Lending responsibly

We're a responsible lender-our business depends on winning and keeping the trust of our customers.

Responsible lending is built into our business model. We have a number of controls and procedures to ensure we lend responsibly:

• Clear centrally-managed credit and arrears policies ensure we take steps to understand customers' circumstances and offer appropriate products in a flexible and affordable way
• A credit risk team closely monitors lending behaviour and exceptions, taking action where necessary
• Credit managers in our businesses ensure adherence to central lending policies and standards
• A new field compliance project will improve monitoring of field performance against existing procedures
• Our agent remuneration policies ensure inappropriate behaviours are not encouraged. The majority of agent commission is based on collections, not new sales, so it is not in our agents' interests to encourage customers to over-commit themselves

How we lend

We consider applications from people in all financial circumstances but take care not to over-burden our customers and will only lend an amount we believe they can repay.

Agents are responsible for gathering the information that allows us to properly validate and assess loan applications. Each customer applying for a loan is subject to a budget assessment during which the agent establishes their ability to repay based on certain pre-defined criteria.

To ensure our agents lend appropriately, we have established comprehensive lending systems and procedures. These systems help to minimise lending risk and make it easier for customers to manage their budgets. We have two scoring systems:

• Application scoring reduces the lending risk by using demographic data to predict the repayment performance of new customers and to recommend a maximum value and term for the loan
• Behavioural scoring applies to repeat loans, predicting the risk on the basis of the customer's repayment record and again specifying the maximum value and term. Customers undergo a budget assessment for each new loan.

By monitoring the data we collect, we can identify where there might be a risk of over-committing the customer and can take corrective action. Figures from each business indicate that we refuse loans to many customers who do not meet our loan criteria.

Using agents

Customer service is a consideration in agent selection practices and all new agents undergo a thorough induction process. Following this, an agent's first ten loan issues will be checked in detail by a development manager and are issued jointly.

Helping customers manage their commitments

Repaying small amounts, regularly and on time, helps customers to manage their budgets. The weekly visits and the face-to-face nature of the business also mean that agents are aware of customers' changing circumstances and can better react to their individual needs. Most agents live in the same area as their customers, so are also aware of local issues that might affect them.

Our charges

Our charging structure is clear, transparent and open, making it easier for customers to stay in control of their finances.

Whilst there is some variation in the charging structure as a result of local regulatory requirements, our general proposition is that all charges are agreed upfront, including, where applicable, the cost of the weekly call at the customer's home.

For the majority of our home-collected loans we do not charge default fees, so the sum agreed at the start does not rise. In certain jurisdictions, we are obliged to impose minimal default fees for customers in arrears as a result of local legal / regulatory requirements.

Although our APR figures are high, we believe that using APR to compare the price and value of home credit with other forms of credit can be misleading. For small, short-term loans of the type favoured by our customers, the administration costs (including the costs associated with home collection), combined with the amount borrowed, result in a high APR figure. This does not mean that our charges are extortionate. The formula for calculating APRs can considerably distort the apparent costs of credit involving short repayment periods, particularly for agreements of less than 12 months and that involve small amounts of money.

We have adapted our traditional product to provide our customers with additional choice and greater transparency by breaking down the price structure into individual elements (e.g. interest, administration and collection fees) and offering the choice of using our unique home service for repayments or using the banking system. We have successfully introduced this into Poland, Hungary and Slovakia and we are planning to roll out across the remainder of the group during 2010.

Debt recovery

Every business incurs bad debts and the reasons can be many and varied. Rather than adopt a blanket write-off policy, we review each customer individually and make every effort to restore the business relationship.

Once the decision is made to transfer to debt recovery, there are generally no additional costs incurred by the debtor (unless the case goes to court).

In-house activity to recoup the balance is our primary recovery means. Arrears customers will be visited by employees and contacted through the call centre.

We rarely use the services of external collection agencies though, in the past, we have used them to benchmark the performance of our internal recovery team. Should any of our businesses use a collection agency, we would thoroughly review its business ethics and practices to ensure that we were comfortable with its approach.