[jira] [Updated] (FINERACT-60) Improvements to Interest Compounding

["Binny Gopinath Sreevas (JIRA)" <ji...@apache.org>]

     [ https://issues.apache.org/jira/browse/FINERACT-60?page=com.atlassian.jira.plugin.system.issuetabpanels:all-tabpanel ]

Binny Gopinath Sreevas updated FINERACT-60:
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    Attachment: Samples_ForInterestCompounding.xlsx

3 samples with interest compounding at the last day of the month.

> Improvements to Interest Compounding
> ------------------------------------
>
>                 Key: FINERACT-60
>                 URL: https://issues.apache.org/jira/browse/FINERACT-60
>             Project: Apache Fineract
>          Issue Type: Improvement
>          Components: Loan
>            Reporter: Binny Gopinath Sreevas
>            Assignee: Markus Geiss
>         Attachments: Samples_ForInterestCompounding.xlsx
>
>
> 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 frequencies.
> Example calculations are attached in Excel sheets.



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