Micro-finance

Lending to small businesses — assessed properly, priced honestly, and collected every day.

For lenders, loan officers, credit committees and the collectors who go out to the borrowers.

Printable: Micro-finance user guide (PDF) — the same guide laid out for a desk or a collector's bag.

What this module is for

You lend money to small businesses — a vegetable stall, a salon, a welding shop — and they pay it back with interest, a little at a time. The module keeps the whole of that in one place: who the borrower is, whether it is safe to lend to them, on what terms, who goes to collect, and how the loan book as a whole is doing.

The three ideas to hold on to

Every loan is negotiated

There is no price list. The rate, how the interest is worked out, how often the borrower pays and any fee are agreed with that borrower, and stored on that loan. A market trader who takes cash every day repays daily; a welder paid at month end repays monthly.

You lend on the owner and on the cash flow

A small business rarely has audited accounts or a title deed. What decides whether you get paid back is who the owner is — including whether they are rooted enough not to disappear — and whether the business makes enough spare cash each month to carry the repayments. The assessment asks exactly that.

The collector's day starts with a list

Each morning every collector sees — on the screen and as a notification — who to visit, how much to ask for and where to find them, with the most overdue first.

What it does not do

• It does not look anyone up at a credit bureau. The assessment asks; you check.
• It does not send text messages (SMS). Borrowers are reminded by a notification on a phone where they turned reminders on, and by email only at an address they confirmed. The links that set those up are sent from your own phone.
• Its Ledger covers lending only, on a cash basis. It is the source your accountant posts from, not your whole set of books: if you report under IFRS 9, interest accruals and loan-loss provisions are made in your own accounts.
• It never charges a late charge on a late charge, and never rolls unpaid interest into the principal when a loan is restructured.

Where it is

Everything is under Micro-finance in the sidebar:

Entry	For	Who sees it
Collections	Who to collect from today, tomorrow and as far ahead as you choose	Everyone
Portfolio	The health of the loan book	Loan officers (level 3) and above
Borrowers	The businesses you lend to, their assessments and their loans	Loan officers (level 3) and above
Loans	Every loan, from application to its last payment	Everyone — a collector sees only the loans they collect
Ledger	The lending book in double entry: trial balance and journal	Approvers (level 5) and above

The path of a first loan

1. Add the borrower. Borrowers → Add a borrower. The business name, the owner, a phone number, and — most important for your collectors — How a collector finds them: landmarks, not a postal address ("Mbare Musika, stall 41, behind the bus rank"). Press Add borrower; the borrower's page opens.
2. Optionally, let the owner assess themselves. On the borrower's page press Send a self-assessment link, then send it straight to the owner with the WhatsApp or SMS button, or Copy link. See The self-assessment.
3. Assess the business on a visit. Press Assess the business (or Verify their answers if the owner answered the link). Answer from what you saw and checked, then press Save and grade.
4. Raise the application. Press New loan application, agree the terms with the owner, and press Raise the application.
5. Somebody else approves it. An approver opens the loan and presses Approve. You cannot approve an application you raised yourself.
6. Pay it out. When the money is handed over, an approver presses Pay out, confirms the day and the first repayment date, and presses Record payout. That fixes the repayment schedule, and the collector is notified.
7. Collect. The loan appears on the collector's board every day something is due.

Assessing a business

The assessment is built on the five Cs of credit — the framework every lender uses, from a village savings group to a bank — weighted the way micro-lenders weight it:

Pillar	Weight	What it asks about
Character	30%	How long they have traded, and at this spot; their premises; where they live; family nearby; plans to move; how past borrowing went; who can vouch for them; whether the business is registered
Capacity	35%	Monthly sales, costs, other income, what the household takes out, existing loan repayments; how they keep records; whether sales are growing
Capital	10%	What the business owns in stock and equipment, against the amount asked for; how much of their own money is going in
Collateral and guarantees	15%	Security offered and what it is worth; a guarantor; membership of a savings group
Conditions	10%	The kind of trade; how seasonal it is; what the loan is for; whether they depend on one or two big buyers

Can they afford it?

Capacity is not an impression — it is a figure. The business's free cash each month (sales, less costs, plus other income, less what the household takes, less existing loan repayments) is divided by the monthly repayment. That ratio is the debt-service coverage ratio, or DSCR.

• 2 or more — comfortable.
• 1.25 to 2 — acceptable. 1.25 is the usual cushion lenders look for.
• 1 to 1.25 — thin. Any bad month means a missed payment.
• Under 1 — the business cannot repay from its own cash at all.

Flight risk

The loss a micro-lender fears most is a borrower who disappears. The assessment reads out a flight risk — low, medium or high — from five questions about how rooted the owner and the business are: time at the current spot, whether the premises are fixed, where they live, whether family live nearby, and whether they plan to move. It lists the answers that raised the concern.

The grade

Grade	Score	Means
A	80 and over	Low risk — approve
B	65 to 79	Moderate risk — approve
C	50 to 64	Acceptable with conditions — a guarantor, a smaller amount or a shorter term
D	35 to 49	High risk — refer to the credit committee
E	under 35	Very high risk — decline

Some answers decide the grade on their own:

Always graded E — decline

• The free cash does not cover the repayment (a DSCR under 1), or there is no free cash at all.
• A previous loan was never repaid.
• The owner plans to move away within the year.

Never better than D — refer

• A high flight risk, however good the books are.
• An owner whose own answers turned out to be materially wrong on three or more questions when you verified them (a different choice, or an amount more than 20% out). Overstating is itself a character finding.

The self-assessment

The owner can answer the same questions themselves, on their own phone, before anybody visits — no login needed.

• Send a self-assessment link makes a link for that one business. It is shown once: send it straight away.
• It works once, for 14 days. Making a new link cancels an unanswered one.
• The owner sees their business's name and the questions in plain words. They are not shown a grade — an applicant who is shown how answers score is being shown how to answer.
• When they send it, the borrower's page shows The owner sent their own answers with Verify their answers.

A self-assessment is never enough on its own

It is a declaration. Verifying it means visiting: the form starts from the owner's answers, shows what they said beside each question, and marks every one you change. Only an assessment a loan officer verified can back a loan.

Agreeing the terms

On New loan application you set everything that was agreed. The price on the right is worked out as you type — the schedule, the total repaid, and whether the business can afford it.

Field	What it means
Amount lent	The principal: what is owed back before interest and fees.
Interest	Flat — interest on the whole amount lent, for the whole term, spread evenly. Reducing balance — interest only on what is still owed each period, with equal instalments.
Rate and Per	The rate you agreed, and whether it is a month, a year, or The whole loan (flat only).
Repaid	Daily, weekly, fortnightly, monthly, or every so many days.
Number of instalments	How many repayments.
No collection on	Days nobody collects. A due date that falls on one moves to the next collection day; a daily loan simply skips it — "daily except Sunday" is six payments a week.
Paid out on / First repayment on	When the money is expected to go out, and the first collection day. Every later date follows from the first at the cadence.
Upfront fee / The fee is	An arrangement fee, Taken from the payout (the borrower receives less) or Added to the repayments.
Late charges	What paying late costs, if anything: a fixed charge per late instalment, or a percentage of what is late for each 30 days it stays late — with the grace days before the first charge and a cap. See Late charges.
Assessment	The verified assessment this loan rests on.
Collector	Who goes to collect.
How the terms were agreed	The record of the negotiation. The approver reads it.

How flat interest is worked out

A flat rate "a month" is charged for the days the money is actually out, not rounded up to whole months: 1,000 at 5% a month, flat, over 120 days is 1,000 × 0.05 × 120 × 12 ÷ 365 = 197.26. Every instalment is the same amount, and any odd cents go on the last one, so the instalments always add up to the total exactly.

The true yearly cost

Beside every quote is True yearly cost — the effective annual rate once the fee, the timing of every payment and the interest method are all counted. Tell the borrower this figure. "5% a month, flat", repaid over four months, comes to roughly 140% a year; repaid daily it is more.

Covers repayments

With a verified assessment attached, the quote shows Covers repayments N× — the business's free cash a month against these terms' repayments a month. It turns amber under 1.25 and red under 1.

Approving and paying out

Open the loan from Loans.

• Approve is for an approver (level 5), and never a member who raised the application, renegotiated its terms, or chose its collector while it was an application — changing it makes it theirs as much as the officer's. (A lender run by the account holder alone may approve one they raised or changed themselves; the loan records that it did.) The loan needs a verified assessment from the last six months.
• If anyone changes the application after you opened it, Approve is refused with reload and review: reload the loan, read the terms as they now stand, and approve those.
• If the assessment graded the borrower D or E, or the agreed terms fail the affordability test, the panel says so and asks Why approve it anyway. The credit committee may lend against the scorecard, but never silently: the reason is kept on the loan.
• Renegotiate changes the terms of an application. Once approved, the terms are fixed. An approver who renegotiates — or picks the collector — can no longer approve that loan; hand it to another approver, or leave the renegotiating to the officer.
• Decline asks for a reason, which stays on the borrower's file.
• Pay out records the day the money actually left, and lets you move the first repayment if the payout was later than planned — so the borrower is not charged for days they did not have the money. It fixes the schedule, and tells the collector. Within limits:
  • the payout day can be neither before the day the loan was approved nor in the future;
  • the first repayment must fall due within 62 days of the payout (for a custom cadence longer than 31 days, within two of its periods);
  • if the new dates change what the borrower repays in total, the affordability test is run again on the new figure. If it now fails, the loan cannot be paid out on those dates unless its approval already carried a Why approve it anyway reason — pay out on the approved dates, or decline it and raise it again for approval;
  • the borrower must still be active and the assessment still under six months old.

Collecting

Collections is each collector's own round.

• To collect today — overdue plus today: what to come back with tonight.
• Overdue first, the longest late at the top — those are the loans that turn into losses. Each shows how many days late and since when.
• Then Today, Tomorrow, and each day after that up to your Look ahead.
• Every line has the amount to ask for, the phone number (tap it to call on a phone), where to find the borrower, and Record payment.

Look ahead

Look ahead is your own setting, kept for you: today only, today and tomorrow, the next 2, 3 or 5 days, a week, two weeks, or a month. It decides how far ahead your board shows amounts falling due — and your morning message covers the same days.

The morning message

Turn Morning message on to get a notification each morning on the devices you use, listing the overdue borrowers by name, who is due today, and what is coming up within your look-ahead. Nothing is sent on a day with nothing to collect. You are also notified the moment a loan is paid out to you or handed over to you.

A loan officer can switch Whose round to one collector or to every collector, and send everyone their board straight away with Notify collectors now.

Recording a payment

Record payment opens with the amount the board says is due. Change it to what was actually handed over, choose how it was paid, and add the receipt number or mobile-money code under Reference.

• It pays the oldest instalment first, and within an instalment the fee, then the interest, then the principal.
• Late charges are paid after everything that is due, never before it: first the arrears and today's instalment, then the late charges, and only then anything paid ahead.
• The borrower is sent a receipt straight away, if they have turned reminders on or confirmed their email. If it could not go at once, the morning run sends it — once.
• The day received can be any day from the day the loan was paid out up to today (or, if no pay-out day is on record, from the day the loan was opened).
• More than everything still owed is refused. Give back the change.
• A payment recorded by mistake is reversed by an approver, with a reason. It stays on the loan, marked reversed, and stops counting.

Late charges

A late charge is agreed with the rest of the terms on the application, and the approver signs it off with them. There are two kinds:

Kind	Charged
A fixed charge per late instalment	Once per instalment, on the first day after the grace days. "5.00 if a payment is more than 3 days late."
A percentage per 30 days late	A percentage of the principal and interest still late on an instalment, on the first day after the grace days and again every 30 days while it stays late. Never on the fee, never on an earlier charge.

Every late charge has a cap: all the charges on a loan together can never come to more than that share of the amount lent. Client-protection standards ask for one, and it stops a small arrear becoming a debt bigger than the loan.

Check what you are allowed to charge

Many regulators limit late charges on small loans, or require them to be written into the loan agreement. Agree only what your licence allows, and put the same words in the agreement the borrower signs — the application shows the terms in plain words for exactly that.

• Charges are made each morning, before the collectors' messages go out. A loan officer can make them straight away with Run late charges now on Portfolio.
• A late charge shows on the loan under Late charges, and on the collector's board as part of the overdue amount (incl. late charges). It does not move the loan's days late or its arrears class — those follow the instalments.
• A loan with late charges still owed stays open until they are paid or waived.
• Waive (approver, level 5) lets go of what is left of a charge, or part of it, with a reason. The charge stays on the loan with who waived how much and why.
• A payment recorded late, whose day received was inside the grace days, shows a charge already made for that instalment should never have fallen. It does not void the charge by itself — the day received is only the word of whoever recorded it — it proposes the void. The loan shows the proposal under Charges a late-recorded payment would void, and an approver who did not record the payment confirms it (the charge stays on the loan marked Voided, with why and who confirmed it) or rejects it with a reason (the charge stays owed). Until then the charge is still owed, but none of that payment goes to it.
• A voided charge comes back if the payment that proposed it is reversed, or any earlier payment the grace relied on is: 60% paid on time and 40% recorded late cleared the instalment together, so reversing the 60% brings the charge back. A charge brought back is never voided again on the same proposal.
• Payments recorded while a proposal waits go to everything else owed first, and reach a charge under proposal only when they are more than all the rest. If one did, the approver is told the charge has been paid since and cannot confirm the void: reject the proposal (the charge stays paid), or reverse the later payment and record it again so it goes elsewhere first.

Restructuring a loan

When a borrower falls behind for a reason that will pass — a fire at the stall, an illness, a bad season — the loan can be restructured: the part of the schedule not yet paid is replaced by a new one, on newly agreed terms. The loan keeps its number and its history, and is marked Restructured.

1. A loan officer opens the loan and chooses Restructure, sets the new terms (rate, cadence, number of instalments, first new due date) and says why. The screen shows what is being rescheduled and the new schedule before anything is saved. Propose sends it for approval.
2. An approver (level 5) — never the officer who proposed it — reads it and Approves or Rejects it. The officer who proposed it may withdraw it.
3. On approval the unpaid instalments are marked replaced and the new ones are added after them.

What the new schedule is built on:

• The principal still owed is lent again on the new terms; new interest runs on it from the day of approval.
• Interest and fees already owed are carried over as they are, spread across the new instalments. They are never added to the principal, so no interest is ever charged on interest.
• Late charges are not touched: they stay owed, or an approver can waive them.

If a payment is recorded between the proposal and the approval, what is owed has changed and the approval is refused — reject it and propose it again on the new balance. A payment made before a restructure can no longer be reversed once the restructure is approved, because the new schedule was built on it.

Restructuring is not a way to hide arrears

A restructured loan's days late start again from its new schedule, so the Portfolio reports restructured loans on their own line, as a share of the book. A lender whose restructured share keeps growing is rescheduling its losses, and supervisors look for exactly that.

Reminders and receipts for borrowers

Borrowers can be sent, automatically:

Message	When
Reminder	Before the next instalment falls due — how many days before is a lending setting (on the day, or up to a week).
Overdue notice	The first day a payment is late, then once a week while it stays late. It names what is late and any late charges, and asks the borrower to pay their collector or get in touch.
Receipt	The moment a payment is recorded, with what is left to pay.

A borrower is only ever reached in a way they set up:

• On their phone. On the borrower's page, Reminders link makes a link to send them (by WhatsApp or text from your own phone). It opens a page showing their loans; Turn on reminders on this phone is all they press. The link lasts a year, and making a new one retires the old.
• By email. Send verification email sends the address on file a link to confirm it is theirs. Until they open it, nothing is emailed — a mistyped address would otherwise send one person's debt to a stranger. Changing the address on file un-confirms it.

A borrower can switch every message off from their own page, and an officer can pause messages to them on the borrower's page. The two are kept apart: nothing the borrower does from their link lifts an officer's pause, and an officer does not switch the borrower's own choice back on. Making a new reminders link resets the borrower's own choice, since whoever held the old link may have made it. The link stops opening while borrower messages are switched off in Settings, or while the borrower is marked inactive, and opens again when they are switched back on. Each message is sent once, and the borrower's page lists what was sent and how.

The ledger

Ledger (approvers, level 5) keeps the lending book in double entry, so your accountant can take it over without re-keying anything.

When	Debit	Credit
A loan is paid out	Loans receivable (the amount lent)	Cash (what was handed over); Fee income (a fee taken from the payout)
A payment is recorded	Cash	Loans receivable (principal); Interest income; Fee income; Penalty income
A payment comes in on a written-off loan	Cash	Recoveries (principal), and income as above
A loan is written off	Loan losses	Loans receivable (the principal still owed)
A payment is reversed	the payment's lines, the other way round

• It is kept on a cash basis: the amount lent sits on the balance sheet, and interest, fees and late charges are income when they are paid. A restructure, a late charge and a waiver post nothing, for the same reason — nothing has been received.
• Entries are made automatically from what happens on the loans, and are never edited or deleted. A mistake is corrected by reversing the payment, which posts its own entry.
• The Trial balance is as at the To date; the Journal lists every line between From and To. Both export to Excel and PDF.

Code	Account
1000	Cash and bank
1100	Loans receivable — principal
4000	Interest income
4010	Fee income
4020	Penalty income
4090	Recoveries on loans written off
5000	Loan losses written off

The portfolio

Portfolio shows the loan book as a lender manages it.

Figure	Means
Gross loan portfolio	Principal still out on active loans.
PAR30	Portfolio at risk: the whole outstanding principal of every loan more than 30 days late, as a share of the book. Under 5% reads green; over 10% is trouble.
PAR1 · PAR90	The same, for any day late and for over 90 days.
Collected today	What came in today, against what fell due.
Ageing	The book by how late it is: current, 1–30 days, 31–60 (substandard), 61–90 (doubtful), over 90 (loss).
By collector	Each collector's loans, overdue and due today.
Late charges owed	Late charges not yet paid or waived. Kept outside the gross portfolio.
Restructured	Loans that have been restructured: their principal, as a share of the book.

Why PAR counts the whole loan

A loan one payment behind has shown it may not pay the rest either, so all of it is at risk, not just the missed payment. That is the industry's definition, and it is deliberately severe.

Write off (level 6) books what is left on a loan as a loss. The borrower still owes it, and money recovered later can still be recorded. It asks you to confirm first.

Lending settings

An account holder or level-6 member sets, under Lending settings on the Portfolio screen: the Currency, the hour the Morning message goes out, the lender's Time zone (which decides what "today" means), and the Usual rate — only used to estimate what a business can afford before its own terms are agreed. The same settings switch borrower messages on or off, set how many days before a due date the reminder goes out, and the name borrowers see their messages come from.

Who can do what

Borrowers are businesses, not items in a tracker group, so this module has its own rule — by clearance, and by which loans you collect:

Who	Can
Any member	See their own collection round, the loans assigned to them, and record payments on those
Loan officer (level 3)	Everything about borrowers, assessments and applications; every loan; the portfolio; reassign a collector; propose a restructure; run late charges; send a borrower their reminders link or a verification email
Approver (level 5)	Approve, decline and pay out loans; reverse a payment; approve or reject a restructure; waive a late charge; the ledger
Level 6 and the account holder	Write off a loan; change the lending settings

A shared station cannot be a collector: cash has to be answerable to one person.