Arrears Settings
  • 07 Dec 2021
  • 7 Minutes To Read
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Arrears Settings

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Article summary

When setting up a new loan product, you can control how a loan's days in arrears should be calculated in the Arrears Settings section. These settings affect anything that is derived from a loan's days in arrears, such as penalties, notification templates and reports.

Arrears tolerance period

You can define the number of days of tolerance. This allows loan repayments to be late while the account remains in "Active" state and do not count towards your Performance and Accountability Report (PAR).

Some organizations use the arrears tolerance period to give field officers in remote areas - that are often offline - time to get back to a branch with internet access to log their work.

The number of days you enter will determine the period that a loan account with late repayments will remain "Active". After this period, Mambu will automatically change its state to "In Arrears", in case there are late repayments.

If you choose not to determine an Arrears Tolerance Period, enter a zero in the field. Mambu will automatically set the loan account state to "In Arrears" as soon as an installment is due and no payment has been received.

The tolerance period is defined on the loan product level. When creating or editing a loan product, enter the number of tolerance days in the Arrears Tolerance Period field. You can also establish a minimum and maximum value for the period, which enables users to determine the arrears period at account creation within these constraints.

Arrears Settings at Product Level with Arrears Tolerance Period (days), Arrears Days Calculated From and Non-Working Days in Arrears Tolerance Period and Penalty Calculation Method and Arrears Tolerance Amount (% of Outstanding Principal) and With a floor (minimum) options

Days in arrears indicator

On loan accounts, as well as in custom views, you can see the number of days a loan is late and in arrears. The difference between these two counts is due to the Days In Arrears indicator being calculated based on the the arrears tolerance period, while the Days Late indicator is displayed even when the account is not yet in arrears - due to the arrears tolerance period.

For example, a loan that has a two-day arrears tolerance period specified and where a payment is 87 days late has a Days In Arrears count of 85.

arrears-tolerance-days-count

We will review some detailed examples of calculating Days in Arrears in the next section.

For more information, go to Working with overdue loans.

Counting the days in arrears

Mambu has two options for counting the number of days in arrears.

  • Date Account First Went Into Arrears: from the date the account first went into arrears. This could stretch across several late installments, even if one or more of the earlier ones have since been repaid, provided that the account has not yet been put back into good standing.
  • Date of Oldest Currently Late Repayment: from the oldest currently-late installment, even if the account first went into arrears at an earlier date.

Arrears Days Calculated From option in Loan Product setup

Example

Consider a loan with the following expected schedule when the arrears tolerance period is zero:

As shown by the list of transactions, this account went into arrears on two occasions:

  1. On September 11, because the total expected EUR 2,041.67 on September 10 was not paid. A repayment of EUR 3,000.00 was entered on October 20 which paid in full the September installment but only partially the October installment.
  2. On October 11, because the total expected EUR 958.33 on October 10 was not paid. The next repayment expected on November 10, also failed to be paid on time.

Example: calculating Arrears Days – transactions

Using the Date Account First Went Into Arrears method of counting the days in arrears, the account would be 81 days in arrears as of September 11: the number of days between September 11 (the due date) and November 30 (the current date). This is because the account first went into arrears on September 11 and had not been put back into good standing, even though the September installment has been paid.

Calculating the number of days in arrears using the date account first went into arrears method

Using the Date of Oldest Currently Late Repayment method of counting the days in arrears, the account would be 51 days in arrears as of October 11, because the oldest late repayment was the repayment due on October 11.

Calculating the number of days in arrears using the date date of oldest currently late repayment method

Non-Working Days in Arrears Tolerance Period and Penalty Calculation

In this setting, you may specify whether the day counter, before the loan is set in arrears, should include or exclude non working days as per your holidays and non-working days settings.

Arrears settings - Non-Working Days method

You can select:

  • Include Non-Working Days: All days will be taken into account when changing the account state from "Active" to "In Arrears". If the arrears tolerance period is seven days, Mambu counts all the days in the arrears tolerance period including weekends and holidays. Penalties are applied after the arrears and penalty tolerance period has passed, and are calculated from the due date, including non-working days and holidays.
  • Exclude Non-Working Days: In this case, Mambu checks what are the non working days (holidays and weekends) defined under General Setup > Holidays. Then Mambu counts the arrears tolerance period taking into consideration only business days. If the arrears tolerance period is seven days, loans will change their state from "Active" to "In Arrears" after nine days (considering that we start counting from Monday and we have two non working days on the weekend). Penalties are applied after the arrears and penalty tolerance period has passed, and are calculated from the due date, excluding non-working days and holidays.
Please Note

When you choose to Exclude Non-Working Days, penalties for those non-working days are not calculated and thus not applied on the following days.

For more information, see Loan Penalties Setup.


Arrears tolerance percentage

Arrears Tolerance Amount (% of Outstanding Principal)

Please Note

This feature is only available for Fixed and Dynamic Term Loan Products.

You can define the Arrears Tolerance Amount (% of Outstanding Principal) on the product level for your loan accounts. If the due amount exceeds a predefined percentage in relation to the outstanding loan balance, the loan account’s state will automatically change to "In Arrears".

You can specify three optional fields under Arrears Tolerance Amount (% of Outstanding Principal):

  • Default: the default tolerance percentage
  • Min: the minimum tolerance percentage
  • Max: the maximum tolerance percentage

You can enter positive values with decimals to any of these fields. If you leave all three fields empty, the Arrears Tolerance Amount (% of Outstanding Principal) will not be taken into consideration for loan accounts created from this product.

With a floor (minimum)

In addition to Arrears Tolerance Amount (% of Outstanding Principal), you can use the option With a floor (minimum), where you can specify the minimum in absolute terms rather than as a percentage of the outstanding loan balance.

Please Note
If you specify both an Arrears Tolerance Amount (% of Outstanding Principal) and a value for With a floor (minimum), the greater value of the two is taken into account for the loans created using this Loan Product.

If a partial payment that is above the With a floor (minimum) amount is made, the status of the installment changes to "Partially Paid" on the due date, not "Late".

As an example, please consider the following loan:

  • A total of USD1,000 dynamic loan
  • Disbursement date: January 1, 2020
  • Schedule: 5 monthly installments
  • Monthly repayments due on the 1st of each month
  • Days of arrears tolerance period: 2 days
  • Arrears floor minimum: USD100
  • The arrears days calculation excludes non working days

A partial repayment of USD120 was made on February 1, and no other repayments were made since. On April 28, the loan schedule looks as follows:

arrears-tolerance-schedule-with-floor

Since the account status in not In Arrears on the February 1, there is a bigger diference between the Days in Arrears and Days Late counters.

In our example, this is how the day counters look on the April 28, 2020:

arrears-tolerance-days-floor

Please Note
The arrears tolerance percentage can be set on the account level (within the minimum and maximum specified for the product), whereas the floor can only be set on the product level and cannot be changed on account level.

Editing loan products to include arrears settings

The values specified in Arrears Tolerance Amount are applicable only to newly created Loan Accounts.

You can only edit or define these fields when the account is in a Pending state. Once the account state is changed to Approved, the fields cannot be edited anymore.

Any changes made to the Arrears Settings of the loan product propagate to all loan accounts with Pending status based on this product, regardless of whether the changes were made before or after creating the account. The changes to the loan product do not affect accounts with the Approved status.


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