There are no bad borrowers, only bad creditors

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They say that the most common problem disrupting credit co-op operation is delinquency. During consultations and in my speaking engagements, I hear frustrated co-op managers and officers complain a lot about delinquency as if it is a hopeless case. This, however, is not the real problem. If this is so, then there should no successful credit co-ops out there. On the contrary, I have seen and observed several credit co-ops became multimillionaires.

This has been the bread and butter of Baguio Benguet Community Credit Co-op or BBCCC and other big co-ops situated elsewhere, all multimillionaires. Even the smaller co-ops prefer credit service operations because it is the easiest business to undertake unlike a consumer store or other kinds of business that is too laborious. I even have a strong suspicion that one of these big credit co-ops have more transactions than that of the bank next door.

One advantage of a credit co-op over a bank is that the borrower finds comfort when he know he is dealing with an establishment run by his acquaintances, his neighbors, his friends. It makes him feel at ease. The farmer and the common tao is intimidated to enter a bank run by someone who is a stranger, who speaks a different dialect and dresses like a god. And of course, there is no such thing as patronage refund in banks.

One day I found myself working at the Cooperative Development Authority (CDA-CAR) as a Legal Officer. Through the years, I was exposed to co-op operations and the usual problems I encountered has something to do with money.  Having no background in accounting or business management for that matter, I asked myself several times, “What am I doing in this office?” During hearings, I put up a confident posture in front of the parties making it appear that I understand what they are talking about. I nod my head every now and then just to show my participation. If someone noticed my pretenses and discovered my ignorance, they could have kept it to themselves.

Unknown to them, I learned by listening. Hearing for the first time unfamiliar terms, concepts and principles, I absorbed them and learning what they mean. In due time, I have accumulated some nuggets of knowledge about the business of credit and savings. My education in the intricate world of finance is not that much but at least I know how to read financial statements a little bit. And I began to appreciate this field I disliked since high school. Had I known earlier that the path I would take in my career will lead me to the world of numbers, I would have taken a related course like commerce or accounting in college instead of Criminology. Too bad I don’t believe in crystal balls.

Going back, every co-op manager should add to his skill the ability to discern the paying attitude of borrowers.  Delinquency may be the immediate problem but the root cause really is the attitude. People like to borrow money but collection is not as easy as when the loan was released. Worse, others do not have the intention of actually paying their loan right from the start. They hope and pray every night that the co-op will go bankrupt so that they will not be obligated to pay back their loans.

The business of lending, I learned further, has to parts – lending and collecting. Most credit co-ops are only good at the lending part but they lack substantial know-how with the second part which is the collecting aspect. Credit co-ops that have no established policies and procedures including internal control measures are expected to acquire problems on collection.

Financial experts say there are no bad borrowers, only bad creditors. According to these experts it is not the fault of the borrowers if the co-op is experiencing delinquency on their loan portfolio, it is the fault of the creditor if he does not know how to collect.

There are four kinds of borrowers, I was informed. Those who can afford and willing to pay their loans. Those who cannot afford but willing to pay. Those who can afford but not willing to pay. And those who cannot afford and not willing to pay. There is no problem with the first kind. This kind of borrower is the type who has a good reputation on his credit history, who religiously pays his loans on time and never misses his amortization payments even if delayed. As to the rest, strategy and skill is needed in order to collect from them. There is no uniform approach to loan collection. As a creditor, you really have to know your borrower so that you can apply the appropriate strategy.

Now, you might be expecting that I will be presenting the steps or strategies on loan collection. Sorry to disappoint you. There are a ton of books on this topic and there are experts whom you can consult. Visit the successful co-ops in the area and learn from them. There are loan collection agencies even. And there are the lawyers. So, I will give my partner in this column the freedom if he is willing to elaborate on this further when he writes his piece next week.

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