Daily thoughts ? => !

[nayanambali]

Mifos X: The Good Parts #Advance accounting

Recently I come across a peculiar requirement of recognizing loan processing fees as income. What is peculiar in that, fees is income, and they want to account towards income. Yes even I agree to that, 

But strange thing is, paid fees is not immediately recognized as income, instead it is recognized as income as days pass, that is equally across the EMI due dates.

For example; Bank of America charges 1% of loan amount as loan processing fees. And it is collected upfront during loan disbursement.

For a loan of 1000$, processing fees is 10$, assume loan is disbursed on 1-Aug-2014 with monthly repayment and 10 installments, so on 1-Aug-2014,10$ is paid by the borrower towards bank, in cash.as processing fees, then journal entries made by the BoA in the JE transactions are

(Asset)    Cash In Hand ......................................................  $10.00  Dr

(Income) Unrecognized processing fees -----........................  $10.00  Cr

hold on, why are you accounting it towards Unrecognized ... GL account, it is already paid that too in cash.( yes even I had same doubt, when I asked the banker, he said there is no logic it is just compliance, I was not satisfied with answer, I share my finding in the later part of the blog)

Banker continued to explain the requirement saying, this 10$ should be recognized equally across the loan tenure at interval of EMI due dates.

that is , assume 1st EMI is on 1-Sept-2014, then on that day system should pass entry for 1$ as recognizing it as Income from processing fees (1$ derived as (processing fees)/ (number of installments), so that is 10$/10 = 1$) 

(Asset) Unrecognized processing fees ;............................  $1.00  Dr

(Asset) Income from processing fees         ........................  $1.00  Cr

Similarly on 1-Oct-2014

(Asset) Unrecognized processing fees ;............................  $1.00  Dr

(Asset) Income from processing fees         ........................  $1.00  Cr

by the time, loan is closed all the processing fees is recognized as income.

Can I do such configuration in Mifos X without modifying the Mifos X core code?

Yes, I am serious, it is as simple as the below approach

STEP 1: Create GL "Unrecognized processing fees", in GL sytem of Mifos X

STEP 2: In the loan product definition, go to advance accounting and add new GL mapping for "loan processing fees -LPF" as Unrecognized processing fees, so this rule will override the GL mapping done for fees and whenever LPF transaction happens it will accounted towards this GL code

STEP 3: Write batch job, that computes LPF recognized amount for loans having due date on that day and makes appropriate JE entry and also make entry into helper table with captures total recognized amount for given LPF+Loan account as of today, so that in case of loan is cloased early or written of then recognize the remain amount immediately.

A possible structure for helper table is

recognized_loan_processing_fees (as table name)

Columns are

pk,

loanId,

feeId,

feeAmount,

recognizedFeeAmount,

isCompletlyRecognized

    Let us focus on why this peculiar requirement by business, I did little investigation on this why and referred "RBI Guidelines for Implementation of Basel III" , then I realized only for me it looked like unusual behavior but from accounting practice or even if you read the basic definition of "Revenue Recognition" from investopedia.com then this practice does not look unusual practice and there is rational behind the practice. 

"An accounting principle under generally accepted accounting principles (GAAP) that determines the specific conditions under which income becomes realized as revenue. Generally, revenue is recognized only when a specific critical event has occurred and the amount of revenue is measurable."

I recommend you to read this http://www.investopedia.com/terms/r/revenuerecognition.asp.

based on the above definition, and LPF definition, (my understanding of  LPF is, bank want to collect the indirect expenses related to a loan from the borrower as LPF, expenses may occur across the life cycle of loan, that is from loan application form cost to loan closer documents cost, and in between charges like cheque processing cost, sending loan statement, or making telephone call to borrower to remind the EMI dues or it can be in-case loan insured event happens, cost associated with insurance claims).

is makes sense that just by disbursing a loan does not mean bank will not have any further expenses towards that loan, it will cost bank during loan servicing, so is safe to recognize complete LPF amount at the time closing loan account instead of in the beginning or just after loan is disbursed.

Soon I will be writing few more post under "Mifos X: The Good Parts" before I start getting into writing critics about MIfos X :)

[nayanambali]

Mifos X maker-checker, better explained!

Maker-checker (or Maker and Checker, or 4-Eyes) is one of the central principles of authorization in the Information Systems of financial organizations.The principle of maker and checker means that for each transaction, there must be at least two individuals necessary for its completion.

Mifos X has configurable maker (MC) for each and every action! yes you read it correct, for each and every action and that is great feature. But for now not let get into pros and cons of it, for sure I will write more detailed blog on it later.

Based on the definition of maker-checker, if MC is enabled for any action then now that action will become two step process, i.e., maker does the action and checker with permission approves/reject the action.

Now consider the example of client creation and activation workflow without and with enabling MC.

Assume the below scenario at "Bangalore" branch of Finmax financial institute

There are three staffs at three different hierarchical level of organization,

Lokesh as Loan Officer

Adam as Assistant Manager

And  Manoj  Branch Manager

Scenario without MC:

Lokesh creates the client profile and Manoj activate/reject the client.

Scenario with MC (1):

Now with help of MC, organization can define better workflow/process for client creation and activation.

Assume that organization wants put maker-checker (4 eyes) for both client creation and client activation step and creates appropriate roles with permission as below

Lokeh can create only clients

Adam can create clients, can be checker for client creation and can be maker for client activation.

Manoj can be checker for client activation.

So process will be as follows

Step 1: Lokesh creates a client called Caveri, now created client is  pending for approval from checker

Step 2: Adam approves the client creation

Step 3: Adam activates the client, but since MC is enable for both creation and activation, so client activation goes into pending for approval from checker.

Step 4 : Manoj approves the client pending for activation, so final Caveri client is created and activated in the system.

Now, how do I do this in Mifos X? below information should help you.

STEP 1: Enable maker-checker at global level

Navigate to Admin > System > Configurations

In this page enable the maker-checker (after enabling valiue for Enabled? should be true )

This means, now I have enabled maker-checker in the application, if there any maker-checker enabled per action (ex: say approve loan, create client) then those actions will go through MC workflow.

if this maker-checker is disabled, even if you have defined maker-checker at each action level then no MC check is made as this is global configuration and overrides MC configuration at each action level.

STEP 2: Enable maker-checker at each action level

Navigate to Admin > System > Configure Maker Checker Tasks

Click on Edit at right top corner on the page 

And enable maker-checker for Client creation and client activation

STEP 3: Assign checker permission to appropriate roles

Example: Monoj is manager, so make sure manage role has "client activation-checker" permission.

Navigate to Admin > System > Manage Roles and Permissions

click on the appropriate role and give checker permission

We are done with configuration. Now if you create client then it will not be created unless checker approve it (till it is approved, it will be waiting in checker inbox ). Similarly any other action configured for MC workflow will behave the same.

[nayanambali]

Why mandatory savings should be extension of normal savings than recurring deposit?

Typically in micro-finance you come across the special type of savings product called, mandatory savings account.

Why some one need such mandatory savings account

To develop financial discipline and develop small saving practice among the customers/ SHG members.

And these account act as proof of person's financial discipline and gives credibility/eligibility to get micro-loans from MFIs/Banks (usually in India, bank linkage programs gives a loan to person who has shown consistent savings at-least for 6 months )

Now coming to the point, Why mandatory savings should be extension of normal savings instead of recurring deposit?

The reasons are

Mandatory saving accounts are NOT term products, that means there is no maturity date for these accounts unlike RD accounts. And customer can keep these account active as long as she/he wants to. (so one need NOT mention the maturity date for these accounts)

These are like saving account and very much allow customer to withdraw money from their account un-like RD account, where account holder can't withdrawal partial amount. Either wait till maturity date or pre-close the account.

Mandatory amount can change with time.based on the organization needs

these attributes makes mandatory savings as spacial case of savings account and not special case of recurring deposit.

To know more about What is a recurring deposit? (link opens new tab with article from business-standard )

[nayanambali]

Get Jet pack for Mifso X development !^!

Yes, you read it right, you can get a set of Jet pack for Mifos X development. If you are looking for zero turnaround time (practically <10secs) to see the your code changes propagating to running application (without rebuilding app and restarting the app server)

jRebel is the ultimate solution!

I will be brief about how to set up jRebel for Mifos X dev environment, if you are using Eclipse as IDE.

I assume, you are familiar with Mifos X development and already have MIfos X dev env setup in Eclipse. (I use STS, is wrapper on Eclipse, for this setup context it as good as Eclipse)

STEP 1: Install jRebel plugin into IDE

To install JRebel for Eclipse, access Help > Eclipse Marketplace…. When opening it for the first time, you may need to pick a solution catalog. Select Eclipse Marketplace and search for JRebel. Click Install once found.

STEP 2 :Activation

After restarting Eclipse you most likely won’t have a license yet. The plugin will notify you about this sad fact. This happens via a popup notification:

Click the link in this popup. The JRebel activation window will immediately open. You can also open it from Help > JRebel Activation.

This window contains the following:

If you don’t have a JRebel license yet - click the link to open a web browser and apply for a totally free evaluation license.

If you have a license and want to register it - if you are awesome and already own a JRebel license then here is where you can apply it. There are three options to do this:

Paste license code from the clipboard - once you register for a free evaluation license, you will receive a license code via email and in the web browser. Paste this code here to activate it!

Choose license file from the disk - provided you bought a full license, you received the jrebel.lic file via email. Save this file in a location of your choice on your workstation and refer to it from here. Press Browse... to locate the file.

Specify License Server address - use this option if you get your JRebel license from a central license server. You will get this address from your administrator. You can enable or disable the option to use the proxy settings stored in your IDE - if your workstation setup requires this.

Press Apply or OK to store your chosen license information. Alternatively, press Cancel to dismiss the activation window.

Congratulations, you now have a fully functional JRebel installed!

STEP 3 :Project configuration

JRebel requires just one configuration file: rebel.xml. This is used by JRebel to map the running application to the workspace. The good news here is that the IDE plugin can automate the configuration for you. In fact, rebel.xml is generated automatically once you enable JRebel nature for the project.

It will generates rebel.xml at ~\mifosng-provider\src\main\resources\rebel.xml

And content of the file look similar to below xml

    <classpath>         <dir name="F:/clients/mifos/mifosx/mifosng-provider/bin">         </dir>     </classpath>

dir tag refers to the directory in that IDE compiles the java class, Rebel needs to know when any code is changed, from where it needs to pick the recompiled files :)

STEP 4 :Automatic build

JRebel does not compile Java code on its own. It relies on the compilation results from the Java compiler. For a smooth user experience with the tool it is recommended to enable the automatic build feature, also known as compile-on-save.

You can enable this option from the Project menu, by clicking Build Automatically menu item.

STEP 5 : Server configuration

Rebel need to where your application is running, since Mifos setup uses gradle task for building, deploying and starting the server. As we are not using standalone server to deploy and and run the server, In this case it is better run Rebel as javaagent.

To run jRebel as javaagent, download the current stable jRebel from here and extract the zip and locate the jrebel.jar, And then open the gradlew  (~\mifosng-provider\gradlew) file in edit mode and add -javaagent:[location of jRebel extracted]/jrebel/jrebel.jar -noverify to JAVA_OPTS

Example configuration: JAVA_OPTS="-Xms512m -Xmx512m -XX:PermSize=256m -XX:MaxPermSize=512m -javaagent:F:/utilities/jrebel/jrebel.jar -noverify" Save the file and restart the server with gradle command (i.e., gradlew clean tomcatRunWar)

STEP 6 : Confirm jRebel configuration is successful

When server is booting, first you will see jRebel logs (similar to below one) 

Yep, jRebel agent is started! Once server is started do some simple code change and wait for IDE to recompile that class and verify those changes are reflected on the running application (you may try as simple as logging "Welcome to Jetpack development with jRebel" message :)

Be sensible to jRebel, do not expect big bang changes will be reloaded without issue.

Think of below examples:

Example 1: If you modify the constructor, then do not expect jRebel will re-initialize the objects which present in JVM with new constructor, but newly initialized object will be from modified construct :)

Example 2: If add new attributes to a class, jRebel injects the that attribute to old objects also nut do not expect value for that attribute it will be just NULL.

So jRebel for sure gives you Jetpack to do faster development.

[nayanambali]

@Mifos This is how we have structured Git workflow

We (@mifos) use Github service as revision control system. And above diagram shows the infrastructure setup. Even though we use a distributed version control workflow, we use openMF account as central copy (symbolic) only for release management activity.

OpenMF: Is our organizational Github account and openmf/mifosx is used as symbolic centralized repository for release management, also act as upstream repo.

Steve: is Steve’s github account (username), it is recommended for each contributor to open account in Github and  fork the repo rather than directly requesting for pull (request-pull). Also use forked repo as origin repo. (Act as backup till your pull requested is accepted and provide more visible/open collaboration on each pull request with project maintainer about code review/feedback).

Our git workflow defines a strict branching model designed around the project release. This workflow assigns very specific roles to different branches and defines how and when they should interact. In addition to feature branches, it uses individual branches for preparing, maintaining, and recording releases. Of course, you also get to leverage all the benefits like pull requests, isolated experiments, and more efficient collaboration.

How It Works

Our workflow uses a central repository as the communication hub for all developers. And developers work locally and push branches to the origin repo and from origin repo make request for pull.

Instead of a single master branch, this workflow uses two branches to record the history of the project. The release specific branch stores the official release history, and the develop branch serves as an integration branch for features. It's also convenient to tag all commits in the master branch with a version number.

Release Branches

Each new release should reside in its own branch, which branched off of master. But, instead of branching off of master, feature branches use develop as their parent branch. When a feature is complete, it gets merged back into develop. Features should never interact directly with master.

Once develop has acquired enough features for a release (or a predetermined release date is approaching), no new features can be added to develop after this point—only bug fixes, documentation generation, and other release-oriented tasks should go in develop.

Once it's ready to ship, you merge develop into master and a release branch off of master with version number. Creating this branch means product is released,

Hotfix branches

Hotfix branches are used to quickly patch production releases. This is the only branch that should fork directly off of release branch. As soon as the fix is complete, it should be merged into both master and develop.

Having a dedicated line of development for bug fixes lets our team address issues without interrupting the rest of the workflow or waiting for the next release cycle. You can think of maintenance branches as ad hoc release branches that work directly with release branch.

One of the drawback of this approach is

1) Once develop is ready for release, no more pull-requests are accepted and we are some what blocking development on develop branch. But main idea behind develop branch is to have  continuous development stream.

Other side we have an advantage of this model is for volunteers without much aware of release plans they can contribute and project maintainer can take care of cherry picking it to a bug fix branch if required

External links

https://www.atlassian.com/git/workflows#!workflow-gitflow

http://nvie.com/posts/a-successful-git-branching-model/

https://github.com/blog/39-say-hello-to-the-network-graph-visualizer

[nayanambali]

This is how I explained "Decimal places" and "Currency in multiples of" in Mifos X loan product definition to my client

Let me give you a brief background about this post. Mifos X is open source CBS (CORE Banking Solution) for financial inclusion. To know more about it, you have to visit http://mifos.org/ During one the per-sales demo, I have to explain how easily a financial institute can roll out new products to their present customers and to attract new customers.  To define new products, Mifos X has option to define loan products with many configurations and two of them are "Decimal places" and "Currency in multiples of", I explained about these indicators as below

Decimal places : Precision level of the EMI amount after the decimal places (in case of EMI computed by the system ) Currency in multiples of: Precision level of the EMI amount before the decimal places (in case of EMI computed by the system )

and then conversation went like this, Nayan: both of these configuration are mutually exclusive, meaning if you set one parameter then should NOT set other, Client: I do not agree to this point and I should be able to configure both together, why it is not possible. Nayan: It does not make sense. Client:  Why it does not make sense??!! Nayan: Let me put it in this way and then we will take the question why it does not make sense :) I said, don't think "Decimal places" (DP) and "Currency in multiples of" (CIMO)  as two different parameters, instead think it as one parameter to indicate the precision of EMI computed by the system

CASE 1: Precision is set to 0  (is same as DP = 0 and CIMO = 0)

CASE 2: Precision is set to .01  (is same as DP = 2 and CIMO = 0)

CASE 3: Precision is set to 100  (is same as DP = 0 and CIMO = 100)

After this explanation, client agreed with my point, but from usabilty point of view Mifos X needs better way explain these configuration, still I am think what is that better way :)

Hope I did good job in explaining these configuration in right way!!

In next post, I will write about what Mifos X is doing right/wrong with these configuration values.

[thepatshea]

I’m a minimalist. An extreme minimalist. 1,000 times more minimalist than anyone I know. Yet I’m still a fully-functioning member of modern society. You can be a minimalist without living in a cave.

How am I a minimalist?

All my possessions fit into a small backpack.

I don’t have a bed or a...