Declining balance with interest recalculation - need to support monthly option
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Key: MIFOS-5182
URL: http://mifosforge.jira.com/browse/MIFOS-5182
Project: mifos
Issue Type: Improvement
Reporter: Binny Gopinath Sreevas
Priority: Major
Fix For: Release 2.2.2
Currently "declining balance with interest recalculation" does a daily interest
recalculation. There is a need to have an option to do a "monthly interest
calculation". Detailed requirement and example below:
There are 2 loans (with monthly installments) which are handled as follows in
real-life:
Loan 1:
February-2011 - Disbursed - 10,00,000 at 2% per month
March-2011 - Interest paid - 20,000
April-2011 - Interest paid - 20,000
May-2011 - Loan repaid paid with interest - 10,20,000
I schedule this as a loan product with interest type as "diminishing
balance" and with 2 "principal-only grace" periods. This works fine in Mifos.
Loan 2: Is similar, except that the customer does some prepayments.
May-2011 - New Loan disbursed - 40,00,000 at 2% per month
June-2011 - Interest paid - 80,000
July-2011 - Interest paid - 80,000
August-2011 - Interest paid - 80,000, Principal repaid 5,00,000
(principal outstanding is now 35,00,000)
September-2011 - Interest paid - 70,000, Principal repaid 10,00,000
(principal outstanding is now 25,00,000)
October-2011 - Interest paid - 50,000, Principal repaid 15,00,000
(principal outstanding is now 10,00,000)
Nov-2011 - Interest paid - 20,000
I am not able to configure Loan-2 in Mifos. Ideally, the pre-payments should be
adjusted to the principal. But mifos accounts prepayments against future
interest, if I use interest type as "diminishing balance".
If I use the interest type as "diminishing balance with interest
recalculation", Mifos computes the interest based on daily-reducing balance. So
the interest due for Feb, will be less than interest due for April. Which will
not help implementing the above scenario. And with this type of interest, Grace
periods are not supported. So it is impossible to implement such a loan in
Mifos.
My understanding of the solution in Mifos, will need 2 enhancements:
a) Along with "daily declining balance with interest recalculation", we need a
"monthly declining balance with interest recalculation"
b) We need "Principal Only Grace periods" to be allowed for interest type
"Declining balance with interest recalculation". Currently, Mifos does not
allow this. There is already a ticket for this at: MIFOS-4742
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