The four main problems with rural bank loan collections – and one simple solution
The COVID-19 pandemic revealed the serious disruptions rural banks can face to loan collections – but there's an easy solution to this dilemma.
One major challenge facing all rural banks is how to efficiently collect on a loan during times of financial stress.
During the pandemic, lockdowns, job insecurity and massive shifts in income for people across the world compounded the already tricky issue of loans collection, something that has become a major contributing factor to worsened cash-flow for rural banks.
As we recover from the effects of the pandemic at different rates across the world, our team has conducted a thorough analysis of our findings with rural bank managers over the past two years.
We found that during the pandemic, only around 15% of rural bank customers had funds to enable them to make their loan re-payments on time.
We aimed to identify the direct causes for worsened collections during the pandemic to prepare rural banks for future crises that can impact their business operations. These are our findings:
COVID-19 followed by the lock-downs has made it difficult for rural bank clients to travel to their bank branches to make deposits and cash loan repayments. Bank branches were often closed and working hours fluctuated day to day – even the customers that were able and willing to travel on a certain day, might find their branch closed.
Branch staff were unable to go into the field and make loan collections. Ordinarily, if customers can’t make it to a rural bank branch, the bank can simply go to them. During the pandemic, this was easier said than done. Bank staff were also impacted by restrictions on movement, or they might have been afraid to make visits to remote areas due to health concerns. Even if they could reach a customer’s home, their access to customer data may have been limited at the site. Sometimes the customer themself may have had the money for repayment, but were unable to pay, as the bank staff was unable to reach them.
The reality for manyrural bank customers is that theydo not have access to a commercial bank account with online or telephone banking functionality. For the large majority of those customers, there was no way to make a bank-to-bank repayment transaction other than in person.
The pandemic left a lot of people without work. Customers were unable to travel to their place of work and many were consequently laid off, cutting their access to their usual funds to support their families and enable them to pay back their loans. Even basic extractive work couldn’t go ahead. Farmers couldn’t go to their fields, and those that could often faced challenges with product distribution. Fisherman couldn’t sell their catch without access to markets. The exchange of money and trade came close to the halt.
These problems have caused a major headache for the rural banks – bad loan collections.
Solving the collection problem
Thankfully, the worst of the COVID-19 pandemic is behind us, although many areas of the globe are still recovering from the financial shock it sent through our connected economy. What can rural banks do to be prepared now for future financial instability?
There are a few solutions to the collection challenge, but one is fairly simple – technology. A cloud core banking platform, like the one provided by Oradian,placed at the heart of your bank will dramatically increase your ability to collect by providing a range of options for repayment and the ability to communicate efficiently with your customers in response to changing circumstances.
It’s important to choose a reliable and trusted partner in your core banking platform provider, one with experience in helping rural banks transform their digital operations. A partner that can guide you through the rough times, advise and hold your hand through the implementation process, and stay with you as you rollout across all branches, advise on digital change management strategy, and takes an active role in staff and partner training.
To really make collections work, you need the complete package: a tech and business partner that you can trust to deliver the advisory, planning and execution phases of your project.
What if you don’t have a core banking system that allows integrations of external services, and have no time to wait for installation and integration? At Oradian we understand the urgency to solve important business issues, and we have a way to help you there as well.
Just schedule an advisory call with one of our advisors and we’ll discuss how we can help you.
Throughout the Philippines, there are several bill payment aggregators that have already built a vast physical retail network, providing 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 chains stores like 7-Eleven and independent sari-sari stores with a remote location. Your rural bank customers are already used to visiting and making utility bill payments through these aggregators, so there no need for the kind of major behaviourial change which is usually the biggest hurdle to adoption.
It can be a relatively simple and fast process for rural banks to partner, integrate and connect with bill payment aggregators through a cloud-based core banking system.
Oradian offers a free advisory session to help you rapidly implement a core banking system that allows integration.
Enabling your rural bank with access to these external services – based on Oradian’s system, of course! – is a winning strategy during a pandemic, extreme weather event or anything that may make loan collections difficult.
No smartphone required
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.
If you’re interested in discovering how Oradian’s cloud-based core banking system can unlock growth for your business, get in touch with one of our business intelligence experts for a free overview of the Oradian system.