8

Sa-Dhan Patrika

Volume 7,

Issue 1, September 2006

decision-making needs may arise. It is

categories based on number

important to recognise that for MFIs, like

of installments skipped rather

other organisations, it would be

than in days. This is to ensure

impossible to specify all information

appropriate provisioning. For

requirements, at any given point in time.

example, in a weekly payment

Therefore, mechanisms that can

model, < 30 days past due

provide flexibility like a user-modifiable

could actually be four-five

business rules module and user

installments skipped

definable reports are very necessary

Factor in unusually long grace

requirements

and

are

best

●

periods

or

repayment

implemented.

moratoriums while calculating

Lesson #5: Ensure compliance of MIS to

portfolio quality. For example,

best practices. Six emerging. practices

repayment in 46 installments

over a 52-week period could

aspects  are  very  critical  while

mean that at any time, a client

automating an MIS for an MFI:

could  have  skipped  six

installments and still not

The sequence in which client

●

classified as a past due

repayments

is

being

account

appropriated. This should

always be as follows ­ fines (if

Ensure automatic integration

●

applicable), interest overdue,

of portfolio and accounting

interest due (if due on the date

modules in that date entered

on which repayment comes

in one, for example, loan

in), principal overdue and

disbursement through the

principal.  If  principal  is

portfolio

module,

appropriated first, then, while

automatically gets reflected in

portfolio quality would appear

the other, as loan outstanding

better, the yield on portfolio

under assets in the balance

would reduce

sheet.

The method of calculating age

●

Lesson #6: Past data conversion must be

of a past due loan should be

looked at the time of designing an

through the best practices

automated MIS. Migration of past data

method where age = date of

is very critical to continuity and it needs

calculating age ­ earliest

to be reviewed even at design stage,

unpaid overdue (in days).

so that the new database is designed

Using the installment method of

so as to take care of various aspects

ageing requires adjustments to

The importance of

with regard to past data. Using

be made as this method

negotiating a

professionals for data conversion is very

understates age of past due

maintenance

critical. However difficult this process

loan after the loan term and

contract for the

may be, the validity of the MIS using past

overstates age of past due

automated MIS at

data and matching of MIS outputs with

loan within the loan term

the design stage

audited statements from the past

of the MIS itself

greatly enhances the robustness and

should not be

While selecting past due loans

●

credibility of the MIS. It also ensures

underestimated

for calculating Portfolio At Risk

smooth transition from one system to

(PAR)  of  any  age,  the

another and thereby, results in less

reference point is to choose

disruption of operations

every loan that has either fines

or interest or principal over

Lesson # 7: Maintenance of the

due. Technically, it is possible

automated MIS is serious business.

to have past due loans with `0'

Maintenance is an often ignored

principal overdue and some

aspect and MFIs must be willing to pay

interest/fines overdue and

for this aspect. The importance of

hence, using only principal

negotiating a maintenance contract

overdue

to

determine

for the automated MIS at the design

aggregate loan outstanding of

stage of the MIS itself should not be

past due loans could actually

underestimated. The contract should

understate risk in the portfolio

clearly spell out what is maintenance

In case of ageing with weekly/

●

and what is fresh programming work.

daily installments, define age

Ambiguity  here  could  result  in

misunderstanding with vendors.

I. Gopalkrishnan, R. Arjun & S. Narayanan

MircroFinance Consulting Group, Chennai