Dear all,
First of all, happy new year 2015!
I have a question about portfolio at risk on which I would like to seek your inputs. Microfinance practitioners have agreed to use PAR 30 as the standard indicator. There is also a consensus that recently written-off loans and restructured loans need to be included. There is moreover a recognition that the interpretation of PAR needs to consider loan repayment frequency. What I have not encountered yet, but what I also deem important from my own experience in Cambodia, is the consideration of early repayment. A large proportion of loans that are paid back significantly earlier than the schedule (assuming no penalty for early repayment) is, I think, a sign that the MFI is too generous with its loan term. And when the loan term is too generous, the loan becomes overdue later than it should. To give an extreme example, a loan that matures in ten years with principal repayment at the end will in all likelihood become overdue later than a loan with monthly instalment that matures in one year. It is rather like rescheduling a loan in advance. Eventually, of course, the problem with catch up with the MFI.
Do you have any input on this? Do you know of any investigation of early repayment ahead of a portfolio crisis at an MFI? What proportion of early repayments (earlier than a reasonable margin that also needs to be defined) out of total repayments would you deem to warrant caution?
I look forward to hear from you. Best regards,
Mingyee
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Posted by: Hsu Ming-Yee <mingyee0706@yahoo.fr>
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