Internal Controls for Loans
  • 28 Dec 2022
  • 2 Minutes To Read
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Internal Controls for Loans

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Article summary

In the Internal Controls section of the Creating a new loan product form, you can setup automatic internal controls for loans, such as the dormancy period or the number of days before locking accounts in arrears.

Internal Controls with Close Dormant Accounts, Lock Arrears Accounts and Cap Charges

Close dormant accounts

Loan accounts that have been completely paid off can be either manually or automatically closed. If you want Mambu to automatically close those accounts, check this option and enter the number of days after which the account should be automatically closed.

The advantage of this option is that it reduces the risk of creating incorrect reports and performance indicators with data from accounts that have been paid off, but not closed.

Lock arrears accounts

Loan accounts that are in arrears can be locked automatically after a chosen number of days. Locking the account stops the application of interest, fees, and penalties. Additionally, locked accounts do not accept transactions posted to them unless the user has permission to post transactions on a locked account. If you want Mambu to automatically lock an account, check this option and enter the number of days after which the account should be automatically locked.

Cap charges

This option allows you to automatically lock accounts in arrears when interest, fees and penalties are more than a percentage of the current principal balance or of the original principal amount. For more information on which activities are suspended when an account is locked see Locking and Unlocking oans.

Cap Charges option with percentage of Outstanding Principal Balance and Soft Cap options.

  • With Soft Cap constraints, when the threshold is exceeded, charges - such as interest, fees, or penalties - will be applied and the account will be set to a Locked (Capping) state.
  • With Hard Cap constraints, when the threshold is exceeded, charges will not be applied anymore and the account will be set to a Locked (Capping) state.

Example

We set up a loan product with the following internal control: when the interest, fees, or penalties add up to more than 10% of the outstanding principal, the account is automatically locked and no charges are applied to it.

Example of a loan account 1444 days in arrears with charges of over 30% of the initial balance leading to its state to be automatically changed to locked

If we select soft cap, the interest, fees, or penalties will be applied before the account gets automatically locked. If we select hard cap, the interest, fees, or penalties will not be applied before the account gets automatically locked.

Apply accrued charges before lock (capping)

If you select this option, accrued charges which are not yet applied will be taken into account when calculating whether an account has gone over your defined threshold. Accounts are checked during end-of-day processing and will go into a Locked state when the sum of accrued and applied interest, penalties, and fees goes over the limit. For more information on end-of-day processing jobs, see End of Day Processing and Cron Jobs.

Unlocking the account is possible when the account is no longer in arrears or the client has paid the outstanding interest, fees, and penalties. Bear in mind that locked accounts will still accrue charges but these will not be applied until the account is unlocked.

Please Note

Accounts will be closed or locked when the nightly actions are performed at midnight. Closing an account will also trigger any automated text messages or notifications you might have set up that are triggered by closing the account.

Please Note

If you want to enable any of these options for existing loans, you will see them available when editing the product.


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