Fidelity Bank Ghana Limited Self-Employed Term Loan Product Review PDF

FIDELITY BANK GHANA LIMITED SELF-EMPLOYED TERM LOAN PRODUCT PAPER REVIEW v3 MAY 2021 Self-Employed Term Loan product paper review v3  FIDELITY BANK GHANA LIMITED PRODUCT PAPER SUMMARY PRODUCT NAME...

FIDELITY BANK GHANA LIMITED SELF-EMPLOYED TERM LOAN PRODUCT PAPER REVIEW v3 MAY 2021 Self-Employed Term Loan product paper review v3  FIDELITY BANK GHANA LIMITED PRODUCT PAPER SUMMARY PRODUCT NAME SELF-EMPLOYED TERM LOAN STRATEGIC RETAIL DIVISION – PERSONAL BANKING SEGMENT BUSINESS UNITS DATE May, 2021 DESCRIPTION OF The Self Employed Term Loan (SETL) was designed to provide a framework within which PRODUCT existing Micro Enterprises and Self Employed Individuals will be offered loans on a case-by- case basis to meet business needs. PRODUCT In December 2019, Management Credit Committee approved changes to some parameters BACKGROUND & of the Self-Employed Term Loan Product. This review was in line with market insights JUSTIFICATION obtained from Sales team and customers. These changes and effective product positioning has yielded some results in terms of balance sheet and revenue growth. However, the threat from competition still exist in addition to rapidly changing needs of this segment of customers. It has therefore become important that we respond by making relevant adjustments to some key parameters of our loan proposition to this segment. This review was done in line with feedback received from our customers, front liners (CSOs and CSOEs) and Sales Teams. In addition, market information on competitor offerings was gathered and analysed. These changes are expected to make our product proposition competitive and attractive to the target market whiles enabling us achieve our goals of growing our risk assets book and adhering to underwriting standards in the bank’s credit policy On the basis of the above, The Management Credit Committee is requested to consider and approve the proposals outlined below KEY CHANGE Existing Change PARAMATERS SINGLE OBLIGOR Maximum loan amount of GHS 200,000 Maximum loan amount of GHS 300,000 with LIMIT with various security requirements based various security requirements based amount. amount. RISK Account Behaviour Requirement Number Changed to a Post-disbursement ACCEPTANCE of deposits to be monitored, i.e. minimum condition with more stringent CRITERIA (RAC) of 8 per month for traders. The Business conditions as follows: Unit will deploy a Mobile Cash Collection platform; module cash collection is to  Account Behaviour Requirement Number ensure the following: of deposits to be monitored, i.e.  Instant cash deposit into minimum of 8 per month for traders. client’s account The Business Unit will deploy a Mobile  Audit trail of all cash Cash Collection platform; module cash deposits collected collection is to ensure the following:  Issuance of receipt to client  Instant cash deposit into at point of collection client’s account Page 2 of 11  FIDELITY BANK GHANA LIMITED  A faster reporting medium  Audit trail of all cash deposits  Minimum deposit amount collected will be captured in the Offer  Issuance of receipt to client at letter based on customer’s point of collection cash flow.  A faster reporting medium  Minimum deposit amount will be captured in the Offer letter based on customer’s cash flow.  Customers that miss the minimum number of transaction on collection or deposit will not be allowed to borrow unless they demonstrate adherence to this rule over a two-month period. ( applicable to repeat borrowers) PRICING Interest Rate: GRR + Risk Margin (10% -  Interest Rate: 14%) p.a. The interest rate applicable A. Unsecured Facilities: GRR + Risk shall be determined by business and quoted Margin of up to 14% p.a. in nominal terms by front line staff to prospects and in the customer’s Offer Letter B. Partially Secured Facilities: GRR + Risk for execution Margin of up to 13% p.a. The interest rate applicable shall be determined by business and quoted in nominal terms by front line staff to prospects and in the customer’s Offer Letter for execution  Monitoring Fees: GHS 100  Monitoring Fees: 1% of Loan amount. Minimum charge of GHS 100 and Maximum cap of GHS 500 TARGET MARKET  Fully registered Sole proprietors  Individuals trading in their personal accounts in general trade (Retail & Wholesale) or the service industry and  Self Employed Professionals TARGET AREA  Nationwide RISK  The Applicant’s industry must fall within the scope of the Bank’s targeted market. ACCEPTANCE CRITERIA (RAC)  Applicant must have at least two (2) years’ experience in line of business.  Individuals trading in their personal names and fully registered sole proprietors can apply.  A transactional account is required for the direct debit mandate and cash mobilisation.  Existing customers must have a minimum of six (6) months transactional relationship with FBGL. We may also request for 6 months’ relationship with another bank prior to start of relationship with FBGL if need be with both summing up to a year. Page 3 of 11  FIDELITY BANK GHANA LIMITED  Loan purpose (i.e. Borrower’s ability to justify the actual purpose of the money being requested).  Goods financed should be non-specialized or highly marketable.  Ownership of shop or evidence of unexpired tenancy/lease for a minimum of six (6) months required. Receipts to confirm payment of statutory ground rent are acceptable for areas where tenancy/lease agreements are non-applicable.  Minimum Annual Credit Turnover Criteria: GHS50,000 over the last 1-year or GHS30,000 based on a 6-month relationship with Fidelity Bank. If deposit trends for the 6 months relationship is inconsistent, records from another bank covering the last 6 months, both making up 1 year should be considered.  Assessment of the facility sought, shall be based on Credit Turnovers in client’s transactional accounts with FBL and the client’s previous bank if need be, with both summing up to a year.  Movement of funds from account to account in a bid to improve the turnover will be net from the turnover to obtain the true and fair values.  Turnover over last 12 months must show, Rising, Fluctuating or Flat monthly trends. Accounts showing deteriorating turnover trends must be disqualified. Turnover within last six (6) months should not have deteriorated in excess of 15% in comparison to the previous six (6) months. Exceptions are to be considered in analysing seasonal businesses or trends in business seasonality dynamics.  Debt Burden Ratio Repayment Amount < 30% of Average monthly credit turnover position in past year or 6 months Maximum Loan < 80% of Average credit turnover over the past year or 6 months. This amount will be adjusted until repayment falls within the acceptable debt burden ratio.  No more than one (1) returned cheque for lack of funds over last 6 months.  Applicant MUST be willing to sign onto the Bank’s Cash Collection Service. DOCUMENTATION A. Minimum Documentation /  Facility request letter from customer. PRECEDENT CONDITIONS  Duly completed Application Form.  Business Operating Permit (AMA, TMA etc. receipts).  Environmental & Social Risk Management (ESRM) report for registered borrowers and unregistered  Lien and right of set off over cash and cash instruments. B. Assignment of stock  Stock used as collateral should be fast moving consumer goods and not specialized goods  Stock being used as collateral should be at least 150% of the facility amount after cash collateral is net from the facility amount. Page 4 of 11  FIDELITY BANK GHANA LIMITED  Stock list report using the cost price will be required form the RO.  FSV shall be equal 40% of OMV.  All stock shall be insured noting the bank as “first loss payee”  The Bank’s insurance partner, Allianz Insurance Ghana Company Limited, shall provide Insurance cover on stock. Kindly refer to the Stock Insurance requisition Procedures Manual on the Retail Products Registry.  Assignment of cash proceeds  All customers shall sign on to a mandatory key man insurance policy under-written by Prudential Life with the bank as “first loss payee”. Kindly refer to the Keyman Insurance requisition Procedures Manual on the Retail Products Registry.  Directional sketch to business and residence of Key man For Guarantors:  Directional sketch to business and residence of third party guarantor required  Positive Credit reference report  Documents to prove ability to pay the loan (bank statements, payslios etc)  Bank statement for another bank covering 6 months before start of relationship with FGBL.  Third party guarantees forms with a passport picture and a valid national ID attached where applicable.  Copies of business registration where applicable. C. Landed Property  Property to shall be insured noting the bank as “first loss payee”  Land Title document for landed property  Valuation report on landed property  Clean Search Report  Insurance against fire and allied perils POST  Account Behaviour Requirement Number of deposits to be monitored, i.e. minimum of DISBURSEMENT 8 per month for traders. The Business Unit will deploy a Mobile Cash Collection CONDITIONS platform; module cash collection is to ensure the following:  Instant cash deposit into client’s account  Audit trail of all cash deposits collected  Issuance of receipt to client at point of collection  A faster reporting medium  Minimum deposit amount will be captured in the Offer letter based on customer’s cash flow.  Customers that miss the minimum collection or deposit target will not be allowed to borrow unless they demonstrate adherence to this rule over a two-month period(This applicable to unsecured customers) PURPOSE The breakdown of utilization is highlighted below:  For the purposes of augmenting Working Capital (especially purchases of stock as part of regular business transactions), Operating Expenses Finance, etc.  For bridging liquidity challenges due to seasonality pattern associated with business Page 5 of 11  FIDELITY BANK GHANA LIMITED  Financing fixed assets. SINGLE OBLIGOR Maximum loan amount of GHS 300,000 LIMIT TENOR  3 – 18 months REPAYMENT  The monthly instalment repayment of both the principal and interest is preferable. MODE However, repayment will be structured depending on the customer segment and pattern of inflows, especially for loans disbursed against cash flows assigned by paymasters.  The full repayment amount (principal + resulting interest) shall be built up in the customers regular transactional account using the mobile cash collection platform on a daily basis. Portfolio Relationship Officer would be required to track account and monitor inflow of payments/trends in credit turnovers (as defined in facility covenant).  No new facility to be granted until existing one has been paid off. SECURITY/SUPPO Security requirement has been segmented as per the table below: RT Customer Single Tenor(Month Security Interest Rates Cash collateral Type Obligor s) Margin component Unsecured 10K to 30K 6 - 12 no Up to 14 % 0% Unsecured 30,001 -70K 6- 18 Guarantor Up to 13% 0% II Partially 70,001- 150K 6-12 Cash & Up to 13% At least 30% of Secured stock facility amount+ Cash Buildup of 10% Partially 150,001 – 12- 18 Cash & Up to 13% At least 40% of Secured II 200K stock facility amount+ Cash Buildup of 10% Secured 200,001 – 12-18 land Up to 13% At least 50% of 300K property facility amount with / without cash Please Note: Only second time borrowers in good standing are eligible for 18 months All collaterals provided should be at least 150% of the facility amount Additional Information on Security: A. Amounts 10K to GHS 30,000 shall be unsecured (No Guarantor) however; customer must meet the minimum monthly account turnover requirement. NB: NB: Customer must be on the cash collection, Momo Pay or GHQR for a minimum period of 1 month and has made deposits of minimum 8 times per month. Where the above criteria has not been met customer must provide a guarantor or partial security. B. Unsecured Loan with a Guarantor: Page 6 of 11 FIDELITY BANK GHANA LIMITED  Amounts more than GHS 30,000 but up to GHS 70,000 shall also be unsecured however, customer must meet the minimum monthly account turnover requirement and present a credible Guarantor.  Requirements should be met by the Guarantor, i.e. Guarantor must show evidence of his/her ability to repay in case of default; specific form of affordability evidence. (i.e. last 3 months pay slip for Guarantors who are salaried workers or last 6 months’ bank statement and personal net worth statements for Guarantors who own registered businesses). Submission of net worth statements is required for facility more than GHS 100,000.  Guarantor must preferably be a Fidelity bank customer. However, a Guarantor with an account from another bank will be considered. Credit will gather credit bureau data on the Guarantor before approval. Information gathering from credit bureau and other sources will include but not limited to the following: Guarantor Minimum requirement Salaried Worker Debt to Income Ratio < 50% Registered Business Owners No incidence of loan defaults / returned cheques due to insufficient funds C. Partially Secured Facilities that are partially secured could be considered in the following combinations:  Cash Security + Stock  Cash security shall be in local (LCY) or foreign (FCY) currency maintained in the Business Savings or Personal Savings Account with interest paid at the published tiered rates for LCY. This amount should never be placed in any investment instrument.  Stock: Criteria for stock remains unchanged except that the Bank’s Insurance partner, Allianz Insurance Company Limited shall provide Insurance cover on stock D. Secured Facilities A facility will be secured with the following combinations:  Registered Title Documents including Land Certificates, Indentures, Leases and Deeds of Assignment Land Property with Cash Security.  Landed Property: Owner owned landed security without financials. This is to make it easier for customers whose nature of operations does not make it easy for them to have financials to access the application, LTV of security should not be more than 80% on FSV, i.e. the minimum security coverage for a landed property is proposed at 150% of the loan amount. Below 150% should be supported with cash security. NB  No 3rd party landed property would be accepted Only properties with fully registered Land Title Certificates shall be considered. Search reports and valuation reports shall be conducted by the Bank’s Legal department Page 7 of 11  FIDELITY BANK GHANA LIMITED PRICING  Interest Rate: A. Unsecured Facilities: GRR + Risk Margin of up to 14% p.a. B. Partially Secured Facilities: GRR + Risk Margin of up to 13% p.a. The interest rate applicable shall be determined by business and quoted in nominal terms by front line staff to prospects and in the customer’s Offer Letter for execution.  Processing Fees: 2.00% per transaction payable upfront  Legal Fees: To be determined by legal where applicable  Credit Life Insurance: 1% of the total facility value (underwritten by Prudential life)  Stock Insurance: 0.2% of total stock value (underwritten by Allianz Insurance Company Ghana Limited. For Sums assured less than GHS25, 000 a minimum fixed premium of GHS50.00 shall apply.  Monitoring Fees: 1% of Loan amount. Minimum charge of GHS 100 and Maximum cap of GHS 500  Penal Charge: 7% TRANSACTION Application Intake & Screening PROCESS &  ROs should have preliminary discussion to determine whether prospective DYNAMICS customer  meets the eligibility criteria for a Self-Employed Term Loan  If all requirements are met, an application form will be completed  RO collates a completed application pack with all relevant documents.  BSSM will review completeness of the credit application pack and co-sign.  BSSM to co-sign on the list of stock sighted with RO  Application pack (including all supporting documents) is sent to Personal Banking for review and sign off.  Personal Banking then sends the pack to Credit Verification Unit (CVU) to confirm authenticity of application and supporting documents. Credit Review and Approval  CVU forwards pack to Personal Banking Credit.  If there are issues to be addressed, it will be sent to the RO to address before Personal Banking Credit approval/Credit risk approval  Other supporting documents to verify the business information presented by the client must be included in the application pack. Closing the Facility  Upon approval, the RO will submit Decision Document (DD) and forward to Credit Risk.  Based on content captured in the DD, Offer Letters will be prepared by Credit Documentation for sign off by Head of Self Employed & Micro Business and Head of Credit Administration.  Security documentation will be prepared by the Legal team. Page 8 of 11  FIDELITY BANK GHANA LIMITED  The customer and his witness must duly sign the Offer letter and security document before disbursement  Availment ticket is raised upon successful vetting by Credit Documentation.  Disbursement is then done by the Credit Admin team.  Upon disbursement of the facility customer is given a payment schedule and, RO assumes full monitoring responsibility SLA  Minimum of three (3) days upon satisfactory fulfilment of all conditions.  Maximum – Fourteen (14) days upon receipt of all relevant documentation PORTFOLIO  Processing of facilities under this product will be put on hold to initiate recovery if three MONITORING percent (3%) of Gross Portfolio outstanding degenerates to non-performing.  Regular monitoring of the product to be reported on a monthly basis by the Product owners. Monthly monitoring reports will provide lessons and recommendations for future improvement of the product.  Lending data will be tracked and reported using Fidelity’s existing systems with reports available on monthly basis.  Annual review by product owners: This will focus on confirming borrower fulfilment of turnover covenants, evaluating lending data and comparing interest rates, fees and collateral requirements to industry averages for the purposes of ensuring that the bank competes favourably. MONITORING  RO/RM shall monitor loan accounts to ensure that they remain in NORM category STARTEGY throughout the cycle of the loan.  CRM to submit quarterly report on the following;  Stock inspection report  Account performance report in relation to any account covenant in the agreement  Call Report on Cash Collection  Both Portfolio Monitoring Team in Personal Banking and Credit Analyst in Personal Banking Credit will perform Portfolio analysis of 30% of approvals per quarter and discuss with Director, Personal Banking and the Head, Credit Evaluation & Review respectively. DELINQUENCY Early and Intensified Arrears Management Timeline Overview (NORM + OVERDUE – OLEM) Time Bucket Obligatory Action Stage 1 Frequent contact by phone to remind clients of due Early signs of warning, 3 instalments to be made by RO: days prior to payment day 1. Daily expected payment list and up to 7 days 2. Payments due list Meet or visit the client to understand reasons for nonfulfillment of agreed payment frequency Stage 2  Face-to-face meetings with the client, guarantors 8 to 30 days where necessary with RO /BSSM/RSSM  Obtaining new information from Credit Bureau Page 9 of 11  FIDELITY BANK GHANA LIMITED  Financial monitoring  Demand notice can be served to client/guarantors Stage 3  Continue to contact the client and guarantor 31 to 60 days  Meetings with Branch/RSSM/BSSM by 45 days  RO/BSSM requests for certificate for realization of collateral.  Collateral monitoring Stage 4 Continue to contact the client and Guarantors 61 to 90 days Involvement of the RO/BSSM/RSSM; at 90 days case is reassigned to Recovery Officer to continue with the recovery efforts Reviewed by  Self Employed Segment  Retail Products Page 10 of 11 FIDELITY BANK GHANA LIMITED Appendix: Competitor Scan Savings and Loans Panafrican Savings and Best Point Savings and Advance Savings and Parameter Fidelity Bank Loans Loans Loans New to Bank requirement Both Existing and New to bank Both Existing and New to bank Both Existing and New to bank Existing to Bank only customers customers customers Interest rate GRR+ margin(10%-14%) 42% to 54% p.a 45.6% p.a 83.88% p.a Unsecured guarantor Cash collateral of 1/3 of the Stock and household chattels Assignment of stock facility amount is needed can be used as collateral Vehicles A vehicle can also be used as For overdraft, u need Management will decide if Landed Property collateral provided its in good collateral there is a need for cash condition and depending on the Vehicle can be used as collateral Collateral requirement valuation report. collateral depending on the The cash collateral can be valuation report reduced for existing customers who have operated the account for a year and more BANKS Parameter Fidelity Bank Stanbic Bank GCB ABSA CBG Max Loan Amt 200K 300k 150k 500K 200K Cash Collateral YES No Requirement No Requirement No Requirement No requirement 12 Months for First Time borrowers Max tenor 18 Months 12 12 12 18 Months for repeat borrowers Vehicle+Landed ***Credit life and stock Other Collaterals Stock Insurance No Requirement Credit Life and Stock insurance Property+Stock insurance Product is tired to cash collections on a daily basis by CBG staff via Assessment is purely Assessment is purely Comments NA NA hand held devices. Only customers linked to credit turnovers linked to credit turnovers on this collections platform qualify for the product Page 11 of 11