“Franky” to help credit unions in Guatemala digitize SME loan process

Credit unions in Guatemala will soon have a new digital tool they can use to deliver loans to small and medium enterprises (SMEs) in just 48 hours with less paperwork, fewer transactional costs and a reduced risk of losses.

Working through its Technology and Innovation for Financial Inclusion (TIFI) Project under USAID’s Cooperative Development Program, World Council of Credit Unions (WOCCU) created the “Franky” digital lending tool for Federación Nacional de Cooperativas de Ahorro y Crédito de Guatemala (FENACOAC) and its member credit unions. FENACOAC is WOCCU’s direct member organization in Guatemala.

“’Franky is short for ‘Frankenstein’ because it was put together using ideas and experiences from four different WOCCU and FENACOAC employees,” explained Oscar Guzman, WOCCU regional director for Latin America. “It allows SME loans to be processed efficiently and accurately, helping both the credit unions and their members.”

The biggest priority for FENACOAC was to reduce the time it takes to process an SME loan in Guatemala—from the traditional one to six months—all the way down to just two days. Currently in the testing stage, Franky will play a large role in that. But WOCCU team members knew the methodology had to change as well.

The new SME loan process will begin with a credit union loan officer traveling to meet with an SME owner in person, at their place of business. Using a mobile device, the loan officer will scan financial statements, legal registrations and any other documentation needed to process the loan application.

Digital copies of those documents will then be transmitted to a loan analyst at the credit union who will upload it onto a computer. The analyst will then input key data about the SME into the Franky digital tool, including its:

• Years of operation.
• Industry sector.
• Loan and payment history.
• Historical cash flows.
• Capital reserves.
• Costs and expenses versus income.

Using that information, Franky will do the rest—calculating risk ratios and ultimately making projections on whether the SME’s loan request meets specific metrics to make it viable.

The process is much more convenient for the SMEs, because they don’t have to fill out time-consuming paperwork and can find out if their loan is approved within days. And because no travel is required on their part, it is also more cost effective and safe for them, since it reduces the risk of COVID-19 infection and spread.

Franky provides numerous benefits to the credit unions as well. In addition to reducing the risk of losing money on non-performing loans, Franky allows for the:

• Analysis of multiple loans at one time, saving valuable time for loan officers.
• Cross-selling of more services to SMEs—such as payroll management, savings and insurance.
• Storage of SME information in a central database which can be used for future loans.

Once testing is complete and FENACOAC implements Franky throughout its system, WOCCU will take the next step by making the digital tool available to other credit union systems around the world.

“There’s no reason this can’t be a universal tool that can help credit unions across the globe improve their efficiencies and reduce their risk when it comes to SME lending,” said Guzman.