Structure and Set Up of the Remedial Management Unit
Rationale
The establishment of a Remedial Management Unit (RMU) is a practical alternative for bank management to address the collection of collecting written off and hardened accounts. The RMU is considered the “Life after Write Offs” for bank management. The RMU’s responsibilities begin at the point when a bank’s collection efforts on bad debts and written off accounts transfers from the loan officers to the RMU.
Setting up a remedial management unit eases the burden of collection and recovery efforts from the branches, giving them more time to invest in maintaining good quality existing accounts and generating new accounts.
I. Objectives:
The RMU provides the management functions for the recovery of loans written off by the bank and branches, including the disposal of items repossessed by the bank as collateral.
II. Functions:
1. Develop and adopt effective collection strategies and alternatives in the recovery of written off accounts.
2. Manage and take custody of credit files of written off accounts assigned to the Unit.
3. Coordinate with branch officers and MF staff in the implementation of collection schedules and strategies.
4. Provide remedial functions on all hopeless accounts assigned to the unit in the course of its operations.
5. Adopt procedures in the management and disposal of repossessed or surrendered chattels to the bank.
III. Organizational Set Up
The Remedial Management Unit shall be under the direct supervision of the MF product Manager or the General Manager. The unit reports directly to the president or a senior officer who is responsible for the bank’s overall lending operations. The Unit should be established when the number of written off accounts reaches 200 or more.
Two (2) Organizational Set up Options - Remedial Management Unit
A. Full Head Office Based Staff
Set Up A
o The Unit is based at the Head Office, managed by a Unit Director and staffed with collection officers.
o All accounts for write off are transferred to the Head Office, including custody of credit files.
o Revenues from recovered accounts and the expenses of implementing collection activities shall be booked as head office accounts.
o Monitoring and recording of performance is a head office responsibility.
B. Head Office based w/ Branch participation
Set Up B
a) After write offs are completed by specific branches, accounts are transferred to the head office for control, validation and monitoring.
b) Credit files are transferred to the head office.
c) The head of the Unit, (MF Manager/Product Manager) is based in the head office, and supervises the Collection Officers (COs) who are assigned to different branches or areas of assignments.
d) Revenues from the recovered accounts shall accrue to the respective branch where the accounts were previously maintained, while operational expenses including salaries of COs will be shared by the branches where the COs are conducting collections and follow ups.
Collection Officers.
Qualifications
Collection Officers (COs) assigned with the RMU should be account officers with at least one year of experience in the satisfactory handling and managing microfinance accounts.
Workload & Output
o A Collection officer shall handle a workload of 150 borrower-clients each. However, when the geographical locations of the accounts are widely scattered, the bank can provide schedules of visit for each area in order to maximize the collection activities and economize on costs.
o The Unit head provides schedules of workload and area of operations for each CO. See sample table below:
Name of CO / Area / No. of Accounts / Amount1. Arthur / Kulapu District / 150 / P 500,000.00
2. Simon / Lapu Lapu area / 149 / 875,000.00
3. Carlos / Mexico area / 143 / 1,000,000.00
o Each Collection Officer shall visit/follow up with and attempt collection from 15 accounts on any given day. A daily/weekly performance report is prepared and submitted to the head of the Unit on a regular basis.
o For a single unit RB with less than 100 written off accounts, the bank can adopt the policies and procedures of an RMU on smaller scale by assigning a specialized Collection Officer who shall be dedicated to the collection and follow up of these accounts.
IV. Operational procedures
Collection and follow up on written off accounts endorsed to the Unit should be completed in a period of six (6) months or 180 days or less. The Unit shall evaluate its collection performance monthly to determine the accounts that still need to be pursued or finally close its collection efforts on the accounts.
It is important to provide the RMU with the necessary resources such as working space in the head office, tables, filing equipment and motorized vehicles.
IV-a) Collection Strategies and Approaches:
A written off account or a hardened account should have a collection or follow up frequency of at least twice a month.
Approaches
· Remedial Management Unit. For banks with more than 2 branches and has more than 200 written off or hardened accounts. Applicable to microfinance clients who are past due over 90 days;
· Specialized collector. For single unit banks with less than 100 accounts written off.
· Collection Agencies or lawyers. Applicable only in highly urbanized centers with an adequate number of attorneys for litigation.
Processes
The accounts endorsed to the Unit shall be classified according to the possibility of recovery into 2 categories:
A. Collectible Accounts.
After determining which accounts are still collectible, it
shall be apportioned to each CO based on the geographical
distribution that the bank will determine based on the
sample table illustrated earlier.
1. Each CO should attempt to visit at least 15 accounts per day
2. Determine the repayment habits, frequency and attitude of each borrower to establish a payment pattern and frequencies
3. Review and analyze the collection results in the past 2 months to determine which accounts are performing, slow moving and those that have no performance at all
4. The CO shall segregate the accounts based on their respective performances to determine the follow up and collection approaches that will be initiated later
5. Non-performing accounts, or those that have no collection results in the last 3 months shall be dropped and included as part of the group of uncollectible accounts
B. Non-Collectible
1. All accounts classified as non-collectible shall be validated and reviewed to determine the status of its recovery based on the reasons and justification indicated or provided by the AO previously handling the account
2. Accounts that have shown no recoveries and collections for 3 consecutive months, despite continuous follow up activities, should be re-classified as un-collectible
IV-b) Credit Files Management
The Remedial Management Unit shall have complete and full custody of the credit file of all accounts endorsed to it for collection and recovery. All files should be properly turned-over to the unit for proper accountability. The Unit shall undertake the inventory, review and evaluation of each credit files.
Conduct inventory management of all credit files by segregating files according to areas or branches for easy monitoring. Determine the completeness of the credit files by reviewing the documentation and history of the account. The latest loan documents and other support data should be in the files, such as:
o Promissory Note/s
o Application form
o Disclosure Statement
o Security Agreement; and others
o Support/historical information
§ Latest statement of Account
§ Demand letters
§ Call slip/s
§ CIBI report or an existing updated account history
Credit files shall be maintained in a secured filing cabinet under the control of the Unit head, as well as provide individual loan ledgers for each account to record collections and recovery from each account. A simple card will suffice.
IV-c) Collection process
After distributing the accounts to the designated accountable COs, the
CO shall conduct the following:
o Coordinate with the branch AOs, supervisors or managers who have knowledge of the history and background of the account/s he will be handling
o Determine what collection activities has been done with the account
o Determine if there is any collection agreement being implemented like, daily, weekly or monthly collections, or as the case may be
o Follow up on these agreements and work out an effective approach in order to hasten the recovery of the account
o Plan the collection activities of 15 clients in a single day, in order to have time to remit collections to the branch before cut off or closing time
o Collection and follow up activities shall be done 4 times in a week, leaving one (1) day for performance review, planning and other administrative work
o Prepare the daily collection report to be submitted to the Unit head;
o Collections shall be turned over to the branch or office where the CO has completed his collection activities. All cash collections should be remitted to the branch where the account was previously maintained on the same day of collections
IV-d) Payment Options & Rescheduling
The RMU shall allow staggered repayment schemes from clients whose accounts had been written off.
.
o The transaction shall be off-booked. A monthly performance report shall be prepared by the CO for monitoring purposes
o Repayment schedules shall not exceed a maximum of four (4) months. The shorter the term the less risky for the bank
o In rescheduling an account, the bank shall compute additional interest only. The basis of the computation shall be the Statement of Account due, computed prior to the write off of the account
o The COs shall initiate a rescheduling of account if the amount due is substantial
o Approving Authorities on Account Re-scheduling
Approving Authority / LimitsRMU Head / Up to P10,000
General Manager / Up to P 50,000
President / Over P50,000
Payment Terms & Options
Payment Term/s / Amount CollectibleI. Full settlement within 60
days after notice / 1. Principal balance only
II. Full settlement of account
in a single payment over 60
days; / 1. Principal balance
2. Accrued interest up to
date of payment
III. Settlement of account on
staggered basis:
1) 3 months w/ monthly
payments;
2) 4 months w/ monthly
payments; / 1. Principal balance
2. Accrued interest
3. 25% of penalties due
1. Principal balance
2. Accrued interest
3. 50% of penalties due
IV-e) Cut Off Date for Account Computation
o All accounts recommended for write off shall be provided with a final Statement of Account. This statement should be attached to each and every credit folder
o Cut off date shall be the end of the month prior to the actual booking of the write off
o For easy monitoring and control of the collectible amounts the bank should settle on the Statement of Account as the final amount to be collected from the client. The client should be informed of the final amount
o For a faster and easier recovery of hardened accounts, the bank should refrain from computing and charging additional interest and penalties after the final amount has been established through the Statement of Account.
IV-f) Nature of Payments
o The RMU shall be authorized to receive cash payments or in-kind (chattels), provided it is part of a security agreement with a legally binding voluntary surrender signed by the borrower
o All payments in-kind shall be duly acknowledged by the COs and can only be considered as payment upon the final disposal and sale of the surrendered chattel. Proceeds of the sale shall be acknowledged by the client and applied to his/her outstanding account
Custody and Disposal of Re-possessed Items (Payment-in-Kind)
The Remedial Management Unit shall have control, custody and authority to dispose all items (chattels) surrendered by clients or those re-possessed as a result of the implementation of the ‘Security Agreement w/ Voluntary Surrender & Authority to Sell’.
The unit shall perform the following:
o After its organization, conduct an inventory, control and custody of all surrendered/repossessed items
o Determine the value and worth of each individual items including the legal aspects in disposing them
o Provide an inventory list to management identifying each item, its appraised value and the price being recommended for sale. (please refer to pro-forma table- RMU Table -1)
Sale & Disposal Policies
Disposal price of surrendered chattels shall be determined by a committee composed of any of the following:
1) Branch manager
2) Internal Audit group member
3) RMU head
Determine the disposable value of each item based on its age, current market price of a brand new unit, less depreciation and its working condition. Items five (5) years or more in age but is still serviceable shall be valued at no less than P500
Parties allowed to acquire chattels (repossessed items) shall be based on the following priority:
1) Public at large
2) Bank employees
The bank, through its RMU shall conduct a auction/disposal of surrendered items on a regular basis. (Monthly/quarterly)
IV-g) Incentives/Commissions
The bank can adopt the following incentives or commission in the recovery
of written off accounts. Rates of commissions shall be based on the
principal outstanding balance of the account.
o 10% commission on all written off accounts that are still considered collectible.
o 30% commission on accounts considered un-collectible.
o Partial payments shall be entitled to incentives
o Computation of incentives shall be done on a monthly basis, determining the total amount collected from each client
o The RMU head shall be responsible in the review and validation of commissions provided
o The scheme shall be open to all bank employees who can help facilitate the collection of the account/s
IV-h) Internal Control Measures
o Custody of all credit folders of written off accounts shall be under the RMU for easy audit and control purposes
o A final list (MIS generated) of all accounts written off shall e maintained and reviewed by the internal audit group
o The final Statement of Account shall be reviewed by the internal audit group or any responsible officer overseeing the Unit. Any changes in the amount to be collected from the client should be properly reported.