1. Interest Calculation Posting process
Current method used by Mifos

2. Interest Calculation
Mifos supports three types of interest calculation:
flat interest rate [EWI]
declining balance [EWI] &
declining balance interest with equal principal installments [Simple declining balance interest method]
All the interest calculation are done during application creation and a schedule with due dates and Principal, Interest, fees paid on those days are created upfront in the system for future usage.
Mifos does not calculate interest dynamically based on payments made during loan term.

3. Example of Loan schedule
Loan Amount
1000
Interest [Flat – 10%]
100
Total
1100
Loan Term
10 Weeks
Processing Fees [Upfront]
EWI
110
Disbursement Date
10/01/2009
Loan Schedule
Installment no
Due Date
PrincipalDue
Interest
Fee
Penalty 1
17/01/2009 10 2
24/01/2009 3
31/01/2009 4
07/02/2009 5
14/02/2009 6
21/02/2009 7
28/02/2009 8
07/03/2009 9
14/03/2009
21/03/2009

4. Payment Posting in Mifos
Loan installment = Principal + interest + Fee + Penalty Posting Order in Mifos :
Penalty
Fee
Interest
Principal
Installment #1
Installment #2
Installment #3 =
Penalty
Fee
Interest
Principal =
Penalty
Fee
Interest
Principal =

5. Payment Scenario – 1
Normal Ontime payments of installments on due dates: The Mifos payment posting order works fine and is same as in accounting standards
Penalty
Fee
Interest
Principal
Installment #1
Installment #2
Installment #3 =
Penalty
Fee
Interest
Principal =
Penalty
Fee
Interest
Principal =

6. Payment Scenario - 2
Partial Payment of an installment: Example lets take a installment split as follows: If Rs. 70 is paid, then
Penalty
Fee
Interest
Principal
Payment =
Penalty 5
Fee
Interest 10
Principal
100
Installment
120 =
Penalty 5
Fee
Interest 10
Principal 50
Payment 70 =

7. Payment Scenario - 3
Excess Payment than an installment amount on due date of installment #1 say: if installments are as follows:
If Rs. 140 is paid, then the current working scenario is
If Expected scenario as per accounting standard is
We expect excess amount should be adjusted to the principal first and the interest should be recalculated on the remaining principal only for the next installment .
Penalty
Fee
Interest 20
Principal
100
Installment # 2
120 =
Installment # 1
Penalty
Fee
Interest 20
Principal
Installment # 2 =
100
Installment # 1
120
Penalty
Fee
Interest
Principal 20
Installment # 2 =
100
Installment # 1
120

8. Payment Scenario - 4 = = = = = = Say if 3 installments are in arrears,
If Rs. 250 is paid, then the current working scenario is
the expected scenario as per accounting standard is as follows:
Penalty 5
Fee
Interest 10
Principal
100
Installment # 2
120 =
Installment # 1
Installment # 3
120 =
Penalty 5
Fee
Interest 10
Principal
100
Penalty 5
Fee
Interest 10
Principal
100
Installment # 2
120 =
Installment # 1
Penalty 5
Fee
Interest
Principal
Installment # 3 10 =
Installment # 2
110 =
Installment # 1
120
Penalty 5
Fee 5
Interest 10
Principal
100 90 =
Installment # 3 20

9. Over Due Interest Calculation
Over View:
If any installment is not collected on the due date then it becomes overdue. Due to the delay in paying the installment, Client will have to pay additional interest on the principal overdue for the delayed period and also additional interest on the interest amount not paid on time.
Current Scenario:
Mifos does not calculate any additional interest on the overdue principal / interest.
Expected:
Mifos must be able to calculate the additional interest on the each overdue installment every day end and add them to the interest recievable of each installment and track them separately in mifos. When a payment is made, apply the same rule as explained before.

10. Alternative Solution – by GK & Sungard
A tool which actually sits next to mifos independently and at the end of the day runs a batch process in which it identifies all the installments which are due but not paid/partially paid and calculates additional interest /penalty based on the definitions [configurations] and adds them to the penalty field of the first overdue installment of the loan account. By doing this, we achieve 1. As mifos does penalty posting first before going to other heads, the following flow is achieved: Penalty for the entire period -> Additional Interest for the entire period -> Overdue Interest[of that EWI] -> Principal overdue [of that EWI] -> Overdue Interest[of next EWI] -> Principal overdue [of next EWI] And so on…

11. Configurable Options:
Percentage of additional interest to be charged per month
Whether additional interest is on principal overdue only or the complete installment overdue
Fixed penalty on the overdue installment
Grace period and holidays
Time of the batch job to be run.
One time run for all existing overdues
Daily run

12. Changes to be done in mifos
1. Posting order change in overdue loan payments: From: To:
Penalty 5
Fee
Interest 10
Principal
100
Installment # 2
120 =
Installment # 1
Installment # 3
Installment # 2
110 =
Installment # 1
120
Installment # 3 20
Penalty 5
Fee
Interest 10
Principal
100 90

13. Changes to be done in mifos
2.Posting order change in excess payments for normal loans:
From:
To:
Penalty
Fee
Interest 20
Principal
Installment # 2 =
100
Installment # 1
120
Penalty
Fee
Interest
Principal 20
Installment # 2 =
100
Installment # 1
120