Setup and Installation

New Installations

Backward Compatibility and Upgrades

Hosting Support

Configuration

Key Functional Areas Impacted

The following are the functional areas of Mifos where changes are required to accommodate Declining Balance - Interest Recalculation Interest Type loans:

Loan Product Definition

On the loan product definition page, a new interest type namely “Declining Balance-Interest Recalculation” is introduced in the list of available interest types.Products belonging to this interest rate type have the facility of configuring cash flow comparisons. This interest type is available for application regardless of whether LSIM is ON or OFF.

Viewing the Repayment Schedule

PAWDEP penalizes the customer in case he makes late or less payments. A customer at any point of time might want to know the interest and payment due. The customer will have the feasibility to view the repayment schedule on a date he wants and get an idea of interest charged on him and the amount he needs to pay.User is not allowed to view the repayment schedule on a date before the last payment date.

Payment Application

Early or late payments, less or excess payments will result in interest re-computation.Users are not allowed to apply payment for a date which is less than the latest payment date.With the help of this feature, users will have the convenience of knowing the benefit they get by paying early/excess and the penalty they are subjected to on paying less/late.

Algorithm designed for payment application for such loans covers nine basic scenarios:
1.Early payment, less than installment amount
2.Early payment, installment amount
3.Early payment, excess amount
4.Due date payment, less than installment amount
5.Due date payment, installment amount
6.Due date payment, excess amount
7.Late payment, less than installment amount
8.Late payment, installment amount
9.Late payment, excess amount

In case the client pays late, an excess interest is charged from him on the principal he is late on and for the number of days he is late in making the payment.This excess interest gets added to the next installment and will be shown along with the installment's interest.

In case the client pays early, only the interest due till payment date is recovered from the payment applied. The remaining amount is allocated towards the principal payment and is reflected against the next installment's principal.

Interest due till date is recovered first because  the installment date for the installment in case of early payment is yet to occur. The installment will not be marked as completely paid in case of early payment. From the date of early payment to the installment date, interest will be calculated on the overall unpaid principal for those number of days.

Adjustment

Because of the concept of excess interest for loans with declining balance- interest recalculation interest rate type, the existing adjustment functionality does not work for them. Thus, adjustment algorithm is applied tailored to loans with declining balance-interest recalculation interest rate type, so that users are allowed to apply adjustments to such loans.

Payment will be adjusted in the following order:
●     Excess interest
●     Fee
●     Interest applicable for that installment
●     Principal

Repay Loan

Because of the concept of excess interest for loans with declining balance- interest recalculation interest rate type, the existing repayment functionality does not work for them. Thus, repayment algorithm is applied tailored to loans with declining balance-interest recalculation interest rate type, so that users are allowed to repay such loans.

1) If the loan account getting repaid belongs to a loan product for which “Can waive interest on Prepay Loan” field is unchecked, no interest ( excess or interest applicable for the installment) will be waived off.

2) If the loan account getting repaid belongs to a loan product for which:
a) “Can waive interest on Prepay Loan” field is checked , and
b)  On loan repayment page, “Waive all interest due” radio button is selected,
Then,
The Amount to be repaid is calculated by waiving off all the future fee, future interests and the interest due for the current installment. The penalty is not waived off. Also, excess interest added to the current installment due to late payment of due installment is not waived off.

3) If the loan account getting repaid belongs to a loan product for which:
a)  “Can waive interest for repayment” field is checked,and
b)  On loan repayment page, “Waive all interest due” radio button is not selected,
Then, the Amount to be repaid is calculated by waiving off all the future fee, future interests. The interest due for current installment and any excess interest is included in the calculated amount. The penalty is not waived off.

Example :  User does not pay the first installment on its due date. He comes on 28th Sep and makes equal amount payment of 106 for the 25th September installment. Since the payment was made 3 days after the due date, excess interest OI1 for these 3 days will be charged and added to the subsequent ( 25 Nov) installment's interest.

User, now does not pay the 25th Oct installment on its due date. He comes on 30th Oct and repays the loan. Since the user came 5 days after the installment due date, excess interest OI2 for these 5 days will be charged and added to the subsequent (25-Dec) installment's interest.

OI1 = excess interest for 3 days 25th sep to 28th sep. = 2 (say)
OI2= excess interest for 5 days from 25th Oct to 30th Oct=3(say)

The amount to be repaid is described based on the following two conditions :

CASE A :   “Can waive interest on Prepay Loan” field is unchecked on loan product level

Amounts marked in yellow will need to be paid while repaying the loan. The amount to be repaid will be 317

CASE B :  “Can waive interest on Prepay Loan” field is checked  and Waive all interest due field is checked

Amounts marked in yellow will need to be paid while repaying the loan. The amount to be repaid will be 312

CASE C : “Can waive interest on Prepay Loan” field is checked  and Waive all interest due field is unchecked

Amounts marked in yellow will need to be paid while repaying the loan. The amount to be repaid will be 317

Redo Loan

While redoing loans with declining balance-interest recalculation interest rate type, the schedule will be recomputed with this interest rate type.

Moratoriums

Moratoriums follow the Next meeting/repayment rule.When a moratorium is defined such that installment due date falls on moratorium day, then the entire schedule shifts forward.If an early payment is made in such a case, interest is recalculated based on the shifted schedule. If on-time or late payment is made in such a case, interest charged is same as the original loan schedule.

For example: A monthly loan has Installments : 25 Sep, 25 Oct, 25 Nov, 25 Dec
A moratorium is defined from 21st Nov to 30th Nov after the loan has been disbursed.
Post defining the moratorium, loan schedule shifts and becomes : 25 Sep , 25 Oct, 25 Dec, 25 Jan
If you make early payment on Installment 3 on 21 Dec, then, interest will be calculated from 25 Oct to 21 Dec
If you make on time payment on Installment 3 on 25 Dec, then, interest will be calculated from 25 Nov to 25 Dec :
So, If customer makes on-time or late payment, he will be charged interest same as original loan schedule. But if he makes early payment, you will be charged more interest.

Holidays

For loans with declining balance - interest recalculation interest rate type, when a holiday is defined post loan disbursal, the interest is recalculated.Installment due date which falls on the holiday gets shifted to the next available date (based on the selected repayment rule).Remaining installment due dates do not shift.

For example : A monthly loan has Installments : 25 Sep, 25 Oct, 25 Nov, 25 Dec
A holiday is defined with ‘next meeting/repayment’ rule from 21Nov to 30 Nov after the loan has been disbursed.
Post defining the moratorium, loan schedule would become : 25 Sep , 25 Oct, 25 Dec, 25 Dec

Loan Disbursal

During Loan Disbursal, it may happen that the disbursal date is changed. This will result in the loan schedule to be moved forward.Interest is recalculated based on the changed durations between installments.

Collection Sheet

Collection sheet can be used the same way as other loan types.Excess interest is deducted first while making a payment to a loan via collection sheet.No additional development work is required to be done in this area.

Other Standard Considerations

Security

Impacts to System

Globalization/Localization

Logging

Change Log

Reporting

Provide any relevant information about reporting requirements for the new features and answer the questions below, providing detail to explain any particular area when necessary.

Performance