AskBFC: During the post lock-down period, will centralized or decentralized decision making in the credit process be beneficial

May 2020 • Gayrat Mazbutov, Bank Coordinator/MSME & Agrilending Consultant (BFC, Nepal)

In light of the upcoming crisis period typically accompanied by growing credit risk and assets quality deterioration, we strongly recommend switching to centralized decision making to ensure more accurate and objective approach. A solution widely practiced worldwide in developed and developing countries not only during the financial crisis period, but also during sustainable and growing economy period is the centralized underwriting empowering a unit or a group of experienced analysts – underwriters - to take decision on loan applications up to certain threshold at the sole discretion.

I would like to mention five key reasons why centralized underwriting is the best route for banks and microfinance institutions:

1. More consistent and uniform loan decisions. As a result, lower operational risk and equal attitude to all clients and applications
2. Not all branch and regional staff have the skills and attributes needed to be good underwriters.
3. A stronger credit risk management and less chance of loan losses resulting from Poor Underwriting Decisions.
4. It allows a more effective sales model to exist. Branch and regional staff can focus more on sales and marketing.
5. It is more efficient and more productive. It results to an accelerated application processing and lower processing cost per application for the bank.