Low loan uptake is a pressing issue for most financial institutions. When not many of your customers are taking loans, they are simply saying that you are making it too hard for them to get a loan, you are being too strict about who gets the money, and the process is too complex.
Money only comes when you give out loans and charge interest on them.
According to the latest FinAcces report, the demand for credit is continually growing. However, many customers are primarily seeking credit from informal sources, with digital credit supplying a bigger portion.
Moreover, the data shows that 56.8% borrowed loans in the past year from any source, 8.65% from a bank, Sacco, or Microfinance institution, while 45.5% got loans from chamas, employer, etc.
In Kenya, for instance, the government’s Hustler Fund quickly took off as the main source of credit for many, including Medium and Small Enterprises (MSEs) which currently have a hustler fund loan.
The driver of the uptake? Ease of access
39% of the borrowers said that the ease of loan access is what they liked most about the fund.
Let’s Put This Into Context
Low loan uptake results from a lack of ease of access and tedious application processes. Customers perceive the process of getting a loan from your traditional financial institution as too complex for them.
The Whole idea? Streamline your loan origination process to meet your customers’ needs and increase borrowing.
But First, You Need to Understand Your Customers’ Main Challenges
Your customers are likely experiencing many issues that make them place you at the bottom of the list of lenders they’d approach for a loan:
- Lengthy Process: Your process of approving a particular loan takes too long. Right from the initial loan application to the approval stage, your customers have to wait for weeks or even months before getting the loan.
- Excessive Paperwork: You require your customers to fill out too many forms and provide many documents before they can get a loan. This is time-consuming and even confusing.
- Slow Approval Times: Once your customers have submitted all the paperwork, you begin the approval cycle, which is often slow. The waiting time to find out if the loan has been approved or not is also too long.
- High Rejection Rates: Many of the borrowers’ loan applications get rejected more often than approved. This can be extremely discouraging, especially after a borrower has invested so much time and effort trying to get a loan from your institution.
Then Your Own Challenges
You are solely responsible for evaluating all loan applications, approving, and disbursing those loans. But that comes with its challenges, especially if you are a traditional institution:
- Manual Processes: Your manual loan origination and approval process causes errors, delays and inconsistencies.
- High Volume of Applications: You manually process high volumes of loan applications, which makes it overwhelming. The result is increased backlogs and longer processing times.
- Complex Documentation: For each loan application, you require extensive documentation. That includes financial statements, credit histories, and personal information documents, etc. Keeping track of and processing all these documents manually is a great challenge. You risk losing important customer information.
- Inconsistent Decision-Making: If you lack a standardized, efficient system, your loan approvals become very inconsistent. That is especially true when your different loan officers interpret policies differently, leading to conflicting results for similar applications.
A Simple, Convenient Process = High Loan Uptake
Nearly 2 in 3 Borrowers Say Convenience is their Main Reason for Opting for Bank Loans.
Making the process simple and convenient for your customers encourages them to borrow. When your process is straightforward, borrowers are more likely to engage with you.
Reducing that paperwork and shortening the time you take to approve a particular loan makes the borrowing experience even easier.
Benefits of Streamlining Your Loan Origination
Streamlining your process offers several benefits for both your financial institution and the borrowers.
- Real-time credit assessment with preliminary loan decisions.
- Location-based services, such as address verification and route planning for field visits.
- Analysis of the distribution of loan applications and identification of potential areas for expansion.
- Decision support, such as loan affordability calculation and risk analysis.
- Ability to view and manage assigned loan applications.
- Tracking of the progress of loan applications, including site visits, document collection, and approval status.
- Reports and analytics on loan officer productivity, application volumes, and conversion rates.
- Ability to access and retrieve relevant customer and loan information from the loan origination system.
- Simplified loan application process, which reduces processing time, attracting more customers to borrow.
- Reduced costs. Eliminates redundancies and errors, saving more time and resources.
- Improved customer satisfaction and loyalty
- Enhanced industry competitiveness, differentiating you from your competitors, and attracting more borrowers.
The Typical Loan Origination Steps
1: Capturing of the following details at the branch:
- Bio Data
- Collateral security
- Income details
- Loan Purpose
- Loan supporting documents.
2: Performing checks:
- Duplication check
- External credit score check
- Internal credit score check
- Supporting documents check
3: Risk review
4: Financial review
5: Management approval
6: Generation and printing of offer letter.
Bearing all these automation benefits in mind, it would be a missed opportunity not to transform your loan origination process.
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Tera CMS is a loan origination system developed by NLS Tech Solutions specially to support your loan application processing needs. This system employs an automated workflow process to control and monitor the various work steps in loan processing.
Book a Demo today to Learn More About Tera CMS
