Loan-loss provisioning

Loan-loss provisioning is how a lender sets aside reserves against outstanding loans that are overdue. Bankayo implements Fineract’s provisioning model in two screens:

1. Loan provisioning criteria (Organization) — the rules: which loan products, which overdue-day bands, what reserve percentage, and which liability and expense GL accounts apply.
2. Provisioning entries (Accounting) — the calculation run for a date, and optional posting of the reserve journals.

This page explains the ecosystem: every entity involved, how they connect, and the order you set things up.

What it does

On a chosen date Fineract looks at overdue loan portfolios, matches each loan to a provisioning category by days past due, applies the reserve percentage from your criteria, and produces reserved amounts grouped by office, loan product, and category.

When you create journals, Fineract posts balanced entries to the liability and expense GL accounts you configured on the criteria — those lines appear under Journal entries.

Provisioning is an accounting reserve exercise. It is separate from delinquency buckets (collection workflow labels) and separate from loan product accounting (disbursement, repayment, and income GL mappings).

Entities in play

flowchart LR
  COA[Chart of accounts\nliability + expense GLs]
  LP[Loan products]
  LA[Overdue loan accounts]
  PC[Provisioning criteria\nage bands + GLs]
  PE[Provisioning entry\nfor a date]
  PL[Entry lines]
  JE[Journal entries]

  COA --> PC
  LP --> PC
  PC --> PE
  LA --> PE
  PE --> PL
  PL --> JE
  COA --> JE

Prerequisites (setup order)

Work through this chain before your first successful entry:

1. Chart of accounts — Create or identify detail GL accounts:

   • Liability accounts (type Liability) for the provision balance sheet side.
   • Expense accounts (type Expense) for the income-statement charge. Both must allow manual entries if you inspect them on the chart.

2. Loan products — Products must exist and be used on live loans. Cash or accrual accounting on the product is unrelated to provisioning GL pickers, but you need real overdue loans for non-zero reserves.

3. Loan provisioning criteria — At least one criteria with:

   • A name and one or more loan products.
   • Every Fineract category filled in with contiguous overdue-day bands, reserve percentages, and the liability and expense GL accounts from step 1.

4. Provisioning entries — Pick a date on or before today. Fineract refuses create if no criteria exist.

End-to-end workflow

1. Define criteria (Organization)

Open Organization → Loan provisioning criteria.

• New criteria runs a wizard: Setup (name + loan products) → one step per Fineract category → Review.
• The first category’s min age starts at day 0. Each following category’s min age is one day after the previous category’s max age — bands must be contiguous with no gaps or overlaps.
• On each category step you set max age, reserve %, liability GL, and expense GL. Min age on later categories is derived for you.
• Edit opens a single-page form with the same fields in a table.

Fineract applies all criteria when calculating reserves; the entry screen does not ask you to pick one.

2. Run provisioning (Accounting)

Open Accounting → Provisioning entries.

• New entry — date on or before today. Optionally tick Create journal entries to post immediately.
• Only one entry per date is allowed. There is no delete.
• Click a row to see lines: office, product, category, overdue days, amount reserved, and the liability and expense accounts from criteria.

3. Post or adjust journals

• Create journals (list row menu or detail) posts reserve lines while journals are not yet posted.
• Recreate lines recalculates amounts if criteria changed before journals are posted.
• After posting, View journal entries jumps to the ledger. Reserve postings appear with other system and manual journals.

4. Verify on the ledger

Open Journal entries. Filter by date and office to find the provisioning transaction. Amounts use the currency code (KES, not a symbol).

How criteria maps to entry lines

For each overdue loan on the entry date Fineract:

1. Finds criteria that include the loan’s product.
2. Picks the category row whose min/max overdue-day band contains the loan’s days past due.
3. Applies provisioning percentage × eligible outstanding balance (per Fineract’s engine).
4. Aggregates into entry lines with the liability and expense accounts from that category row.

If no loan matches a band, lines for that office/product/category may be empty or zero. An entry with no matching loans still creates metadata but may show no lines.

Permissions

Fineract has no read permission for provisioning entries. Bankayo shows the screen when you hold any of the three entry permissions above.

Constraints and Fineract rules

• Criteria before entries — create is refused until at least one criteria exists.
• One entry per date — pick a different date or adjust the existing entry.
• No delete on entries — plan dates carefully.
• Contiguous age bands — each category starts the day after the previous one ends.
• Liability GL must be a liability account; expense GL must be an expense account (validated against the chart).
• Criteria delete — Fineract refuses if a provisioning entry still references that criteria.
• Posted journals — recreate is only available while journals are not posted.

Related help

• Loan provisioning criteria — wizard, edit form, and field-level detail.
• Provisioning entries — list, create, export, and row actions.
• Chart of accounts — GL types and detail accounts.
• Journal entries — ledger after posting.
• Loan product accounting — product GL mappings (separate from provisioning reserve accounts).

The address bar for criteria is Organization › Loan provisioning criteria. For entries it is Accounting › Provisioning entries.