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From "Binny Gopinath Sreevas (JIRA)" <>
Subject [jira] [Created] (FINERACT-60) Improvements to Interest Compounding
Date Tue, 08 Mar 2016 06:57:40 GMT
Binny Gopinath Sreevas created FINERACT-60:

             Summary: Improvements to Interest Compounding
                 Key: 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

Example calculations are attached in Excel sheets.

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