Blog Post # 7: Screening our Screens

As it stands now, there is little between us and someone making off with our money.  La Ceiba has been extremely lucky thus far to not have lost more loans on a “cut and run” basis.  I think that is partially due to the intuition of our loan officer and our unique relationship with our clients through SHH. As we expand into new areas with new clients, these current screening methods will begin to prove less effective.  So I will start off by saying, if La Ceiba wants nothing more than to remain in its current situation, providing small personal loans to a few individuals in a confined area, then I really see no problem with keeping the system how it currently exists.  If however, La Ceiba would like to expand and grow into new areas, diversify their portfolio and create new loan programs that involve higher loans, then staying the way we are presently is irresponsible.

The first and foremost reason is the creation of the business loan program.  Before, all of the loans we were/are handing out are personal loans.  As their loans grew progressively, so too did our relationship with them.  All of our clients receiving the highest loans have jumped through the hurdles with us, and as a result, have invested as much in us as we have in them.  In some ways, although not in a tangible way by any means, this ensures La Ceiba the eventual repayment of our loan…even if it is a little late.  As the business loan program progresses however, and we seek to eventually open up an established business track that attracts clients with an existing business with a higher loan rate, we will begin to hand out more money without forming those same relationships.  If the relationship is not present, we must think of another screening method to ensure that we will be repaid.

This idea is not meant to be specific to the business loan program; it applies to the personal loans as well.  As the number of clients we take on increases due to expansion, our ability to form as strong of relationships with every single one of them begins to fade; hence, the need for additional screening methods.

The ideas that I had were to require the attendance of La Ceiba classes and/or provide the loan team with letters of recommendation from community members.  The problem we run into with the classes is that they will only be taught twice a year.  This means that we would only be able to accept new business loans twice a year, and has an undeterminable affect on the personal loans.  Eventually it was decided that this could not be a deciding factor, although I would still like it to way fairly heavily in the decision process of determining who would be eligible for loans.  Perhaps not the deciding factor, but allow it to increase their chances of receiving a loan after applying.

The second of the two ideas is to have potential clients provide letters of recommendation from community members.  I feel like in the class discussion on Thursday things became a little convoluted as everyone began throwing out their own versions of this idea and everyone forgot where we began.  My idea for the letters of recommendation was to have anyone outside the family write, or provide witness, to the verification of why this individual ought to receive a loan.  This could be a former employer, a prominent religious figure or a prominent political figure within the community.  My reason for this is that having individuals vouch for you, especially those that have no familial relations to you, is one of the leading indicators to deciphering whether or not you are a trust worthy person.  Someone who is vouched for is no accountable to that other person if they shirk, because it affects their reputation,  and perhaps their own eligibility to receive a loan.

Many objected to this for a number of reasons.  The first is that it may give the voucher too much power over the vouchee.  Here is the dilemma we face:  La Ceiba has a presence in Honduras once a year as a group.  Our lack of presence really leaves our clients accountable to no one.  If they find themselves accountable to someone within the community that they admire, they may be less willing to shirk on the loan.  The second reason that many objected to this idea is that they did not see any incentive for the community members to sign/write a letter of recommendation.  I disagree with this.  There are a great many incentives for individuals within the community to sign/write letters of recommendation, especially prominent members.  The first of which is to see the community grow and prosper.  I am sure that any political figure within the community, especially if he/she is elected, would love to see economic growth in their time in office.  Additionally, all of the religious figures I know, which is admittedly not many, dedicate their live to the betterment of the community.  I do not believe that incentive would be a problem.