Appropriating payment towards past due interest or past due principal is a
matter each institution's priority and as per the country's regulatory
requirements. Here is an illustration :
Assumptions : 1) Loan loss provisioning as per the regulator's guidelines
= 30 % of bad loans. 2) Repayment can be appropriated as per
institution's choice.
3)Total Over due Amount : Rs. 10000 4) Total overdue interest Rs. 1800
/- 4) Rate of Interest 18 % p.a. 5) Amount paid by the member Rs.
1800/-
Scenario - I : Entire amount appropriated towards interest . Loan loss
provision = Rs. 30 % of Rs. 10000 = 3000 . Less interest earned = 1800. Net
income to institution is Rs. - 2200 (loss)
Scenario - II : Entire amount adjusted towards overdue principal. Loan
loss provision - (10000-1800) * 30 % .= (8200* 30 %)= Rs 2460 ( loss)
The income recognition and loan loss provisioning requirements of the
country's regulator is a key factor in prioritising repayments. in many
countries. interest cannot be booked in a loan account till the overdue
amount is cleared . Hence it is better to give the option to prioritise as
part of MIFOS software so that each institution can adopt the practice best
suited to it as per local conditions.
--
SAHADEV K
MOBILE : 91-9010001015
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