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This information comes from the Mambu product ideas page - feedback and use cases are relevant ones we might like to explore. 

 

Locking Accounts:

There are some ocassions when an active account needs to be locked to prevent a change in the account balance, and this can happen on accounts not in arrears. Examples: - The loan was bought off by another institution, but the amount sent does not match the balance of the original loan account. The account is locked and the customer is contacted for paying the remainder. - Death of a customer, for settling the acount with the insurance company. The account has to be locked to start the claim process. If the balance changes, the difference has to be written off. - In some countries governments may force institutions to hold off from charging new interest to customers due to a certain event like a drought, public unrest etc.

Automatic locking of loan accounts after X days in arrears

What: an option on the product level to automatically lock interest / fees / penalties after the loan account is X number of days in arrears. Therefore, if the loan account is in arrears:

(a) From the 1th day till the Xth day - there would be no change to the current process

(b) From Xth day - the account would be automatically locked until is it manually unlocked or until the loan is cured, i.e. again 0 days in arrears.  

(c) If the loan account is cured (back to 0 days in arrears) - it should be automatically unlocked

Why: many countries mandate that scheduled interest / fees / penalties payments that have been in arrears for a specified period (for example 90 days or longer) must be excluded from the value of the loan. Currently, this process has to be performed manually for all the accounts > X days in arrears. 

 

Enable option to lock multiple accounts

For locking loan accounts, ideally Mambu would allow an option for the user to select all related accounts that are to be locked. The current work around would be for the user to manually select each account and lock each one individually. However, it would be useful if Mambu would allow to lock more than one account at a time, for example to lock accounts that are in arrears for over 90 days. 

 

  • Avatar32 Dorota Nosal
  • Jan 12 2015

An option to freeze accruing interest / fees / penalties on a loan account

What: an option to freeze interest/fees/penalties, ideally:

(a) automatically after specified number of X days in arrears (on the product level)

(b) manually on the account level (similar as can be done currently with the lock function)

The implication of freezing a loan account would be that no accounting entries would be posted when a loan account is frozen (i.e. all the interest / fees / penalties would stop being accrued in the background and being recognized in the ledger until the account is unfrozen). 

Why: if a client cannot continue to make payments due to bankruptcy or financial distress, organisations might want to completely stop interest from accruing in the background. Additionally, accounting rules in most countries require that interest needs to stop being accrued after a certain number of days loan account is in arrears, for example account in arrears:

(a) 1-90 days - no change to accruing interest / fees / penalties 

(b) 90-180 days - interest/ fees / penalties are accrued to a suspense account (it's not recognised as income anymore)

(c) > 180 days - interest/ fees / penalties are not accrued at all (are frozen, and not recognised in the ledger at all) 

 

Allow Locking of Loans through API

Locking of Loans was implemented on the UI to prevent further accruals of interest or penalties on a loan account. It would be great to be able to do that through the API as well, with the use case that an external workflow app tries to lock all loans which are in arrears 60 or more days need to stop accruing interest and penalties.

Possibly higher level discussion needed whether it should be possible to do something on the UI which can't be done through APIs (API first approach, see Amazon AWS).\

 

Accounting layer for locking and unlocking of loan accounts

What: 
Ability to define different GL accounts to which interest will be recognized when loan account is locked and unlocked.
Accounting layer for locking:
When a loan account is locked, the interest should not be recognized in the same GL account anymore, but instead should be posted to a suspended interest or provision account on the balance sheet. Interest still needs to be accrued in the background (to be able to define what is the total receivable amount from the customer), however for accounting purposes it cannot be recognized as income anymore, since the account is considered non-performing and therefore has been locked: 
The accounting entries on locked accounts would be:  
Dr Suspended Interest/Fees/Penalties Receivable (Balance Sheet - Asset)
Cr Suspended Interest/Fees/Penalties Provision (Balance Sheet - Liability)
Accounting layer for unlocking:
Additionally, when the loan account is unlocked, there could be an option to decide whether the interest/fees/penalties (accrued during the time the account was locked) should be recognized in the ledger or not. That means 2 options available when unlocking a loan account:
Option A – post accrued interest/fees/penalties with GL entries: 
Dr Suspended Interest/Fees/Penalties Provision (Balance Sheet - Liability)
Cr Suspended Interest/Fees/Penalties Receivable (Balance Sheet - Asset)
Dr Interest/Fees/Penalties Receivable (Balance Sheet - Asset)
Cr Interest/Fees/Penalties Income (Income Statement - Income)
Option B – do not post accrued interest/fees/penalties with GL entries: 
Dr Suspended Interest/Fees/Penalties Provision (Balance Sheet - Liability)
Cr Suspended Interest/Fees/Penalties Receivable (Balance Sheet - Asset)
Accounting layer for repayments posted on a locked account:
Same as option A above - interest accrued to the payment date should be moved out of Suspense, recognized as Income and Receivable, then the Receivable cleared by the payment received. 

Why:
Many organisations use the lock loan account function to stop recognizing interest on non-performing loans on the same GL accounts as healthy loans. Most countries mandate that interest payments on loans that are considered non-performing must be excluded from the value of the loan. Therefore this feature is needed to comply with accounting principles (i.e. report income correctly). 
When unlocking, many organisations want to decide whether or not to recognized the interest/fees/penalties accrued during the time the loan account was locked. For example, if a loan account is considered non-performing, and interest on that loan has not been recognized in the income, there is no need to do that when unlocking and then write-off that income to close the account. 
  • Avatar32 Dorota Nosal
  • Mar 16 2015