Loan Origination – Definition and Role in the Multifinance Industry

Multifinance industry in Indonesia has been going strong over the past few decades. As more and more business enterprises are emerging throughout the country, many of them require financial assistance both in the form of fiscal payment or raw resources. In filing requests for financial support from the multifinance companies, there are some steps that loan borrowers can do. Commonly known as loan origination, this process is famous in its role in helping the borrowers in processing their requests for financial assistance from certain multifinance companies.

According to its definition, loan origination is a multi-step process in that every potential loan borrowers have to go through to earn their desired loans. This process is especially important for parties that are involved in loan borrowing activities. It is because those loan-lending activities are vital to a company’s financial sustenance and will affect the company’s integrity significantly. The loan lenders are staking a lot in their economic power to support potential clients, so it is no surprise that they will impose regulations and steps of the process to safeguard the process.

In implementing loan origination, there are several types of origination. Examples of them can be seen below:

• Agent

Clients can file loan requests to agents from multifinance institutions, such as companies and banks. The agents will usually help the clients in filling registration forms and sorting out the necessary documents from the clients.

• Agent assisted

This type is almost similar to the first type, with a slight difference in the communication method. Whereas the first type happens during a face-to-face meeting between the client and the agent, this origination type occurs when the agent assists the client through a phone call instead.

• Broker sale 

Because multifinance assistance is not provided directly, some of the financial institutions rely on third-party agents to broker the deal. The agents will act as a medium between the clients and their desired multifinance service providers.

• Self-service 

Instead of relying on agents to help them, clients can fill out the registration form by themselves in this origination type. The multifinance companies will only issue the necessary arrangements so that the clients can fill these forms by themselves.

• Online Application 

Online origination process is similar to the self-service type, only that it uses internet services instead of paper forms. Clients can fill the form links when provided by the multifinance companies, and the companies will secure the data immediately after the forms are submitted.

Accordingly, all of the different types of loan origination is the result of different needs and reality about the loan lending process. Both paper and internet-based loan application forms are vital in retrieving critical information about the clients, so multifinance companies need to pay attention to this as well. The clients can choose the most comfortable method for them to go on with the loan origination process to ease and simplify the whole process.

Loan origination implementation is also integrated with multiple institutions across Indonesia to hasten the loan request assessment. Institutions such as the Population and Civil Registration Agency (Dukcapil) and Program Credit Information System (SIKP) are some of the institutions that are involved in the loan origination process. This is because multifinance institutions in Indonesia are obliged to comply with the national finance law, so they have to cooperate with the related institutions. By doing this, the government will be able to supervise the loan origination processes to some degree.

As such, the role of loan origination is particularly notable in the multifinance industry. Every single loan applications must be considered and appropriately assessed before getting approval. In the same vein, loan origination consists of several continuous steps. These steps are:

1. Pre-qualification phase 

Before applying, a client needs to gather some relevant documents. These documents consist of wage or salary information, total income, bank statements, tax return, and many more. This step is essential so that the clients are not empty-handed when applying the loan request.

2. Loan application 

The client shall fill registration forms during this phase. Both paper and electronic forms are eligible in this regard. Therefore, the client can choose their preference in filling the forms. Afterwards, the multifinance company shall collect the forms once they have been completed.

3. Application screening 

After the registration forms and documents are retrieved, the multifinance company shall assess and verify the client’s financial capability. This is important because the company needs to identify the clients’ income and financial status, as this will influence the loan payment process in the future.

4. Terms negotiation 

If the client can approach the multifinance company correctly, the client can request for negotiation about the loan’s terms. When done correctly, the talk will result in better conditions for the client’s well-being.

5. Application finalization 

After agreeing on the loan’s terms, the company will pass the application to the final phase of the risk assessment. This includes calculating the risk possibility level of the loan, credit score, and many other considerations.

6. Loan approval and funding 

Upon completing the finalization, the company can decide to either accept or reject the application. If approved, the client can also apply for second lines of credit, although this takes a long time because of the time required to process all of them.

These entire steps showcase that loan origination is a process that cannot be ignored when someone is applying for a loan from a financial institution. Mismanagement and mishandling of the documents during the origination may end up in severe decision-making results, and this is an instance that all multifinance companies should be wary of. In CONFINS Multifinance core systems, the role of loan origination system is irreplaceable because of its capability in assessing the loan applications that can benefit everyone.