CERTIFIED CREDIT PROFESSION (CCP)

PAPER NO. CP 53


PART III
SECTION 5




CERTIFIED CREDIT PROFESSION
(CCP)




CREDIT MANAGEMENT IN FINANCIAL
SECTOR




STUDY TEXT

1

,GENERAL OBJECTIVE

This paper is intended to equip the candidate with the knowledge, skills and attitude that will enable
him/her to apply the principles of credit management in the financial sector

LEARNING OUTCOMES

A candidate who passes this paper should be able to:
 Analyse different credit applications
 Extend different credit facilities for different customers
 Apply credit management skills in the context of asset financing
 Assess the impact of microfinance in promoting small and micro enterprises in the economy
 Undertake credit management activities in the co-operative sector,

CONTENT PAGE

1. Credit card risk management……………………………………………….………………4
- Parties to credit card transactions
- Importance of credit cards
- Types of credit cards
- Main features of credit cards
- Assessment and appraisal of credit card applications
- Managing credit cards fraud
- Credit card risk management
- Delinquency management

2. Securities…………………………………………………………………………….…………….19
- Definitions
- Types of securities
- Secured debt
- Unsecured debt
- General principles of good lending
- Features of good securities
- Taking/perfection of securities
- Documentation of securities
- Lodging m securities
- Discharging/releasing of securities

3. Asset finance………………………………………………………………………………………30
- Overview of asset finance
- Types of asset finance
- Assessment of asset finance risks
- Asset finance risk management
- Choosing the right type of asset finance
- Definition of leasing
- Types of leasing
- Advantages and disadvantages of leasing
- Leasing process
- Assessment and appraisal of a leasing loan application
- Marketing and leasing




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, - Risk management
- Nature of hire purchase
- Formation of a hire purchase contract
- Duties of the parties
- Termination of hire purchase contract
- Advertising for hire purchase
- Risk management

4. Microfinance………………………………………………………………………………………52
- Introduction to microfinance
- Microfinance scenario
- Formulation of policies and procedures
- Recruitment and retention of clients
- Savings and lending processes management
- Portfolio management
- Risk management
- Delinquency management
- Deposit taking microfinance(DTM)

15.5 Types and products of mortgage……………………………………………………………88
- Introduction to mortgage
- Types of mortgages
- Parties to a mortgage transaction
- Products offered under mortgage
- Target customers and mortgage financiers
- Credit appraisals
- Types of documents and registration process
- Risk management and recovery
- Deposit taking microfinance(DTM)
- Difference between microfinance and microcredit

15.6 Co-operative societies………………………………………………………………………105
- Nature of co-operatives
- Co-operative principles and practice
- Co-operative credit programmes and policies
- Co-operative structure
- Savings and lending processes
- Risk management
- Delinquency management
- The future of co-operatives
- Role of regulatory authorities

7. Emerging issues and trends




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, TOPIC 1

CREDIT CARD RISK MANAGEMENT

CREDIT CARDS
A credit card is defined in the consumer Credit Act 1974 (UK) as a credit token, voucher,
coupon, stamp, form, booklet and or other documents.

The credit card provides:
- means of verification
- means of transferring value from a seller to a buyer
- use of a credit facility which has been agreed by a third party

The money transmission can be paper based or electronic through data capture transmission.
Credit cards are personal customer instruments but some organizations allow the use of cards by
individual company. employees.


PARTIES TO CREDIT CARD TRANSACTIONS

The parties involved in plastic money business are normally but not limited to the following

1. Card issuers: - This is a bank or any other organization that issue plastic cards to customers
to facilitate payments for good and services. For example in Kenya, Barclays bank, STD
Bank, KCB, Post Bank, Total (K), Caltex, Nakumart are issuers among others.
2. Cardholder – Any person issued with a plastic card is referred to as cardholder.
3. Merchants – All those businessmen that do accept plastic cards as means of payment for
goods and services e.g. Super markets, Petrol Stations, Hotels, airlines etc. are referred to as
merchants.
4. Acquirer- This is any organization in most cases banks that have been licensed to sign
agreements with merchants so that they can start accepting cards. Acquirers settle merchant’s
plastic card business transactions directly and then claim refund from card issuers. Card
issuers settle acquirers and in return they bill their customers (cardholders) who are later on
required to pay upon receipt of statements.
5. Visa International /Master Card / Diners International – these are among many
international Franchise holder of Visa, Master card & Dinners brand respectively. They are
regulatory bodies and card issuers are required to become members in order to be allowed to
issue cards pertaining to a specific brand. Issuers are bound by rules and regulations




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