Best Practices in Collections Strategies

This InSight draws from the experiences of collection programs in Latin America and India. It presents best practices and considerations for an MFI to successfully implement collection activities.

Past-due or non-collectible loans are an implicit part of the financial sector. In recent years, MFIs have sought to develop new and more effective strategies for collections. They include:

• Significant interaction with the client;
• Careful analysis of client’s situation;
• Frequent contact over the duration of the loan;
• Appropriate payment alternatives for clients;
• Recording, monitoring and follow-up of all collection activities;
• Client compliance with negotiated agreements.

The client should see collections as an ongoing activity, in which the various actors are coordinated and flexible. Further, collection activities should be directed at all individuals involved in the loan, in accordance with the client’s risk profile and probability of repayment. Best practices in this area include:

• Adopt proactive strategies to quell delinquency;
• Improve internal productivity of the collection area;
• Ensure quality information gathering and management;
• Develop well-defined strategies for collection of delinquent loans.