Loan Penalties Setup

Penalty Calculation Methods

In Mambu the penalties are applied automatically when an installment is in arrears. The penalties are being computed based on the calculation methods explained below:

Penalty Tolerance Period

In the Penalty Tolerance Period you can define a number of days before which no penalties will be applied to an account even if there is a late repayment.

Delaying the application of the penalty means that no penalties will be applied for the number of days defined as the Penalty Tolerance Period. After the penalty tolerance period is over, penalties will be applied on the basis of overdue principal balance and the number of days late.

Let us review a few examples to better understand the behaviour. The Penalty Calculation Method in the cases below is: Overdue Principal * # of Late Days * Penalty Rate

Example 1

Arrears Tolerance Period: 32 days
Penalty Tolerance Period: 40 days
Account 34 days late (2 days in arrears)

The penalty is not applied yet, because the penalty tolerance period is still ongoing.

Example 2

Arrears Tolerance Period: 32 days
Penalty Tolerance Period: 40 days
Account 41 days late (9 days in arrears)

The penalty is applied, and is calculated based on the number of days late (41).

Example 3

Arrears Tolerance Period: 40 days
Penalty Tolerance Period: 32 days
Account 34 days late

The installment is within the Arrears Tolerance Period, so there are no penalties applied.

Example 4

Arrears Tolerance Period: 40 days
Penalty Tolerance Period: 32 days
Account 41 days late (1 day in arrears)

The penalty is applied, and is calculated based on the number of days late (41).

Penalty Rate

Here, you can enter the rate you want to apply as penalty. You can either define a default, minimum or maximum rate or all of them.
For the two methodologies where the penalties are calculated on the Overdue Principal the Penalty rate has to be defined as a daily one*.

When the penalties are calculated on the Outstanding principal, the Penalty rate frequency always follows the Interest rate frequency. (e.g. If the Interest Rate in a product is 30% per year, the Penalty rate can only be a yearly one for this product).

Penalty Application

For all Penalty methodologies in Mambu, penalties are accrued on a daily basis.

The main difference is that for the methodologies where the penalties are calculated on the Overdue Principal there will be a daily Interest application transaction posted to the loan account, while for the Outstanding principal methodology the penalty is accrued daily and the accumulated amount will be applied to the account, along with the Interest accrued amount application based on the product settings (e.g. when the Interest accrued amount is applied either manually or automatically, when a repayment is posted etc).

The Accrued Overdue Penalties will be displayed at account level and if the balance of the accrued overdue penalty is equal to 0, then they will not be displayed.
The overdue penalty amount will be accrued and applied nightly by the cron jobs.

Notes:

• If penalties are enabled for a Product, the penalty rate can also be defined individually per loan account (When viewing the Loan Account details click “More”  → “Edit Penalty Rate”).
• For Loan Products where the “Interest Rate Type” is “None” and Penalties are calculated on Outstanding Balance, the default Penalty Charge Frequency is % per year.
• Changing the penalties settings for an existing Product with active accounts will affect only new created accounts. For the existing ones penalties will keep being calculated with the methodology it was enabled when the accounts were created.

Reversal (Adjustment)

When you reverse penalty accrued amounts in Mambu, they will be recalculated with the next cron job update. You can also backdate transactions for reversed penalties and they will be recomputed. In the case, that recomputed amount is 0, penalty transactions are not reapplied.

Edit Schedule

In Edit Schedule you can update penalty accrued amount when number of days late is changed.
In Mambu you have an option to change the due date, e.g. the number of days late can be increased or decreased. Holidays and Non-working days are excluded when computing the penalty accrued amount, if requested by product settings.

Lock Account

If the account is locked, the penalty amount will still be accrued, but they will not be applied. They will apply, when the account is unlocked again.

Change Rate

At change rate, the penalty accrued amount will be recalculated and updated with the new penalty rate.

Closure

At closure the penalty accrued amount will be applied automatically.

* If you don't already have an account you will be prompted to create one when you first visit the site.