Binny Gopinath Sreevas created FINERACT-60:
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Summary: Improvements to Interest Compounding
Key: FINERACT-60
URL: https://issues.apache.org/jira/browse/FINERACT-60
Project: Apache Fineract
Issue Type: Improvement
Components: Loan
Reporter: Binny Gopinath Sreevas
Assignee: Markus Geiss
Currently, Fineract expects the interest compounding frequency to match with
the disbursement date or repayment date. Many financial institutions may follow
a different date. For example: Loan disbursed on 12th December 2015, repayments
falling on every 5th but interest compounded on the last day of each month is a
common approach that many commercial banks follow.
Many organizations that follow interest compounding also expect the "interest
compounding" to be recorded as an explicit transaction. The means that the
interest will be "capitalized" on the compounding date.
For supporting this, the following enhancements are needed:
a) Allow meeting dates, loan repayment dates, interest compounding day and Date
for Principal Outstanding Recalculation to fall on one of the following
calendar patterns:
the last day of the month
the first, second, third, fourth weekday (Mon, Tue, Wed etc) of the month
the last weekday (Mon, Tue, Wed etc) of the month
b) At product level, if compounding is enabled for interest and/or fee: then
allow user to specify a flag specifying if such compounding of interest should
be stored as an explicit transaction against the loan or not
c) If the above flag is enabled then:
- at the time of creation of a backdated loan, then post compounding
entries till today as an explicit transaction that will increase the loan
outstanding balance.
d) If the above flag is enabled then:
- a batch job will post the entries for interest/fee compounding and will
increase the loan outstanding balance.
e) Currently the system allows users to specify for each loan, a date for
starting interest compounding and a date for starting recalculating loan
outstanding balance. The system can default this based on the disbursement date
and the frequency at which this recurrence is specified, rather than allowing
user to specify it. (the upgrade script will have a data migration SQL script
which will ensure that any existing data in the old format is moved into the
new format when specifying such recurrence pattern)
The above enhancement will not impact loans:
i) without interest recalculations and without interest compounding enabled
ii) with interest compounding period as "Same as repayment period" and Rest
frequency either as "Daily" or as "Same as repayment"
The above enhancement will impact the way interest is calculated on monthly or
weekly compounding frequencies.
Example calculations are attached in Excel sheets.
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