Know Your Debtor (KYD)

Most people in the Banking space are more familiar with KYC – Know Your Customer than KYD – Know Your Debtor! The task of loan recovery becomes a herculean task when and where the Debt Collector or Recovery Officer has little or no knowledge about the debtor.

The effort put into loan recovery cannot fully yield the expected result of repayment if arrears’ clients are not properly profiled. In credit recovery management, it is imperative to know that no arrears client is the same just as the reasons for being in arrears differ from client to client. Hence, the need for KYD – Know Your Debtor.

Aside from your knowledge of basic information about the debtor, such as name, address, present or last place of employment, current payment capacity, present/previous residential address, place of worship, children’s school, social media handles amongst other, it is very important to know the risk rating/category of the debtor. One of the main benefits of this awareness is that it sets the tone for the appropriate recovery techniques or strategies to be deployed by the recovery agent or officer.

The underlisted are the four categories of risk rating for debtors which every debt recovery agent must know to achieve maximum recovery success.

1. Willingness with Capacity: The debtor that falls into this segment has both the willingness and capacity to pay. The risk rating of this arrears client is LOW. This suggests that the arrears clients in this category are not problematic at all. Hence, the repayment in overdue can be cleared within a few days.
2. Willingness without capacity: The debtor in this group has willingness to pay but no capacity. The risk-rating of this arrears client is MEDIUM.
   Those in this group will go the extra mile to ensure repayment as soon as possible as they desire a long-lasting relationship with the lender.
3. No willingness with capacity: These set of arrears clients have no willingness but have the capacity. The risk rating of these arrears clients is HIGH. These categories of clients have neither respect for the lender nor value the loan contract/agreement they signed with the bank.
4. No willingness without Capacity: Those in this last group have neither willingness nor capacity to pay. The risk-rating key of those in this group is EXTREME. These set of problematic clients are those with fraudulent intention. They applied for a loan with the deliberate intention not to pay.

Watch this space for both the internal and external reasons for overdue and available recovery strategies for Recovery Officers and Debt Recovery Agents.

© Hassan Afolabi
The original article can be read here https://www.linkedin.com/pulse/know-your-debtor-kyd-afolabi/
Hassan Afolabi is a competent, seasoned and experienced banker, Credit and Recovery Manager, Investment Analyst, Risk & Compliance Manager and Business Development Strategist. He can be reached via [email protected]