The common rule in Qard al-Hasan funds is simple: whoever has kept more money in the fund for longer gets a bigger loan. Putting even this simple rule into practice, however, takes several small decisions: whether balances are measured daily or monthly, whether the minimum or the average balance counts, and whether an amount held as collateral for another loan should earn points. Each of these choices changes the outcome for a member.
Dara's Scoring & Eligibility module was built for exactly this. Below we trace the path from balance to loan limit, step by step.
Daily scores, every night
Every night, the system reads the end-of-day balance of every account. Each account is assigned a scoring policy that determines which method and which parameters are used to calculate its score. The result is recorded as two figures: the score for that day and the cumulative score up to that day. Because the calculation runs nightly, every member's score is always ready and does not have to be recalculated when they apply for a loan.
Eleven scoring methods
The scoring method determines how a balance is converted into points. Eleven methods are available; here are some of the most widely used:
- Average daily balance. The sum of daily balances divided by the number of days in the period. It is simple and easy to explain to members.
- Minimum end-of-day balance. The lowest balance across the whole period is what counts. It suits a fund that wants to reward money that stays put and neutralize short-term deposits made just before a loan application.
- Monthly minimum. The lowest balance of each month is taken and then averaged. The month can be a Solar Hijri month.
- Weighted daily score. Every unit of balance earns points each day. Held amounts, dormant accounts or restricted accounts can be given a lower weight, and days on which the balance falls below a set threshold can be ignored.
- Progressive tiers. The balance is split into tiers, each with its own multiplier, much like progressive tax brackets. A good fit for funds that want to encourage larger deposits.
- Combined methods. A combination of the minimum and the average daily balance, or a score that grows the longer the account is held.
From score to financing limit
The eligibility policy converts a score into an amount. There are four eligibility models:
- Fixed multiplier: the limit equals the score multiplied by a factor.
- Tiered: the multiplier changes depending on which range the score falls in.
- Tenure bonus: the base limit rises slightly with each month of the member's tenure.
- Combined: a weighted average of several models.
After the raw calculation, the limit is rounded according to the policy's rounding rule, and the minimum and maximum amounts are applied. If the fund's bylaws rule out loans below a certain amount, or cap loans at a set amount, this is where that rule is applied.
Rules outside the code
Each scoring method is a fixed calculation pattern, and its parameters, such as the scoring unit, tiers and multipliers, are stored in the policy itself. Policies are versioned and have an effective date. If the board decides the rule should change from the start of the year, a new version of the policy is defined with that effective date, and no developer is needed.
Simulation
A fund member or a branch officer can see what the loan limit would be if the current balance were maintained until a given date. The simulation uses the same method and the same policy as the real calculation. The figure the member sees therefore matches the figure on the day they apply, unless the balance or the policy has changed in the meantime.
A few tips for designing a policy
- Read the fund's bylaws carefully before choosing a method. Many bylaws describe one of these methods without naming it.
- Decide before activating the policy whether a deposit pledged as collateral for one loan should also earn points toward the next. The separate weight for held amounts exists for exactly this purpose.
- Try out a new policy with simulations on a few sample accounts before you switch it on.
- Publish the rule so members can read it. A member who knows how their score is calculated accepts their place in the loan queue more readily.
Dara's Customer Loyalty module follows similar logic. Loyalty points are generated by its own rules engine, are capped to prevent abuse, and when they are redeemed, the corresponding accounting voucher is posted to the Financial Core.
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