Default Policy

INTRODUCTION

Rang De is a web based social initiative that supports rural entrepreneurs with access to cost- effective microcredit. Rang De's mission is to reach out to entrepreneurs from underservedcommunities and offer them microcredit that will have a positive and sustainable impact.

This policy has been set by Rang De to provide clear guidelines to the field partners and social Investors in case of defaults by the borrowers in repayment of loans facilitated by Rang De. Rang De and the field partner will adhere to the policy. Amendment to the policy can be made by Rang De and any such revision will be communicated to the field partners.

Periodic reviews of the policy implementation will be conducted and documented.

Default

A loan is considered default if the due loan amount becomes irrecoverable or the recovery gets delayed beyond a stipulated time of 12 months and/or the field partner submits a report stating the loan(s) to be considered as defaulted.

Contingency fund

A small percentage of principal repaid is transferred to the contingency fund. The contingency fund is maintained by Rang De to cover defaults.

Default scenarios

There are different scenarios under which loan will be treated as defaulted as follows:

1. Default arising out of process violation on part of Rang De

Any default arising out of process violation by Rang De will be met by Rang De out of its own funds. For example

  • Process violation in selection of field partner.
  • Non follow up with the field partner for the repayments.
The above process violations may lead to non repayments and defaults. Such defaults will be responsibility of Rang De.

2. Default arising out of process violation on part of Field Partner

Any default arising out of process violation by Rang De's field partner will be met by the field partner out of its own funds. For example

  • Process violation in selection of borrowers.
  • Process violation in disbursement or collection of loans from the borrowers.
  • Process violation in remittance of collected amount to Rang De.
The above process violations may lead to non repayments to social investors and such defaults will be covered by the field partners.

3. Default arising out of non repayment by the borrower

Any default arising out of non repayment by the borrower will be covered through contingency fund on a pro rata basis. The coverage under contingency fund will be available against defaults due to reasons which are not genuine. For example:

  • Non repayment due to migration of the borrowers without information to field partner.
  • Reluctance on part of borrower to repay the loan.

Contingency fund

A small percentage of principal repaid is transferred to the contingency fund. This fund is maintained by Rang De to cover defaults.

In all such cases, Rang De will cover the default out of the contingency fund in the following proportion:

Default coverage for a social investor:

Contingency fund* X Principal Defaulted

Total outstanding loans

(* Contingency fund: A small percentage (0.50% - 1.00%) of principal repaid by the borrowers goes towards the contingency fund)

For instance: There is a loan default of Rs.5000 as on 30.06.11. The value of contingency fund is Rs.150,000 and the total outstanding loan is Rs.120,00,000 as on date. The default coverage under contingency fund will be calculated as under:

Default coverage: (1,50,000 X 5,000)/120,00,000 = Rs. 125

Exceptions

Defaults in repayment arising out of following will not be covered in any case.

  • Death of the borrower.
  • Loss of life or business due to natural calamity like floods etc.
  • Unable to repay due to sickness, loss of health or any accident of the borrower or a family member.
  • Partner unable to recover the dues from the borrower due to reasons beyond their control.

Any default arising out of process violation on part of Rang De will be borne by Rang De. Similarly any default due to process violation on part of field partner will be borne by field partner.

Policy revisions

Rang De reserves the right to revise, delete, amend or append the policy document. Any revision will be communicated to the field partner and the revised default policy will be published on the website for the benefit of the social investors