Loan monitoring system RRL free essay sample

?2. 0 RELATED LITERATURE 1. (http://www. oum. edu. my/oum/v3/download/CBAD2103. pdf) In this age of information, almost all fields of endeavor such as education, manufacturing, research, games, entertainment, and business treat information systems as a need. Indeed, every activity in our daily life today requires people to get involved in the use of information systems. Many organizations today use information systems to offer services with greater satisfaction to customers, to access a wider range of information, to handle Business changes at a greater speed, and to increase the productivity of workers. Based on a number of researches, an effective information system should be able to exceed customer expectations and fulfill business needs. As such information technology, a subset of information systems, has become the prime reason for the success and failure of a company to compete in business. This illustrates the impact of information technology on business operations today. As a result, designing an information system of high quality is important so that organizations can compete successfully in the global market. In Lending institutions, having an automated Loan System that store,update,retrieve and monitor data efficiently and faster is an edge to be more competitive and progressive in their business. In this chapter the researchers highlight on the study of the concepts concerning the processes of the system and similar studies related to the system. 2. 1 Concepts 2. 1. 1 What is Information System ? 2(http://en. wikipedia. org/wiki/Information_systems#The_discipline_of_information_systems) Information system (IS) is the study of complementary networks of hardware and software that people and organizations use to collect, filter, process, create, and distribute data. The study bridges business and computer science using the theoretical foundations of information and computation to study various business models and related algorithmic processes within a computer science discipline. Computer information system(s) (CIS) is a field studying computers and algorithmic processes, including their principles, their software and hardware designs, their applications, and their impact on society while IS emphasizes functionality over design. Any specific information system aims to support operations, management and decision making. In a broad sense, the term is used to refer not only to the information and communication technology (ICT) that an organization uses, but also to the way in which people interact with this technology in support of business processes. Some authors make a clear distinction between information systems, computer systems, and business processes. Information systems typically include an ICT component but are not purely concerned with ICT, focusing instead on the end use of information technology. Information systems are also different from business processes. Information systems help to control the performance of business processes. According to Alter, S. (2003) in his book , â€Å"18 Reasons Why IT-Reliant Work Systems Should Replace ‘The IT Artifact’ as the Core Subject Matter of the IS Field,† argues for advantages of viewing an information system as a special type of work system. A work system is a system in which humans and/or machines perform work (processes and activities) using resources to produce specific products and/or services for customers. An information system is a work system whose activities are devoted to processing (capturing, transmitting, storing, retrieving, manipulating and displaying) information. Information system has been defined in terms of two perspectives: one relating to its function; the other relating to its structure. From a functional perspective an information system is a technologically implemented medium for the purpose of recording, storing, and disseminating linguistic expressions as well as for the supporting of inference making. From a structural perspective an information system consists of a collection of people, processes, data, models, technology and partly formalized language, forming a cohesive structure which serves some organizational purpose or function. The functional definition has its merits in focusing on what actual users -from a conceptual point of view- do with the information system while using it. They communicate with experts to solve a particular problem. The structural definition makes clear that IS are socio-technical systems, i. e. , systems consisting of humans, behavior rules, and conceptual and technical artifacts. 2. 1. 1. 1 What is Information Technology? Information technology is a subset of information systems. Specifically, it can be defined as the study, design, implementation, support or management of computer-based information systems. These systems could include software as well as hardware such as computers, servers and networks. Information technology also often governs the acquisition, processing, storage and dissemination of digitized information, or data, generated through the disciplines of computing and telecommunications. A career in information technology often requires a degree in computer or information science and can offer several different career paths, such as information security, network or database administration, infrastructure management, computer programming and software development. 2. 1. 1. 2 Information Systems vs. Information Technology 3(http://www. floridatechonline. com/online-degree-resources/information-systems-vs-information-technology/) As technology has become more advanced, the role it plays in today’s movies and television shows has also grown considerably. Although the entertainment industry likes to group computers and the people who build and maintain them under a single â€Å"information technology† umbrella, the fields of information technology and information systems actually refer to two distinct careers. However, since these fields are often used interchangeably in casual conversation, most people don’t make a distinction between them or other similar variations within the industry. The public perception that these terms can be used equally to describe the same field has often caused confusion for those who are interested in pursuing a technology-related career. Although each of these fields deal with computers, they have distinct characteristics and specific career paths that require different education and training. 2. 1. 1. 3 Information System Components 4(http://araku. ac. ir/~a_fiantial/ISR_Lec_[4]. pdf) A system is a set of related components, which can process input to produce a certain output. Every system requires a form of data input. For example, an ATM machine accepts data when you enter the PIN number. A washing machine accepts data when you select the start buttons. They process the inputs and produce their respective outputs. In an information system, input data consist of facts and figures, which form the systems raw material. Information is data that has been usefully processed. However, an information system does not only contain data and information. There are also other elements inside the system, which are related and are in support of one another. The presence of these related elements makes information more useful whereby, it can be made available, can be processed, distributed, manipulated, saved, and so on. This combination gives rise to a system, which is orderly and as such it is called an Information System. The activity of converting data into information is called a process. An information system contains the following FIVE main components: Hardware Information systems hardware refers to all types of hardware and the media used for input, processing, managing, distributing and saving information that are being used in an organization. Examples of the hardware are the physical computers, networks, communication equipment, scanners, digital drives, and so on. Hardware is the physical embodiment of an information system. It is one of the main elements which creates the information system cycle. Software Software consists of two categories the system software and the application software. 1. System Software controls the computer and contains the operating system and device drivers, which can communicate with the hardware. It can also modify data into a new form, prevent viruses and make copies. 2. Application Software- contains programs which can help users and enable companies to perform business functions. Users can increase productivity with the presence of application software such as spreadsheets, word processing, ordering systems, and accounts receivable. Data refers to the raw facts on any thing or entities like student names, courses and marks. The raw data that has not yet been provided can be processed to become more useful information. Information is an organized, meaningful and useful interpretation of data . such as a company’s performances or a students academic performance. Information systems change data into information, which is useful and capable of giving a certain meaning to its users. Process explains the activities carried out by users, managers and staff. Process is important for supporting a certain business model available as written documents or as reference materials on-line. The procedure for using a certain matter is very wide and very important to ensure that it can be implemented with success. All the information system components contain management and implementation procedures on their own, and they are different from each other. Human – There are the users as well as the managers who are provided invaluable information whether inside or outside the company. Users can be broken up into three categories, which are: 1. End-Users, consisting of the staff, customers, suppliers and others who communicate with the information system. 2. Internal Users, including the managers, technicians, sales representatives and corporate officers. 3. External Users, consisting of the customers who use the companies system for performing transactions, suppliers who use the system for planning sales, and the staff who use the system outside office hours. 2. 1. 1. 4 Different Types of Information Systems 1. Transaction Processing System The earliest electronic system in business consisted of computer and programs used to record and report transactions. Called transaction processing systems, or TPS, they are most widely used information systems. TPS’s predominant function is to record data collected at the boundaries of organizations, in other words, at the point where the organization transacts business with other parties. TPS’s include cash registers, which record sales; automatic teller machines, which record purchases. After these data are collected, the IS either automatically processes the data into information or stores it for later processing on demand. 5( Oz, 2002. ,Pp. 21-23) It is a type of information processing system, software and hardware combination, which supports Transaction processing. Transaction processing is a type of computer processing in which each individual indivisible task, called a transaction, is worked upon and executed as and when it comes. The response to requests is immediate. In contrast to this is batch processing in which a batch of requests are stored and then executed all at once. A transaction Processing System is also used to collect, store, retrieve and modify transactions executed by an organization. Transaction processing systems are helpful in three areas: 6(http://publib. boulder. ibm. com/infocenter/txformp/v6r0m0/index. jsp? topic=%2Fcom. ibm. cics. te. doc%2Ferziaz0019. htm) 1. System runtime functions Transaction processing systems provide an execution environment that ensures the integrity, availability, and security of data. It also ensures fast response time and high transaction throughput. 2. System administration functions Transaction processing systems provide administrative support that lets users configure, monitor, and manage their transaction systems. 3. Application development functions Transaction processing systems provide functions for use in custom business applications, including functions to access data, to perform intercomputer communications, and to design and manage the user interface. 2. Management Information Systems 7( Oz, . 2002 ,Pp. 21-23) In the 1970’s, managers realized that they could use computer-based information systems for planning, control, decision making, and problem solving, rather than just for reporting transactions. These new types of information systems came to be known as management information systems, or MISs. Management information system, or MIS, broadly refers to a computer-based system that provides managers with the tools to organize evaluate and efficiently manage departments within an organization. In order to provide past, present and prediction information, an MIS can include software that helps in decision making, data resources such as databases, the hardware resources of a system, decision support systems, people management and project management applications, and any computerized processes that enable the department to run efficiently. DECISION SUPPORT SYSTEMS designed to help organizational decision makers make decisions. DSS usually have three major components: a database, a model base, and a dialogue module. The database contains data relevant to the decision to be made. The model base contains one or more models that can be used to analyze the decision situation. The dialogue module provides a way for the decision maker, usually a non-technical manager, to communicate with the DSS. By running the data and possible decisions through one or more models, the decision maker can compare possible solutions to the problem at hand. The DSS allows the manager to test or propose different solutions and see what the results may be before committing to any particular model. The first decision support systems were designed to support individual hen computing technology was more primitive and more difficult for non-technical people to use, an intermediary often used the DSS for the manager. The intermediary was usually a staff person who had the computer skills the manager lacked to work with the DSS. The manager would then use the output to help decide which course of action to take. Due to early technical limitations, each individual or specific DSS had to be designed and built one at a time. Now, many decision support systems run on microcomputers. The models are relatively easy to construct, change, and interpret using such software programs as electronic spreadsheets. Tools like spreadsheets and fourth-generation language (4GLs) are called DSS generators because they are general purpose tools that can be used to develop many specific DSS with relative ease. Executive Support Systems Another relatively new form of DSS is referred to as executive support systems (ESS) or executive information systems (EIS). Executive support systems are designed specifically for high-level executives who may not have many computer skills have very little time to devote to any given situation An ESS is relatively easy to manipulate and usually provides graphical presentations on several different pre-defined topics (see Figure 5). Some executive support systems allow an executive to drill down into the data to a deeper, more specific level. For example, an executive who sees that sales have decreased for the month in the North American market may want to find out which segments of the market are doing best. The executive would then ask for the same information by segment and, seeing that the Western U. S. segment had the best performance, the executive may then want to see which sub-region had the best performance. Once the information is presented at this level, the executive would see that Southern California had done the best. The executive may then want to examine the information by city, and so on. EXPERT SYSTEMS 8(http://www. prenhall. com/divisions/bp/app/hoffer/student/supp2. html) Different from any of the other classes of systems we have discussed so far, expert systems (ES) attempt to codify and manipulate knowledge rather than information. By knowledge, we mean understanding acquired through experience, deep and extensive learning. Expert systems are based on principles of artificial intelligence research. Artificial intelligence is the branch of computer science devoted to creating intelligence with machines. Typically users communicate with an ES through a dialogue during which the ES asks questions and the user supplies the answers. The answers are then used to determine which rules apply and the ES finishes with a recommendation based on its rules. One of the most difficult parts in building an ES is acquiring the knowledge of the expert in the particular problem domain. Specially trained people called knowledge engineers perform this knowledge acquisition. Knowledge engineers are similar to systems analysts; however, they are trained to use different techniques, as determining knowledge is considered more difficult than determining data. 2. 1. 2 Traditional Loan System in Rural Banking 2. 1. 2. 1 What is a Loan? 9(http://en. wikipedia. org/wiki/Loan) In finance, a loan is a debt evidenced by a note which specifies, among other things, the principal amount, interest rate, and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount. The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent. 2. 1. 2. 2 Who provides a loan? 10(http://www. wisegeek. com/what-is-a-lending-institution. htm#didyouknowout2) A lending institution is any type of financial organization or institution that provides loans to borrowers. There are many different types of lenders in the marketplace today, ranging from banks and credit unions to mortgage and payday loan companies. The range of loan types offered by any one financial institution will vary, depending on the structure of the organization. Typically, all lenders will charge some rate of interest for the amount of funds borrowed, and require the borrower to commit to a contract that spells out the terms for repayment. One of the more common examples of a lending institution is a bank. The ability to provide loans is only one of several services offered by banks, but consumers often think of approaching the bank where they already have existing accounts such as checking and savings when they are in need of financing for the purchase of a home, a car, or even a personal loan of some type. A bank is a depository institution, a trait that is not universally shared by all types of lending institutions. 2. 1. 2. 3 What is a Rural Bank? 11(Miravite, 1976,Pp. 2) The term â€Å"Rural Bank† means any bank organized and incorporated in accordance with the provisions of the Rural Banks Act for the purpose of providing the means of facilitating and improving the productive activities of small farmers, merchants and their cooperatives serving rural industries and enterprises through easily accessible credit facilities on reasonable terms. Rural Banks are regional unit banks, hence they cannot establish branches, agencies, or extension offices on a nationwide basis. Borrowers 1. Eligible Borrowers The following may borrow or loan from a Rural Bank: a. A farmer who may be an individual or an organized cooperative owing not more than 50 hectares of agricultural Land. b. A merchant whose investment does not exceed P 50,000. c. An Operator of a rural industry or enterprise with investment not exceeding P50,000; and d. An Operator of an essential rural industry producing goods ordinarily purchased by the low income groups , and useful or necessary in their daily economic activities. These borrowers likewise must have character (integrity of purpose as evidenced by promptness in paying debts, and reputation for honesty), capacity (management ability and competence), and capital. 2. Ineligible Borrowers 12 (Miravite, 1976,Pp. 142-143) a. Officials and employees with respect to the rural bank to which they are assigned or in which they are conducting examination. Officials and employees of other departments, offices or other units of the Central Bank . during the period of time that an application or any paper of such rural bank is being evaluated, processed or acted upon by such personnel. 2. 1. 2. 4 Non-supervised and Supervised Credit Lending Operations 13(http://hiring. monster. com/hr/hr-best-practices/recruiting-hiring-advice/job-descriptions/loan-officer-job-description-sample. aspx) Non-supervised Credit Lending Operation A. Short-term or Production Loans: Short term loans are of three kinds: Agricultural, Commercial and Industrial. a. Agricultural Loans Agricultural loans may be granted to a farmer or to a duly registered cooperative owning or cultivating as tenant, lessee etc. , not more than 50 hectares of land dedicated to agricultural production. b. Commercial Loans The loan may be granted for the purpose of purchasing commodities for resale, which are considered necessities or semi-necessities and are of general acceptability and quick turnover. Retail or wholesaler merchants whose capital investment does not exceed P 50,000 may be granted commercial loans c. Industrial Loans This loan may be granted for any of the following purposes: 1. Expenses for labor to manufacture goods which are in demand, readily saleable , have a quick turnover, and considered necessities or semi-necessities, or essentials or semi-essentials; 2. Purchase of raw materials to manufacture or process these goods; and 3. Marketing of these goods. An industrial load may be granted to: 1. An operator of rural industry or enterprise whose capital investment does not exceed P 50,000; and 2. An operator of an essential rural industry or enterprise (irrespective of amount of capital investment) which produces goods ordinarily purchased by the low-economic groups and are useful or necessary in their daily economic activities. Supervised Credit Lending System 14(Miravite, 1976,Pp. 168-179) Supervise Credit is a system of lending under which a farmer or any other type of borrowers agrees in writing that he will apply proven farm or production practices necessary to conserve the land, improve its fertility and increase its production, and abide by the approved farm plan and budget jointly prepared by him and a duly accredited supervised credit technician . 1. 2. 1. 2. 5 Loan in charge employees 15(http://www. americasjobexchange. com/appraiser-job-description) 1. Loan Officer- develops loan packages and evaluating applicant information and documentation prior to approval and release. Job Duties: Evaluates loan applications and documentation by confirming credit worthiness. Improves loan applications and documentation by informing applicant of additional requirements. Rejects loans by explaining deficiencies to applicants. Approves loans by issuing checks or forwarding applications to loan committee. Completes loan contracts by explaining provisions to applicant; obtaining signatures and notarizations; collecting fees. Helps customers by answering questions; responding to requests. Maintains customer confidence by keeping loan information confidential. Updates job knowledge by participating in educational opportunities; reading professional publications; maintaining personal networks; participating in professional organizations. Accomplishes bank mission by completing related results as needed. 2. Loan Appraiser Responsible for determining the monetary value of merchandise, property, or business assets for a company, including real estate and other assets. Primary Responsibilities 2. Perform detailed inspections on property to determine value, factoring in dates, quality, and age of property. 3. Use data such as incorporating cost, market and income approaches to property valuation. 4. Produce written appraisals for clients, government agencies, or companies 5. Compile research in detailed reports 6. Correctly identify discrepancies between the property’s description and its actual state. 7. Demonstrate ability to analyze a problem coherently and provide precautionary advice before a purchase 8. Work on a client-to-client basis, making appraisals for a variety of reasons. 3. Loan Clerk 16(www. onetcodeconnector. org )- work with customers who are seeking loans and also prepare loan paperwork and loan contracts. They only need a high school diploma but also receive relevant training from their employers. Read on to learn more about becoming a clerk for the lending industry. Loan Clerks are responsible for clerical matters, including preparing, auditing and finalizing forms or contracts. They ensure the creditworthiness of interested parties through reference checking. Loan Clerks can work more specifically as loan service clerks, who maintain payment records, or as loan closers, who organize and execute closing procedures . 4. Loan Collector 17 (http://hr. fas. harvard. edu/files/fas-hr/files/loan_collector_ii-52. pdf) responsible for collection of more complex delinquent accounts. Contacts debtors and necessary officials to reconcile outstanding balances, initiates legal action when appropriate, and assists in coordination of collection of systems and procedures. 5. Loan Operations Manager 18(https://www. fnblg. com/custom/fi/fnblagrange/fb/disclosure/Loan-Operations-Manager. pd )- responsible for managing the Loan Operations Department of the Bank. Effectively support the lending team for both banks. Develop and implement best practices in loan operations related processes and procedures. Pro active leader and team player with the ability to be influential and establish positive working relationships across the organization. 2. 1. 2. 6 Manual Loan System Procedure 19(Miravite, 1976,Pp. 142-143) 1. Loan Application Form and contents The loan application filed by a qualified borrower must be in form prescribed by CB and should contain information stating the amount applied for, term desired, collaterals offered and purpose of the loan with itemized estimates of intended disbursement of expenses. 2. Action by Bank The bank upon receipt of the application, shall conduct a credit investigation through its inspector to include verification of the existence of the project, the collaterals offered , the actual credit needs and the repayment capacity of the borrower. The manager then processes the loan application by interviewing the applicant and in the proper cases, respectable citizens of the community, and requiring him to submit a statement of assets and liabilities. On the basis of the application, the inspector’s report and the interview, the manager submits a report and the interview, including therein information as to applicants eligibility to borrow, purpose of the loan, and credit risk. 3. Disclosure Statement under Truth in Lending Act At this juncture the manager , complying with the provisions of the Truth in lending Law and the implementing regulation issued by the Central Bank . 4. Approval of Loan Application The approving authority in Rural Banks for loan applications is its board. However, the board may delegate it to the manager/president or to the credit committee . 5. Execution of Documents by borrowers after it is approved; the borrower is notified to go to the bank to execute proper documents. 6. Release of Loan The loan should be released on staggered basis as required by the specific needs of the project to avoid diversion of loan. 2. 1. 3 Automated Loan System 20(http://www. investorwords. com/14175/computerized_loan_origination_CLO. html#ixzz2rLSqYcg2) A system used by Financial institutions. , it is a type of information System that falls under the category of Transaction Processing system and a Decision Control System that is developed with the use of computers to facilitates Loan operations smoothly efficiently and hassle-free in a shorter period of time. 2. 1. 3. 1 The Need for an Automated Loan Processing System 21(http://blog. newgensoft. com/the-need-for-automated-loan-processing-system) Today, customers are more knowledgeable and more demanding than ever. They are aware of all the options available to them and, if a lending organization is not able to process a loan application within a desirable time frame, they are quick to switch to some other organization that can very well do so. Banks and financial institutions need to realize that to maintain loyalty customers demand convenience apart from attractive interest rates. Often banks are challenged by the manual processing of loans, creating spiraling labor costs and backlogs of files preventing loans from closing on schedule. This translates into loss of business to competition. For this reason, many Indian banks and financial institutions are now following the footsteps of their global counterparts in automating their lending processes, covering the entire loan life cycle – from loan origination through loan application process, risk assessment, decision-making, monitoring, and management control of approved loans. An automated loan processing solution allows these lending organizations to close more qualified loans faster with improved operational efficiency. It virtually eliminates the tedious sorting of both paper and electronic files and dramatically minimizes the costly manual data entry. The key benefits of an efficient loan processing system include: Reduction in processing time by Optimal work distribution Immediate identification of bottlenecks and deviations Parallel processing of loan application documents Greater customer satisfaction through quicker response and new product offerings Efficient document management and tracking of status across the bank Improved performance monitoring using audit trails and ability to drill down to granular details Minimized manual entry of critical loan information Enhanced accuracy of data entered into the loan system Better compliance with regulatory requirements Reduced turnaround and processing times Easy handling of fluctuations in loan volume Thus, automation enables lending organizations to process more qualified loans each day – and at a lower cost per loan – providing these organizations the much needed advantage to stay competitive, in a dynamic business environment . 2. 1. 4 Loan Terminology 22 (http://www. loanontime. com/kb. pdf) Appraisal- A report written by a qualified expert – Appraiser, that states an opinion on the value of a property based on its characteristics and the selling prices of similar or comparable properties in the area. Appraiser A person qualified by education, training, and experience to estimate the value of real property and personal property. Borrower (mortgagor, trustor) One who applies for a loan secured by real estate and is responsible for repaying the loan (mortgage). Collateral An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract. Collection The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary. Credit An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date. Credit history A record of an individuals open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner. Credit report A report issued documenting the credit history and current status of a borrowers credit standing, by an independent agency that contains certain information concerning a mortgage applicant’s credit history and current credit standing. Used by a lender in