Payment Application Logic / Transaction Processing Strategy
The way payments (transactions) are handled and the effect they have on the loan is an area that can differ widely from MFI to MFI. Mifos allows for transaction processing strategies to be developed that are associated with a loan product. Several approaches are provided out-of-the-box. If these approaches dont meet exactly your needs a custom approach can be developed and released with the platform.
In general the the following areas are handled by any given transaction processing strategy:
Payment order: What component of a loan installment should be paid of frist interest, principal, fees, penalties?
Early payment: What qualifies a payment as an early payment and what impact should this have on the loan schedule?
On time payment: What qualifies a payment as on time?
Late payment: What qualifies a payment as a late payment and what impact should this have on the loan schedule?
P
enalties, Fees, Interest, Principal order
Payment order:
Overdue and due penalties
Overdue and due fees
Overdue and due interest
Overdue and due principal
Early payment: Any payment that pays off an installment that occurs before the due date of the installment. There is no incentive/advantage to making an early payment as theres no decrease in cost of the loan.
On time payment: Any payment that pays off an installment that occurs exactly on the due date of the installment.
Late payment: Any payment that pays off an installment that occurs after the due date of the installment. There is no penalization for late payment. The total cost of the loan does not automatically increase, no penalties are automatically applied to the loan.
Principal Interest Penalties Fees Order
The key aspect of this strategy is the payment order.
Payment order:
Overdue and due principal
Overdue and due interest
Overdue and due penalties
Overdue and due fees
Early payment: Any payment that pays off an installment that occurs before the due date of the installment. There is no incentive/advantage to making an early payment as theres no decrease in cost of the loan.
On time payment: Any payment that pays off an installment that occurs exactly on the due date of the installment.
Late payment: Any payment that pays off an installment that occurs after the due date of the installment. There is no penalization for late payment. The total cost of the loan does not automatically increase, no penalties are automatically applied to the loan.
Interest Principal Penalties Fees Order
The key aspect of this strategy is the payment order.
Payment order:
Overdue and due interest
Overdue and due principal
Overdue and due penalties
Overdue and due fees
Early payment: Any payment that pays off an installment that occurs before the due date of the installment. There is no incentive/advantage to making an early payment as theres no decrease in cost of the loan.
On time payment: Any payment that pays off an installment that occurs exactly on the due date of the installment.
Late payment: Any payment that pays off an installment that occurs after the due date of the installment. There is no penalization for late payment. The total cost of the loan does not automatically increase, no penalties are automatically applied to the loan.
RBI (India)
Per RBI regulations, all interest must be paid (both current and overdue) before principal is paid.
For example taking a loan with two installments due (one current and one overdue) of 220 each (200 principal + 20 interest) - A partial payment of 40 results in payment been broken up as 20 interest on installment #1 (200 principal remaining) and 20 payment to interest on installment #2 (200 principal remaining)
Payment order:
Overdue and due interest
Overdue and due principal
Overdue and due penalties
Overdue and due fees
Early payment: Any payment that pays off an installment that occurs before the due date of the installment. There is no incentive/advantage to making an early payment as theres no decrease in cost of the loan.
On time payment: Any payment that pays off an installment that occurs exactly on the due date of the installment.
Late payment: Any payment that pays off an installment that occurs after the due date of the installment. There is no penalization for late payment. The total cost of the loan does not automatically increase, no penalties are automatically applied to the loan.
Early Payment Strategy
This strategy works similar to the Interest Principal Penalties Fees Order for on-time and late payments, i.e
Payment order:
Overdue and due interest
Overdue and due principal
Overdue and due penalties
Overdue and due fees
Early payment: Any payment that pays off an installment that occurs before the due date of the installment. There is no incentive/advantage to making an early payment as theres no decrease in cost of the loan. However, early payments are allocated only towards principal payments of future installments. Interest and fees/penalties of future installments are not paid and may be waived manually if required
On time payment: Any payment that pays off an installment that occurs exactly on the due date of the installment.
Late payment: Any payment that pays off an installment that occurs after the due date of the installment. There is no penalization for late payment. The total cost of the loan does not automatically increase, no penalties are automatically applied to the loan.