Functional Spec Automatic Application of Late Payments Penalties
1 Automatic application of Late payment Penalties for Loans
Release | H ( Ver 2.3) |
Current Owners: | Chetan Bekkinkeri |
Status (Draft, In Review, Stable / Approved): | Draft |
Contents:
2 Introduction
In order to ensure timely loan repayments, most MFIs intend to charge a fee for late repayments for loans. The fee for late repayment can be calculated using any of the following methods
Fixed fee for each time period of late payment
As a percentage of Outstanding Principal Amount
As a percentage of Outstanding loan amount
As a percentage of overdue amount
As a percentage of overdue principal
The penalty for the late repayment can be applied after allowing for a grace period. The frequency of the penalty (late fee) application on the account needs to be configured while defining the penalty.
Penalty once defined will be configured as part of the loan product definition. Penalty once configured on the loan product can be removed or edited.
Penalty is calculated at end of day (EOD) by the batch job and is applied to a loan account based on the criteria defined on the penalty. However given that most micro-finance institutions operate with double bottom-line mission, it is important that penalty once calculated and applied to an account should be removable and the transaction reversible. ( taking compassion into consideration)
Note: For the purpose of this document, Penalty will be considered equivalent to late fees although the terms may be used in different contexts by MFIs.
2.1 Goals
List Goals of feature
Ability to allow automatic application of penalty for delay in the loan repayments
2.2 Non-Goals
Ability to allow automatic application of penalty for delay in the mandatory savings payments
2.3 Definitions and Terminology
Term | Definitions |
User | User of system |
EOD | End of Day |
Mandatory fields will be preceded by "*" (an asterisk)
Links are italicized
Buttons are Button
2.4 Related Documents
*insert links to related specs here
3 User Stories
List high level user stories - these can be broken down later into small user stories / user tasks if needed
Priority | Use Cases | User Stories | Section in FR |
P1 | 4.1 | As a Mifos user, I want to be able to define a penalty using the Mifos Admin screen. | 5.1 |
P1 | 4.2 | As a Mifos user, I want to be able to edit and view the attributes defined for a penalty | 5.2 |
P1 | 4.3 | As a Mifos user, I want to be able to configure and add the penalty while defining a loan product, so that the penalty can be viewed at product level. | 5.3 |
P1 | 4.4 | As a Mifos user, I want to be able to view the defined penalty as part of the loan product defined. | 5.3 |
P1 | 4.5 | As a Mifos user, I want to be able to remove penalty configured from an existing loan product definition. | 5.3 |
P1 | 4.6 | As a Mifos user, I want to be able to view the applied penalty/fee as part of the loan repayment schedule in the Penalty column | 5.4 |
P1 | 4.7 | As a Mifos user, I want to be able to apply Penalty to the loan schedule using "apply charges" option | 5.3 |
P1 | 4.8 | As a Mifos user , I want to be able to make payments for penalty using collection sheet or apply payment option, so that the repayments get applied to the penalty on account | |
P1 | 4.9 | As a Mifos user, I want to be able to repay the total amount due on a loan, so that the loan repayment amount includes the penalty amount calculated. | 5.6 |
P1 | 4.10 | As a Mifos user, I want to be able to remove Penalties applied to a loan account using the “remove Fees/Penalty” option |
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4 Use Cases
4.1 Penalty Definition
Actors
Mifos user who has permissions to create and edit fees
Preconditions
Mifos is configured as per the MFI requirements
Basic Flow
Navigate to Admin screen
Click on 'Define new penalties'
Enter the penalty details by entering the values as defined in the section 9.0 of the document
Click on preview and user validates all values entered are displayed and correct
Submit for processing.
Comments
Posting more of my comments that I sent to the mailing list
1) I see for Actors that "Mifos Administrator and User" is still listed. I believe these should all be very specific about the permissions that are required (I had changed this in the first few stories last time). I believe this is important so the devs know what permissions to work with and we can tell if we need to add any new ones. - This also brings up the question - do penalties fall under the Fee permissions or not? It might be good to initially have that and see what users say and then if they'd like separate permissions, add them later (Devs - please weigh in)
2) Section 5.1.5 - I think it may help to define a little more when penalties are applied. For Daily, does it happen at the end of the day the payment is due? At 5pm? Does grace period affect this? Just might be helpful so we're all on the same page on when and how its applied
3) Section 5.2 - Are there some limits on how we add penalties? For instance, can we add a weekly penalty to a monthly loan? This may need to go somewhere else, not sure
4) Section 5.4.2 - I don't understand this at all. When using apply payment, I don't know where we've had the option to define where its being paid too - whether its a penalty, fee, principal, etc - we just take the payment - unless I don't understand this.
5) Section 7 - Adding penalties to closed loans - can we get a list of the MFI's so we can understand how much this is requested? I know Al Majmoua would like this.
So, General Comments:
1. I see that you are doing this for loans and savings. It might make sense to break the savings out as a separate Spec since it operates a bit differently (maybe the Devs can comment). What do you think? Also, how many MFI's are asking for this on savings? Might be easier to do loans first and then savings later.
2. I see the requirements on how to create the penalties are in the Functional Requirements section - I'm a little worried these are light - where are the details on the limits for the fields? What errors need to be added? These might warrant their own Use cases.
3. Some screen mockups would be helpful for this document I think
4. It's very important we stress the difference between fees and penalties in this product as that affects the order on how payments are applied. Are we sure this will be ONLY a penalty? (IE, paid before Fees) - You also talk somewhere about changing the payment order? That's not clear what that entails.
5. I updated Use cases 4.1 and 4.2 - I've been looking at this for awhile, so taking a break. Look at those and see what you think, I was trying to flesh out a bit more. I also think you were a bit confused on what the validation part is for. See if that makes sense and we can alter the rest and add more.
Some Open Questions (for you and the community)
1) Do we want to break out penalties from Fees in the UI? This would be in the admin page, loan creation, savings creation, etc. For now, I've updated as it saying Fees/Penalties in the document, but I see here that you list it as a new section in the Admin page. If we decide to separate it, remove the (Late Fees) section as Penalties could apply elsewhere and aren't just limited to late payments. Personally, I'm inclined to keep them together, but that may create more design/coding issues.
2) Is this for Individual only? Can you apply this to groups? Centers (for savings accounts) - We may need a lot fleshed out here as well - should be specific here.
In response to your Questions
1) This would mean re-opening a loan and applying a one time penalty? Or is this to go back and change records entered in the past? I think the way to do this would be to add an option on the closed loan page to "Add Penalty", and after going through the workflow, the loan would be re-activated and the fee applied. This might be a lot of work - could be some accounting considerations to think of.
2) I'm not sure I'm clear on this question - but off the top of my head I see there being two kind of late payment penalties. One is based on the number of days you are late and the amount that is late, right? So every day I'm late, it incrementally goes up. The second option I see is that a general penalty is add whenever I'm late (Missed a payment, get knocked 5, miss another, get knocked another 5). Does that sound about right?
3) I noted in the document that I don't think you need to get specific about that - instead you need to detail how you expect this to work and the devs will figure out if it needs to be a batch job or something else (I believe the desire is to move away from batch jobs...)
4) Good question - I can see both being useful. Cumulative makes sense, especially in regards to a maximum penalty. But the limit per penalty application makes sense too as a lot of organizations have a fee that is stated as the user either pays X or a percentage of the amount overdue, whichever is higher. Do we have any feedback from users how they'd like this applied?
Last Comment - One thing to consider and maybe some of the devs can weigh in is how can we simplify the feature? I only say this as there is a LOT to this, I'm not sure this will be a simple job based on all the detail I see in the spec and what more we need to add. May just be quicker to get something simpler in first (that meets most needed requirements), start getting users to use that and work on the next version that gets more into the weeds. Just a thought.
Ryan
On Jan 6, 2012, at 1:08 AM, <Chetan.Bekkinkeri@sungard.com> <Chetan.Bekkinkeri@sungard.com> wrote:
Dear all,
I have come up with a DRAFT version of the FS for this functionality and have tried to cover as many scenarios as I can taking into consideration the inputs from Mifos 3384 and other general Mifos requirements. Here is the wiki link to the FS
http://mifosforge.jira.com/wiki/display/MIFOS/Functional+Spec+Automatic+Application+of+Late+Payments+Penalties
I am sure this will undergo more changes based on feedback from the users. Can you please go through the Wiki and let me know if there are changes required or if some feature which you as an user wanted but has not been addressed ?
I do have a couple of open issues which I have marked red and also have listed below the issues.
1) How can we adjust Penalties for loans which are closed? ( this requirement is being requisitioned by multiple users) . Any pointers /workarounds here will be useful.
2) Need to review the savings penalty calculations? If two consecutive mandatory deposits are missed, do we apply one single penalty or multiple penalties?. For loans, we have clear use cases which we can look up to from the banking scenario but not sure for savings.
3) Batch job for penalty calculations : do we create a new batch job or modify one of the existing batch jobs for this ?
4) How do we want to handle the minimum and maximum penalties ? Should we have a cumulative limit on the penalties or a limit per penalty application ? Right now I have added the cumulative case and made the use case examples for it.