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Working with Credit Arrangements (Lines of Credit)

  • Updated on 09 Oct 2018
  • 11 minutes to read

Overview

A “Credit Arrangement” is a maximum amount a client (individual, group or company) can take in loans and overdrafts. It is similar in function to the “Maximum Exposure” defined in General Settings > Internal Controls. The main difference is that a Credit Arrangement can be extended separately and will be different per client, whereas the Maximum Exposure is a validation that is pre-set at system level and is the same for all clients. 

A client or a group may have multiple Credit Arrangements, each linked with specific loan and overdraft accounts. Each Credit Arrangement can have its own constraints, including maximum credit exposure amount and validity dates. The parameters of all loan and overdraft accounts linked to a Credit Arrangement must be within those constraints.

Mambu has added this functionality to give you additional flexibility in creating credit arrangements by combining multiple accounts (including loan and overdraft accounts) into one agreement.


Credit Arrangements States

In Mambu, Credit Arrangements can be set up to transition between states: Pending Approval and Approved

In Administration, under Internal Controls you can select the "New Credit Arrangement Initial State" to be either Approved or Pending Approval. If the configuration above is set to Pending Approval, then all Credit Arrangements will be created with this state and it will require user approval.

Users must have the "Approve Credit Arrangements" permission enabled in order to perform the approve action.

Additional actions possible on Credit Arrangements in Pending Approval state, and their corresponding permissions: | Action | Required Permission | | --- | --- | |Undo Approval|"Undo Approval Credit Arrangement"| |Close - Withdraw|"Withdraw Credit Arrangements"| |Undo Withdraw|"Undo Withdraw Credit Arrangements"| |Close - Reject|"Reject Credit Arrangements"| |Undo - Reject|"Undo Reject Credit Arrangements"|

Accounts cannot be added to a Credit Arrangement in the Pending Approval state; it must be approved first. Activities will be captured on the account every time a Credit Arrangement transitions between states. Rejecting or Withdrawing a Credit Arrangement is only possible from the Pending Approval state. Active Credit Arrangements (i.e. those in the Approved state) can no longer be withdrawn or rejected. It is also not possible to edit the terms of Credit Arrangements in the Closed-Withdrawn or Closed-Rejected states.

Once accounts have been added to a Credit Arrangement, it can no longer be deleted. Credit Arrangements in the Pending Approval state can always be deleted, since accounts cannot be added in this state, and the same is true for Credit Arrangements in the Approved state that do not yet have any accounts added.


Creating a New Credit Arrangement and Exposure Limits

The Credit Arrangements can be defined for each individual client or a group and therefore can be created directly in the client’s or group’s profile. The option to create a new Credit Arrangement is available under New Account → Credit Arrangement

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When creating a new Credit Arrangement, you must select the type of Exposure limit against which the Credit Arrangement will be validated: 

  • Original (approved) loan/overdraft amount - is the maximum credit exposure of all loan and overdraft accounts original loan amounts linked to the Credit Arrangement. In other words: the sum of original loan amounts and Total overdraft limit  may not be in excess of the Credit Arrangement Amount.
  • Current (outstanding) loan/overdraft balances  - is the maximum credit exposure of all loan and overdraft accounts current balances linked to the Credit Arrangement. In other words: the sum of all current loan accounts balances and total overdraft balances.  *available starting v7

Please Note
Only the outstanding funds of the linked accounts are considered in the validations of the credit arrangement exposure limit.

  • ID - each Credit Arrangement will be given a unique, automatically generated identifier. The identifier template is predefined at the database level and can only be changed by the Mambu technical team (by contacting Mambu Support).

Please Note
It is possible to edit and change the ID manually when creating or editing a Credit Arrangement.

  • Start Date - each Credit Arrangement has a start date called Starts From - accounts can only be disbursed (loan accounts) or activated (overdraft accounts) after this date.
  • End Date - each Credit Arrangement has an end date called Valid Until and loan accounts can only be disbursed if the expected maturity (as per the schedule) is before this end date. Similarly, overdraft accounts can only be approved or added if the expiry date is before this end date.
  • Notes - allow you to include any additional information about the Credit Arrangement.

Additional notes:

  • Loans with multiple tranches will only have the first tranche dates validated against the credit arrangement constraints, since the other tranche are not firmly confirmed when the account is created
  • Clients and groups can have more than one credit arrangement
  • Clients and groups may have some accounts linked to a credit arrangement and at the same time accounts outside of the credit arrangement.

Viewing a Credit Arrangement 

Once a Credit Arrangement is created, it will be displayed as a separate tab on the client/group Overview (like a loan accounts). If you open the tab, you can see the Credit Arrangement details and a list of all the accounts managed under the Credit Arrangement. You can also add notes or change the Credit Arrangement parameters. Any changes made to the Credit Arrangement are captured and stored in the audit log, which is always accessible in the Activity tab.

The Overview section of the Credit Arrangement tab includes the following information: 

  • Available Credit Amount for Original (approved) loan/overdraft amount
    • Calculated as: Credit Arrangement limit - ( Sum of all linked original loan amounts + Sum of all linked Overdraft Limits)
  • Consumed Credit Amount for Original (approved) loan/overdraft amount
    • Calculated as: Sum of all linked original loan amounts + Sum of all linked Overdraft Limits
  • Available Credit Amount  for Current (outstanding) loan/overdraft balances
    • Calculated as: Credit Arrangement limit - (Sum of all linked Loan Accounts Balances - Sum of all linked Overdrafts Balances) *available starting v7
  • Consumed Credit Amount  for Current (outstanding) loan/overdraft balances
    • Calculated as: Sum of all linked Loan Accounts Balances - Sum of all linked Overdrafts Balances
  • Approved Credit Amount - the sum of all loan and overdraft amounts of Approved and Active accounts linked to the Credit Arrangement.
  • Accounts Summary - shows information of accounts linked to the Credit Arrangement.
  • General information and Details - show detailed information about the Credit Arrangement parameters.
  • State - shows the current state of the Credit Arrangement: Pending Approval, Approved, Active, or Closed. A Credit Arrangement moves to the Active state when accounts are added to it.
  • Approval Date - the date when the credit arrangement was approved.

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Adding accounts to a Credit Arrangement

The possibility to add loan or overdraft accounts to a Credit Arrangement is defined in the settings of the respective products, with 3 available alternatives:

  • Optional: Accounts in a product with the Optional setting defined can be managed as part of a Credit Arrangement, but it’s not neccessary to have a Credit Arrangement extended in order to open an account in that product.
  • Required: Accounts in a product with the Required setting defined cannot be approved if they’re not associated with a Credit Arrangement.
  • Restricted: Accounts in a product with the Restricted setting defined are not allowed to be managed under Credit Arrangements.

This setting is available in the Loan Amount section for Loan Products and in the Overdraft Conditions section for Deposit Products. 

When a Credit Arrangement is created, no accounts are associated with it automatically and only existing loan and overdraft accounts can be added to it. In other words, loan or overdraft accounts have to be created for a client or group first, and only then can they be linked to a Credit Arrangement.

Users can add active accounts to a Credit Arrangement under the following conditions:

  • Loan Accounts ­can be added if the disbursement date is after the Credit Arrangement start date and the maturity date is before the Credit Arrangement Valid Until date. Additionally, the sum of loan amounts (original funds) cannot exceed the Credit Arrangement maximum exposure Amount.
  • Overdraft Accounts ­can be added if the overdraft expiry date is before the Credit Arrangement expiry date and if the overdraft balance doesn’t exceed the Credit Arrangement maximum exposure Amount. Overdrafts that don’t have an expiry date or maximum overdraft amount can’t be added in Credit Arrangements.

The Add Account option for a Credit Arrangement is available under the More” button in the upper left-hand corner of the tab. You can choose from a list of the available loan accounts or deposit accounts allowing overdrafts, which: 

  • already existing for a given client,
  • have a product setup allowing accounts to be added to Credit Arrangements,
  • are in the following states: Partial Application, Pending Approval, Approved, or Active,
  • are not yet assigned to a Credit Arrangement,
  • have terms falling within the constraints of the Credit Arrangement.

Once an account is linked to a Credit Arrangement, the link will be visible in the account’s Overview


Removing Accounts from a Credit Arrangement

Accounts that are not yet closed can be removed (unlinked) from the Credit Arrangement as long as the product setup does not require the account to be linked to a Credit Arrangement.

The option to Remove Account from a Credit Arrangement is also available under the More button. Choose the account you wish to remove from the list of the loan and overdraft accounts that have been linked to the Credit Arrangement.

Removing an account from a Credit Arrangement will update the Available Credit Amount Balances and Approved Credit Amount values.


Rescheduling/Refinancing Accounts under a Credit Arrangement

Accounts that are linked to a Credit Arrangement can only be rescheduled or refinanced into a different product if the new product also allows for its accounts to be linked to a Credit Arrangement. As with any account, the balance and start and end date constraints (outlined in Adding accounts to a Credit Arrangement, above) need to be met.

The rescheduled or refinanced loan will remain linked to the original loan's Credit Arrangement.


Editing a Credit Arrangement

Credit Arrangements can be adjusted at any time, even after accounts are linked to them. For example, the Credit Arrangement Amount can be increased and the Valid Until date extended. The parameters of the credit line can be edited with the “Edit” button.

Editing a Credit Arrangement allows you to change the:

  • Amount - the new Amount can be higher, lower, or equal to the sum of total loan & overdraft amounts of accounts linked to the Credit Arrangement. When the Credit Arrangement Amount is below the exposure limit, the available credit balance becomes negative. Any changes made to the Credit Arrangement limit will be logged in Mambu and can be viewed in the Activity tab.

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  • ID
  • Start Date - cannot be changed to any date after the earliest disbursement / activation date across all the loan and overdraft accounts linked to the Credit Arrangement
  • End Date - cannot be changed to any date earlier than the latest maturity / overdraft expiry date across all the loan and overdraft accounts linked to the Credit Arrangement

Closing a Credit Arrangement

Credit Arrangements that are past their Valid Until dates or are no longer needed can be closed. This option is only available for Credit Arrangements where every account linked to them is closed.

After a Credit Arrangement is closed, it will no longer be possible to add/remove accounts, edit, or delete it.

Closed Credit Arrangements will be displayed under the Closed Accounts section of the client.

Please Note
Any account linked to a closed Credit Arrangement cannot be reopened unless the Credit Arrangement itself is reopened first.


Reopening a Credit Arrangement

Closed Credit Arrangements can be reopened by users with the "Close Credit Arrangement" permission.


Deleting a Credit Arrangement

A Credit Arrangement can only be deleted from the system if no accounts are associated with it. Once the accounts have been activated, the Credit Arrangement cannot be deleted.


Custom Fields for Credit Arrangements 

Custom Fields can be helpful in managing information pertaining to a Credit Arrangement. If you want to capture specific data for a Credit Arrangement, you can add these fields from the Administration section within the Credit Arrangement entity (as depicted in the screenshot, below).

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To see more details on how to create custom fields, see Custom Fields.


Custom Views for Credit Arrangements 

Credit Arrangements are also available as a parent menu type , allowing users to retrieve relevant data specific to lines of credit. Furthermore, you will now find it easy to display, filter, export, and arrange your custom fields.

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Please be Aware
The new menu item is only visible to users with the "View Credit Arrangements Details" permission and when "Credit Arrangement" is an enabled Mambu feature.

To see more details on how to manage custom views, see Custom Views.