Photo 1/2: View from Nathalie and Katharine's home in Dien Bien Phu.
Photo 3: Nam from Binh Minh providing training to our
credit staff in our home.
Photo 4: Our credit staff going through the project book-keeping in
preparation for loan application day.
In the past week, we have trained our credit staff and finalized our loan documents including client book detailing loans and savings, loan application form, book-keeping documents for commune and village level as well as promotion documents about our loan products.
Binh Minh, our local consultants, have helped us provide training on the operational procedures for loan distribution and book-keeping methods. Next week, we will provide businesss training to our clients on basic accounting for business activities as well as skills training to provide new ideas for potential businesses (cut flowers and vegetables).
On Thursday, our credit staff will be advising our clients about potential loan products to meet each client's capital needs during loan application day. Our Credit Supervisor will then perform loan appraisals to determine whether we will lend to each client and how much we will lend to each client based on their ability to repay. Our loan products for new clients will be 6 month maturity, approx 1% monthly interest, ranging from 200VND ($12) to 1,500,000 VND ($90). The loan principal and interest are paid in bi-monthly installments during the course of the loan so at the end of the loan, the client has already repaid the loan and interest. This is easier to manage.
To understand our client's cash flow, we perform a simple calculation to assess net income. We try to determine their annual income, which is relatively easy because they have 2 harvest seasons during the year. Often it is harder for our clients (or anyone in fact) to assess their annual expenses. We therefore, ask for weekly expenses for food, monthly expenses for electricity, annual expenses for education.
Once we have this information, our credit officers use this formula:
1. Annual income from harvests + other income during year less annual expenses = annual net income
2. Annual net income /25 = bi-monthly net income
3. Bi-monthly net income * 50% = ability to repay per installment
In EDM's program in Cambodia, we use 25% as a maximum leverage for our clients. In Vietnam we have decided to use 50% in our pilot case as we think 25% may be a little conservative, especially for our clients who have very limited cash flow (and would not be able to access loans beyond $50 using the 25%). That being said, the repayment ability is very hard to assess, and we understand that this is a rough estimate and may need to be updated as we progress in the project.
On October 24th, we target loan releases for the first cycle of loans in our first three target villages. Loans should range from $60 to $90 for the first cycle.
