Repayment Capacity Analysis (PI4733)

This metric is intended to capture whether the organization analyzes clients’ repayment capacity. Lenders conduct repayment capacity analyses to compare a borrower's cash or income sources to a borrower's uses of credit, thereby ensuring that the borrower has sufficient sources to repay their debt. Repayment capacity analyses should be systematic and complete to ensure that lending decisions are based on an appropriate debt-to-income ratio.

Organizations should disclose the financial costs to borrowers for the most representative loan product, which closely tracks the cost clients carry. They should compare these costs with those of similar products offered to similar populations by other organizations in the same country or region.

Examples of practices for repayment capacity analyses, to footnote, include, among others, relying on more information than just guarantees (whether peer guarantees, co-signature, or collateral), such as household surplus; taking into consideration the possibility of additional, undisclosed debt; disseminating the organization's repayment capacity policy among employees; uniformly applying the repayment capacity policy in practice; performing analyses at each loan cycle; and visiting clients to verify information. Organizations should also note whether they restructure products/services in cases where repayment is an issue.

Organizations can refer to this guide from Cerise+SPTF's Client Protection Pathway for further guidance on conducting repayment capacity analyses.