For sustainable economic growth, access to different types of credit services is very important. There are a wide range of services that are offered by the banking and the general financial industry. Some of the firms in the industry specialize in the offering of deposit and withdrawal services. There are others that have special departments used for the issuance and maintenance of credit services. Risk management is very critical for an industry offering credit services.
The banking industry as well as the Credit Access Service has been experiencing a continuous growth in terms of the savings and borrowings over the years. Initially, most of the financial service providers were issuing small loans that had a small duration. Most of them are moving away from small scale banking into retail and bulk banking. This can be attributed to better risk evaluation services in the industry. The number of borrowings and deposits has thus increased over the time.
Credit worthiness of various entities has to be analyzed before a loan issued. This is mainly done by assessing the available credit information. Some of the banks take a relatively shorter time especially if the borrowers are account holders of the banks in question. Where the borrowers are inactive members, financial records have be made available. This forms the basis of evaluating the risks associated with issuing out loans to various classes of customers.
The increase in the amounts borrowed signals an improving economy. This means that the national income is increasing over the period of time. As the income increases, people are able to borrow more and more. The volume of savings also increases over the time. Thus means that more investment funds are available within the banking industry.
Active users have a higher hand in borrowing. This is a special class of the bankable entities who have active accounts and have been making use of the current services in the banks. They also have current and non-current asset base to back and guarantee their borrowings. The inactive class of borrowers is mainly the middle income earners and those with a small class of assets. To reduce the risks associated with defaulting of loans, the inactive are charged a higher interest rate as compared to the active class.
Legal persons oversee the process of loan scheduling. They represent the two parties that are getting into a contract. The process of loan scheduling breaks down a loan into a number of smaller payments. The payments take into consideration the duration of the loan, principal amount and the interest rates that are being charged.
The contracts are sealed by signing by the two parties. This means that each of the party in question has a role to play. The borrower has an obligation of making all the payments in time. These are deposited into the designated accounts held by the banks. The banks process the payments and any fees are shared proportionally.
Informal borrowings and savings bridge the gap left by the commercial financial services providers. Most of loans that are issued under such arrangements have a short duration and the thus soft. The interest rates charged may be very high to compensate for the high risk of default in the informal industry.
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