Loan Products Creating New Loan Products
| Creating New Loan Products |
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| Last Updated on Monday, 14 May 2012 18:47 |
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● Relation between loan products and loan accounts ● Interest Calculation Methods ● Fees
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Relation between loan products and loan accountsMambu links the information of every loan product to the new loan accounts created under that product, so when you create a new loan account, it's always included in an existing product. The fields that require setting a minimum and a maximum value will determine the constraints for all the loan accounts created under that product. So, when creating a new loan account, Mambu won't allow you to enter values that are under or above the ones that have been defined for the product.
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Create a new Loan ProductTo start creating a new loan product, go to Administration > Loan Products > New Loan Product > enter the information about the new product > click on Save Product. After saving the product you will need to click on the status Deactivated to make the product active and start using it.
Additional Reading: Managing Loan Products Additional Reading: Product Actions
Creating loan products will allow you to have your loan accounts sorted by categories that are easily recognizable by staff members using the system.
Product Name and ID The new product's name should be easily recognizable or associated to the loan's purpose so that staff members or other users dealing with products can easily identify it. In cases of more specific loans within the agriculture category, names like "Loan for Cereals" or "Loan for fertilizers" would also make the product's purpose clear.
The Product's ID is the unique alpanumeric code you give your products, them allowing them to be identified in your database.
Description The description will provide more detailed information about the new product and after the product is saved it will be visible under the product's overview. It will be useful for staff members when choosing the appropriate loan for a given client.
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Types of Loan ProductsTypes of loan products correspond to the kind of clients who will be eligible for a specific loan.
If you create a product of the Individual type, only individual clients will be eligible for that loan.
Additional Reading: Types of Loan Products
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Loan TermsWhen you or another user creates a loan account out of this product, the amounts you set here will define the constraints for that loan account's terms. Then only the values that fall within the range defined in the product will be accepted in the loan accounts.
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Interest Calculation MethodsYou can choose one of three options: Flat, Fxed Flat, Declining Balance and Declining Balance with Equal Installments. To choose the interest rate for the new product, select the method > select how it is charged > enter the default, minimum and maximum values.
Days in Year Depending on your internal practices you can choose to calculate interest over 365 or 360 days in a year. Given that interest accrues daily during the loan's lifetime, the interest due for any loan depends on the number of days in the month and is determined by the difference of days between the last repayment and the current one. In a 360 year, every month will be considered as having 30 days, whereas the 365 days option will take into acount the actual number of days in each month.
Additional Reading: Interest Calculation Methods in Loans
────────────────────────────────────────────────────────────────────────────── Back to top Repayments schedulingSuppose you want the repayments to be made every two weeks.
To define the number of installments, just enter the default, minimum and maximum values in the appropriate fields.
Principal Collection Frequency It's common practice in some countries to have repayment schedules in which clients pay principal on a certain number of installments and only interest on the others. If you use this methodology, you can set the principal collection frequency by entering the number of installments for which there should be no principal collection.
Grace Period The grace period will determine if the repayment schedules should include installments in which principal, interest or both are not paid. To define the Grace Period, just click the dropdown list to choose the option you wish. There are three different possibilities:
Repayment schedule with no grace period
Repayment schedule with Pure Grace Period
Pre-Payments Acceptance Some organizations don't allow pre-payments for certain products, such as those using Declining balance methodology. By default, Mambu will show the option to "Not accept pre-payments". If you want to allow pre-payments for a specific product, click on the menu to select that option.
Rounding of Repayment Schedules Depending on the number of installments, some loan amounts end up with a small difference when divided by the installments. There are 3 different options for dealing with those cases: - No Rounding - Round Remainder into First Repayment - Round Remainder into Last Repayment
If you choose No Rounding, when there is a discrepancy between the loan amount to be disbursed and the total balance after rounding, Mambu will show you a warning message asking you to either adjust the loan amount or the number of installments. If you choose to Round Remainder into First Repayment or Round Remainder into Last Repayment, Mambu will automatically add the discrepancy amount to one of those repayments.
In this case, if you had chosen one of the rounding options, the cent that is missing would be added to the first or to the last repayment (second and third repayment schedules in the example above).
Rounding of Currency In practice, some countries don't use the currency's decimals in their daily life. If you want the repayments to be free of decimals, you can choose the option Round To Nearest Whole Unit. When this option is selected all the repayments will be rounded so that there are no decimals in it.
Repayment Allocation Order Fpr cases of prepayments, partial repayments or fees and penalties payment, the allocation order defined at the product level will determine what will be paid first. Suppose you wanted the principal to be paid first, then interest, fees and finally penalties. In this case Principal would be on top of the list and Penalties on the bottom. To move the items, just click, drag and then drop them at the right place.
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Arrears Tolerance Period The number of days you enter here will determine the period that a loan account with late repayments will remain Active. After this period Mambu will automatically change its state to Active (in arrears), in case there are still late repayments. In this scenario, the loan will be set to arrears as of the time it would have been late if there was no tolerance period. If you choose not to determine an Arrears Tolerance Period, Mambu will automatically set the loan account to Active (in arrears) as soon as a repayment is not entered in the due date.
Arrears Date Calculation Method The method you define here will determine how the days in arrear will be counted for your loans. For some orhganizations, the days in arrears count from the first date the loan had a late repayment whereas others count the days from the last repayment entered. For a more clear understanding, consider a loan with 2 late repayments - one due at April 1 and the other on April 8. Now, suppose the client pays the first installment on April 5. The account is still in arrears as the repayment of April 8 is still late. In this scenario however, some organizations would consider the loan as being late since April 1, since it never went to Active state, while others would consider the loan as being late from April 5, the Last Late Repayment. To define the Arrears Calculation Method, click on the menu to select the option you want.
────────────────────────────────────────────────────────────────────────────── Back to top FeesThere are three types of fees that can be applied to loan accounts and that are difined under each product.
Arbitrary Fees These are fees which can be applied manually to the accounts at any point during the loan lifetime and with any given amount. By default they are not checked when you create a new product, so to allow arbitrary fees you should check the box.
Pre-defined Fees These are manual fees that can also be applied to the loan at any point, but for which you already know the amount or percentage. For instance, if you have an administrative fee of a certain amount which is applied every month, you can define it under the product. To do so, click on Add Fee > enter the fee's name > enter the amount. After the product is saved you will be able to apply this fee to the loans under this product.
Automated Fees Some fees can be automatically applied by Mambu upon certain events, or triggers, such as Disbursements and Late Repayments. In these cases, you can add automated fees under the product, which will determine the amount as a percentage of the loan amount or late repayment. To define automated fees, click on Add Fee > Click on Trigger to choose whether it should be associated to Disbursement or Late Repayment > click on the dropdown menu to select whether it should be a flat amount or percentage > enter the amount. If the trigger is Disbursement and you select a percentage, the fee will be calculate over the total loan amount and effectivley paid back right away. The client receives less money at disbursal but still has to pay the full amount over the lifetime of the loan. The late repayment fee will be applied any time a repayment is set to late and will respect the arrears tolerance period defined. ────────────────────────────────────────────────────────────────────────────── Back to top
Related Items |
This is why, before creating loan accounts, you need to add the products in Mambu.
If you have Accounting activated, the new loan products you create will remain Deactivated until you link them to your General Ledger Accounts as described in 
Later, if you change the calculation method in the product all the accounts that had been created before the change will keep the original method for calculating the interest. Only the loan accounts created after the product has been edited will use the new calculation method.
