1      Automatic application of Late payment Penalties for Loans

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

1. Fixed      fee for each time period of late payment

2. As a      percentage of Outstanding Principal Amount

3. As a      percentage of Outstanding loan amount

4. As a      percentage of overdue amount

5. 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

• 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

  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

1. Navigate to Admin screen

2. Click  on 'Define new penalties'

3. Enter      the penalty details by entering the values as defined in the section 9.0      of the document

4. Click      on preview and user validates all values entered are displayed and correct

5. Submit      for processing.

Post-conditions

1. The      user should be able view the late fees (Penalty) as per the requirements      of the MFI

2. Any      user with create and/or edit loan permissions should see the penalty      listed as an option to add to the loan product.

3. Any      user creating a loan instance see's the penalty as an option to add while      creating the loan

Alternative Flows

NA

Validations

1. If user enters a negative value for the following fields, Mifos should display a error message “Incorrect value. Negative values not allowed.”

1. Cumulative Penalty( minimum)

2. Cumulative Penalty ( maximum)

3. Grace period duration

4. Fixed Amount Column of the Penalty calculation type attribute

2. If user enters a incorrect value( number with commas or special characters) value for the following fields, Mifos should display an error message “Incorrect value. Please enter the correct values”

1. Cumulative Penalty( minimum)

2. Cumulative Penalty ( maximum)

3. Grace period duration

4. Fixed Amount Column of the Penalty calculation type attribute

3. If the user clicks on the Preview and Submits without entering any values in the following fields, then Mifos should display an error message “ Please specify a value for the fields -- “

          a. Penalty Name

b. Applies to

c. Cumulative Penalty Amount (Minimum)

d. Cumulative Penalty Amount (Maximum)

e. Penalty calculation type

f. Accounting Details

 4.2 View/Edit Penalty Definition

Actors

• Mifos      user who has permissions to create and edit fees

Preconditions

• Mifos      is configured as per the MFI requirements

Basic Flow

1. Navigate  to Admin screen

2. Click      on 'View penalties'

3. User selects a penalty to view

4. The      user should be shown the attributes of the penalty defined as per Use Case      4.1.

5. Click      on the Edit Button

Post-conditions

1. The      user should be able view the Penalty definition and terms & conditions      as required.

2. Attributes      which are “editable” as per the attribute definition in Section 9.1 should      be editable.

3. Making      changes to the “Editable” values and clicking on preview->submit should      save the values changed.

Alternative Flows

NA

Validations

1. Penalty (Late fee) as created by the administrator should be viewable/edit when the view Penalty definition link is clicked.

  4.3 Penalty configuration in the loan product definition

Actors

1. Mifos user who has permissions to create and edit loan products

Preconditions

1. Mifos is configured as per the MFI requirements

2. Penalty has been defined as part of configuring the penalties for the MFI [See Story 4.1]

Basic Flow

1. Navigate  to Admin screen

2. Click  on 'Define New Loan Product'

3. User enters in loan details

4. When user gets to Fees/Penalties, user can successfully select Penalty in left      side and add to the Right Panel

5. User   completes entry of Loan product parameters and clicks on 'Preview' button

6. On      Preview page, the Penalty is listed.

7. User      clicks on Submit and Loan Product is Created

Post-conditions

1. The      defined loan product should have a late fee (penalty) configured

2. Any      user with rights to view loan product definitions should see penalty      configured

3. Penalty      appears during loan creation workflow.

Alternative Flows

1) If the loan product already exists and the user needs to add a new late penalty to the product

1. Navigate      to the admin screen

2. User      clicks on 'View Loan Products'

3. User      clicks on a Loan Product

4. User      clicks on "Edit Loan Product Information"

5. User      selects a Penalty on the left side panel in the Fees/Penalties section and      adds it to the right panel by click on "Add"

6. User      clicks on Preview button

7. On      Preview page, the Penalty is now listed

8. User      clicks on Submit and Loan Product is updated

Validations

1. All      new loan products created will have the penalty automatically attached

2. All      loans created before edit to loan will NOT have the penalty automatically      attached

 4.4 View penalty in loan product definition

Actors

1. Mifos user who has      permissions to create and edit loan products

Preconditions

1. Mifos      is configured as per the MFI requirements

2. Penalty      has been defined as part of configuring the penalties for the MFI [See      Story 4.1]

3. Penalty      has been added to the loan product definition [See Story 4.3]

Basic Flow

1. Navigate      to Admin screen

2. Click on View Loan Products

3. Click      on loan product for which penalty was added as part of User story 4.3

4. Penalty      as added in the loan product definition should visible in the loan      definition screen

Post-conditions

1. The      defined loan product should have a late fee (penalty) configured

2. Any      user with rights to view loan product definitions should see penalty configured

3. Penalty      appears during loan creation workflow.

Alternative Flows

NA

Validations

1. All      new loan products created will have the penalty automatically attached

2. All      loans created before edit to loan will NOT have the penalty automatically      attached

   4.5 Remove penalty from loan product definition

Actors

1. Mifos user who has      permissions to create and edit loan products

Preconditions

1. Mifos      is configured as per the MFI requirements

2. Penalty      has been defined as part of configuring the penalties for the MFI [See      Story 4.1]

3. Loan      product has already been defined.

Basic Flow

1. Navigate      to the admin screen

2. User      clicks on 'View Loan Products'

3. User      clicks on a Loan Product

4. User      clicks on "Edit Loan Product Information"

5. User      selects a Penalty on the right side panel in the Fees/Penalties section      and adds it to the right panel by click on "remove” button

6. User      clicks on Preview button

7. On      Preview page, the Penalty is no longer visible

8. User      clicks on Submit and Loan Product is updated

Post-conditions

1. The      defined loan product should have the late fee (penalty) removed.

2. Penalty      is removed from the loan creation workflow.

Alternative Flows

NA

Validations

1. All new loan products created will have NOT have the penalty automatically attached

2. All loans created before edit to loan will have the penalty still active

 4.6 Penalty (Late fee) application to the loan schedule

Actors

1. 1. Mifos user who has the appropriate permissions for managing loan transactions

Preconditions

1. Mifos      is configured as per the MFI      requirements

2. Penalty      (Late fee) has been defined for the MFI and added to the loan           product definition

3. Loan      has been created and disbursed and      is currently “active bad standing”           state

4. The      daily Batch job has run      successfully.

Basic Flow

1. Login      into the Mifos application

2. Click      on a loan account with status “active in bad standing”

3. View      the repayment schedule of the loan

Post-conditions

1. Penalty      should be applied and visible in the “Penalty” column of the loan      schedule.

2. Penalty      should be applied on the same schedule date on which the amount is due.

Alternative Flows

Validations

1. The loan schedule should display the late fee calculated as per the late fee definition.

4.7 Penalty (Late fee) application to the loan schedule using "apply charges" option

Actors 

       Mifos user who has the appropriate permissions for managing loan transactions

Preconditions

1. Mifos is configured as per the MFI      requirements

2. Penalty has been defined  for the MFI from the admin screen

Basic Flow

1. Login into the Mifos application

2. Click on a loan account.

3. Click on the apply charges link.

4. From the "select charge type" dropdown, select a penalty type which is already defined

5. Click on submit

6. View the repayment schedule of the loan

Post-conditions

1. Penalty  should be applied and the loan summary page should list the penalty

2. Running the batch job should ensure that penalty gets applied only to overdue amounts only after the date of penalty addition to the loan. i.e. if the penalty is added in the 4th week of loan repayment, the penalty should only be applied to repayments from 4th repayments and beyond only and should not effect the loan repayments of week 1 to 3 even if they are overdue.

Alternative Flows

Validations

1. The loan schedule should display the late fee calculated as per the late fee definition.

  4.8 Penalty payment using the collection sheet or apply payment option

Actors

1. Mifos user who has the appropriate permissions for managing loan transactions

Preconditions

1. Mifos      is configured as per the MFI requirements

2. Penalty      has been defined as part of configuring the fees for the MFI

3. A      loan is overdue. The penalty has been calculated and applied to the loan      account

Basic Flow

1. Login      into the Mifos application

2. Navigate      to the collection sheet entry page

3. Apply      the payments due on the collection sheet and submit.

Post-conditions

          1. Collection sheet displays the total amount due (including penalty, fees, Interest and principal)

           2. The Fee/penalty payments should not display any amount due.

Alternative Flows

1) Payment made directly against penalty

1. Login to the Mifos application

2. Search and navigate to the loan account

3. Click on the apply Payment option on the transactions pane

4. The amount calculated currently shows all the amount currently due on the account. This amount should include any penalty applied to the loan account.

2) Partial Payment

1. User navigates to loan with penalty applied

2. User clicks on "Apply Payment" and pays partial amount due

3. User submits payment

4. Payment is applied in the correct order: Penalty->Fees->Interest->Principal

Validations

1. The penalty amount paid should be applied to the account and the amount due should be 0.

2. Payment should follow Mifos standard: Penalty -> Fee -> Interest -> Principal

 4.9 Repay loan option includes the penalty amount   calculated.

Actors

1. Mifos user who has the appropriate permissions to process loans and apply fees

Preconditions

1. Mifos      is configured as per the MFI requirements

2. Penalty      has been defined as part of configuring the fees for the MFI

3. A      loan is overdue. The penalty has been calculated and applied to the loan      account

Basic Flow

1. Login      into the Mifos application

2. Navigate      to loan account

3. Click      on the repay loan option on the right side top transaction box

Post-conditions

      1. Total repayment amount calculated should also include the penalty calculated

      2. Repaying the loan should apply the penalty amount calculated appropriately.

Alternative Flows

1. Login to the Mifos application

2. Search and navigate to the loan account

3. Click on repay loan option. Total amount calculated will include the penalty calculated

4. Click on Cancel

5. Go back to the loan account and click on the “remove penalty” option.

6. Save and click on the repay loan option again

7. the total amount to be paid should not include the penalty amount as the penalty has been removed.

Validations

1. The penalty amount paid should be applied to the account and the amount due should be 0.

 4.10 Ability to remove penalty applied to a loan account

Actors

1.Mifos user who has the appropriate permissions to process loans and apply fees

Preconditions

1. Mifos      is configured as per the MFI requirements

2. Penalty      has been defined as part of configuring the fees for the MFI

3. A      loan is overdue. The penalty has been calculated and applied to the loan      account

4. The      penalty is visible under the loan account details view with a link to      remove the penalty

Basic Flow

1. Login      into the Mifos application

2. Navigate      to loan account

3. Under      the account details, the penalty calculated for the account is visible

4. Click      on the “remove” link under the account details section

Post-conditions

      1. The penalty added should get removed from the account details section

      2. Under the recent activity section, a transaction “Penalty removed” should be

          Recorded

Validations

1. The penalty amount paid should be applied to the account and the amount due should be 0.

2. the calculated penalty should be removed completely and the transaction reversed.

  5     Functional Requirements

  5.1 Penalty Definition