The 4 main problems with the Rural Bank loan collections. And a simple solution.
This Pandemic has caused a lot of major problems for the Rural Banking community, but the major one that keeps repeating every time we talk to Banking management is – loan collections. The lock-downs have not made this fact easier, they are probably a major contributor to the worsened cash-flow of the Banks. But after a thorough analysis of findings, together with the Rural Banking community, we came down to the four direct causes of worsened collections.
COVID-19 followed by the lock-downs has made it impossible for Rural Bank clients to travel to the bank branches in order to make deposits and cash loan repayments. Since cash loan collections are by far the biggest chunk of the Collection pie, we are able to observe a deteriorating situation in Non-Performing Loans (NPL). Bank branches are often closed and the working hours are fluctuating, changing by the day sometimes, so even the customers that would be able and willing to travel on a certain day, are not certain that they will find a branch open.
The Branch staff unable to go to the field and make Loan Collections – if the customers can’t make it to the Rural Bank, the Bank could go to them, right? Well, easier said than done. Bank staff is also affected by the lock-downs, the staff might be afraid to make the visit to some remote areas because of Pandemic induced uncertainty. Even if they are able to go to the customer’s home, their access to data of the customer is often limited (or close to none) at the site. Sometimes the customers themselves might have the money for repayment, but can a bank officer travel to the customer’s doorstep
Rural Bank customers do not have access to commercial bank accounts – people that have some saving could use them to make a loan re-payment, by the simple way of making a bank transfer, couldn’t they? Yes, but the fact of life with Rural bank customers is that most of them do not have commercial bank accounts – which is the whole basis of the Rural Bank proposition. So for the large majority of those customers – no way to make a bank to bank repayment transaction.
Bank customers do not have money for loan repayments – This Pandemic has left a lot of people without work. Customers are not able to travel to their place of work and are soon laid off, cutting their access to usual financial funds that support their families and enable them to pay back their loans. Farmers can not go to their fields, and the ones that are able to work often face challenges with product distribution. Fisher folks can’t sell their catch without access to markets. The exchange of money, trade, has come close to the halt.
People that still have some savings have a limited budget, that will be distributed on the most pressing things and obligations. The ones that get paid are actually the one that will make it very easy, simple and painless – through the introduction of a new process that does not necessarily involve a physical bank branch. Also, make sure you remind the customers of outstanding loan instalments and potential consequences, digitally – SMS is great for immediacy. Maybe that SMS can contain a link with instructions on where and how to make the payment in case of branch closures? Oradian can do this for you at scale.
A very interesting fact derived form the Rural Banks themselves – around 15% of their customers still have money and livelihood that enables them to make the loan re-payments. Fifteen percent. What could your bank achieve if you had 15-20% better Collections and re-payments? A lot – we believe.
So above we have 4 problems listed and analysed, that cause one big major headache for the Rural Banks – bad Loan Collections. It’s good to know, but it does not bring us closer to any solution. Is there a solution?
The are a few solutions to the Collection problem, but one is fairly simple. Simple, that is, if you have a Cloud Core Banking System that allows integrations. And even more importantly, if you have a reliable and trusted partner, one with experience – the like of Oradian. A partner that can guide you through the rough times, advise and hold your hand throughout the integration process, continued with the rollout across all branches, advisory on digital change management and strategy, completed with a very important process of staff and client training (to ensure the service adoption happens).
A complete package is what you need – not just cold banking technology – but a tech and business partner that you can relax with and trust on the advisory, planning and execution phase. A success oriented one.
What if you don’t have a Core Banking System that allows integrations of external services, and have no time to wait (due to pressure of resolving pressing issues like Collections – now) for a complete installation and integration of one? In Oradian we understand this urgency to solve important business issues asap, and have a way to help you there as well.
Just schedule an advisory call with one of our advisors and let’s discuss that subject.
So what is this simple solution, you may ask, eager for an answer?
Throughout the Philippines, there are several bill payment aggregators that have already built a vast physical retail network, enabling access to electronic payment transaction to a large chunk of the rural population. Those aggregators have access to tens of thousands of retail shops of different sizes – the major ones are Bayad Center and ECPay.
Their payment outlets can be found in stores of big chains (like 7-Eleven) and single stores (like sari-sari stores with a single remote location). Your Rural Bank customers are already used to visiting and making utility bill payments through these aggregators, so there is no change of behaviour needed, which is usually the biggest hurdle to adoption.
The Rural Banks can have a relatively simple and fast process to partner with these bill payment aggregators, integrate and connect their cloud based Core Banking Systems.
That is if you already have a Core Banking System (and a trusted partner) that allows integrations of external services like these.
If you currently do not or can not wait for a complete implementation of a new system (see above), Oradian is here to advise you. The advisory session is free of charge. After the advisory session, if you decide to go through with the decision to enable your Rural Bank with access to these external services, based on Oradian system – it will be the best financially sound decision you can make in the times of a Pandemic. The one with the highest rate of return, because it puts you couple of steps closer to the survival of your bank.
Finally, it achieves the goal of allowing customer to repay their loans in times of Pandemic.
No Smartphone Needed.
Fintech companies, Banks, Rural Banks, Pawn Shops and electronic wallet providers have already launched these services, offering it across the board to rural customers, including your clients. Make sure you do not get left behind, risking loyalty of your current customers – and provide the services they are demanding.
Storms and Pandemics pass. Learned behaviours tend to stick. Your clients, post lock-downs will still be able to make repayments from anywhere in the country when they travel, for example visiting their family during Christmas or while on holidays.
This is a value-added service your clients demand now, will use post-Pandemic and will reward the Rural Banks that introduce it with their loyalty.