Loan underwriting, peer guarantors, and delinquency management

Lending operations represent the primary revenue-generating and risk-bearing activity of a SACCO. SmartERP SACCO implements strict prudential lending rules aligned with National Bank of Ethiopia microfinance standards.

Credit underwriting and eligibility gates#

Before a loan can be disbursed, the underwriting engine validates three mandatory rules:

1. Savings Multiplier Rule: Maximum loan amount cannot exceed a fixed multiple of the member's unencumbered savings balance (e.g., maximum 3x savings).
2. Peer Guarantor Coverage: The unsecured portion of the loan must be backed by solvent member peer guarantors whose own savings are temporarily pledged and locked until loan payoff.
3. Debt-Service-to-Income (DSTI): Monthly loan installments cannot exceed 50% of verified net monthly take-home salary.

5-tier delinquency severity classification#

Delinquent loans are automatically categorized into five risk classifications based on Maximum Days Past Due (MDPD):

flowchart TD
    OT["1. On Track (0 Days): Current & performing"]
    WAT["2. Watch (1-30 Days Past Due): Gentle SMS reminder"]
    SUB["3. Substandard (31-60 Days Past Due): Formal default notice"]
    DOU["4. Doubtful (61-90 Days Past Due): Guarantor liability call"]
    LOS["5. Loss (> 90 Days Past Due): Legal recovery & asset attachment"]
    
    OT --> WAT
    WAT --> SUB
    SUB --> DOU
    DOU --> LOS

Loan loss provisioning standards#

• On Track (Current): 1% general provision.
• Watch (1–30 Days): 5% portfolio provision.
• Substandard (31–60 Days): 25% specific provision.
• Doubtful (61–90 Days): 50% specific provision.
• Loss (> 90 Days): 100% full provisioning and write-off consideration.

Collections and guarantor escalation queue#

When a member exceeds 60 days past due:

1. The loan moves into the Delinquency Escalation Queue.
2. The system automatically places a hold on the savings accounts of all peer guarantors.
3. If default continues past 90 days, the cooperative board can execute an automated offset, debiting guarantor savings to clear the defaulted balance according to signed guarantee agreements.