How Can We Stop Employees from Misusing Interest-Free Loans in Our Non-Profit?

Awaiting your valuable suggestions on the issue faced in our organization. We are a non-profit organization with a staff of 100 employees. We provide interest-free loans to our employees to manage their emergency financial needs. However, recently, we discovered that many employees are obtaining these loans under false pretenses and charging interest rates of up to 10% to our own staff members.

We need to establish a system that truly benefits those in need. Please share your valuable advice and suggestions on this matter.

Dear JayArani J, the most important sentence of your post is, "But recently, we came to know that many of our employees are getting this loan by providing fake reasons, which results in interest rates of up to 10% for our internal employees themselves."

Now, you have two options. One is to stop the loan facility completely. However, this is akin to throwing the baby out with the bathwater. The second option is to improve the verification process. It seems that there may have been a lapse in diligence while disbursing loans to employees. Going forward, ensure that you request documentary evidence before issuing a loan to an employee. This will aid in distinguishing between genuine recipients and fraudulent ones. Additionally, regardless of the legitimacy of the reasons provided, introduce a waiting period between the repayment of the last installment of a previous loan and the first installment of a new loan. This waiting period could range from three to five years.

Thanks,
Dinesh Divekar

Apart from what learned member Shri Dinesh has suggested, I would add the following:
Make a set of rules for loans, specifying the purposes for which loans can be given and the number of times they can be given to employees.
Publish a clear rule prohibiting borrowing and lending between employees as a company policy decision.
Verify the purpose of the loan and even facilitate direct payment of the loan to schools, colleges, hospitals, etc., if loans are claimed for such purposes.

Dear Friends,

Importantly, there should be a clause or rule in the loan policy stating that anyone found misusing the loan amount taken or using this loan amount for a different purpose will be dealt with seriously.

Dear JayArani J, Mr. Nathrao has written that "direct payment of loans to schools/colleges/hospitals, etc., if loans are claimed for such purposes." This is an excellent suggestion. When direct payment is made, it will automatically curb the misuse of the loan facility.

Secondly, Mr. KA Korgaonkar has given the suggestion that "anyone found misusing the loan amount taken or using this loan amount for a different purpose will be dealt with seriously." This is also a very good suggestion. When an employee takes a loan and you obtain a declaration to this effect from the employee, it will act as a deterrent.

Thanks,

Dinesh Divekar