000,000
Active Borrowers 31st Dec
307,225
372,250
Active Male Borrower on 31st Dec
127,542
125,441
Active Female Borrower on 31st Dec
179,683
246809
New Borrower during the year
65
42
Non-Performing Loan (PAR) on 31 Dec
11,229,417
4,798,297
No of Active Borrowers in Arrear 31st Dec
125
104
Bad Debt Write-off during the year
121,487
Number of Loan Officers 31st Dec
852
1,121
Average Loan term (Monthly)
12
12
Aged arrears analysis
S/n
Classification
(A) Number of Loans in Arrears
(B) Outstanding Loan Balance (Gross Loan)
(C) Provisioning Requirement (%)
(D) Allowance for Loan Losses (Value)
1
0 Days
0
109,500,000
0
0
2
Loan due for the day
10
12,700,000
1
127,000
3
1 – 30 Days Past due
5
11,250,000
5
562,500
4
31 – 60 Days Past due
35
2,340,000
20
468,000
5
61 – 90 Days Past due
25
14,850,000
50
7,425,000
6
91 – Above
50
2,360,000
100
2,360,000
7
Total
125
153,000,000
10,942,500
Analysis for the table above shows;
The MFB in year 2015 gave out a total loan of 209, 000,000. The outstanding loan balance is 153,000,000 with number of active borrowers to be 125. The total value for loan losses allowance amounts to 10,942,500. This provisioning goes into the appropriate books of account which is further discuss in bullet four of preparing for write-offs
Note
Re-scheduled loans that have expired need no extra provisioning if they had earlier been made. This usually fall within loan that is above certain number of days.
Microfinance bank managers need to know how much of their portfolios are delinquent and for how long such loans have been in such status. When a loan is in arrears/overdue for a long time, the risk of recovering such loan becomes slim and at the same time having no hope for future payments. Non-payment of these loans gives birth to what is known as portfolio at risk (PAR).
We at Lheon Consulting thrive to provide our users the very best of Microfinance resources. The most feature rich and complete tools for career advancement. Learn more
Portfolio aging is a useful tool use by MFIs to determine if the introduced risk management strategies are effective or not. It also helps provide allowances for potential losses based on the number of days such loan has been in arrears and payment missed.
Portfolio aging is usually regulated by legal banking standards of different countries, with each country having its own incremental range and multiplying the category of portfolio at risk by the prescribed percentage. Summation of the whole categories takes us to the actual provision to be made for the period in question.
Sample: Summary Loan Portfolio and aging Report
Analysis for the table above shows;
The MFB in year 2015 gave out a total loan of 209, 000,000. The outstanding loan balance is 153,000,000 with number of active borrowers to be 125. The total value for loan losses allowance amounts to 10,942,500. This provisioning goes into the appropriate books of account which is further discuss in bullet four of preparing for write-offs
Note
Microfinance bank managers need to know how much of their portfolios are delinquent and for how long such loans have been in such status. When a loan is in arrears/overdue for a long time, the risk of recovering such loan becomes slim and at the same time having no hope for future payments. Non-payment of these loans gives birth to what is known as portfolio at risk (PAR).
-
Add a note