Writing Off a Loan & Force Settlement

The Loan Write-Off Flow (/loans/:hex/writeoff) removes uncollectible credit exposure from the institutional balance sheet while safeguarding regulatory compliance and auditing integrity.

1. Statutory Context & Authorization

Required Privilege: loans: writeoff (strictly reserved for the Executive Director and the Accountant).
Two Operational Modes:
1. Full Write-Off (mode="writeoff"): The entire outstanding exposure (principal, interest, fees, penalties) is removed from active receivables, absorbed first by the impairment reserve already held and secondly by write-off expense.
2. Force Settle & Waive (mode="close"): A small remaining residual balance (e.g., KES 50–500 due to rounding, minor penalty discrepancy, or goodwill settlement) within the institutional waiver ceiling (loans.waiver_max) is waived to achieve clean loan closure.

2. The 3-Step Write-Off Rail

[ Step 1: The Exposure ] ──► [ Step 2: The Reason ] ──► [ Step 3: Confirm ]

Step 1: The Exposure (`#loan`)

Examine the exact financial position of the facility:

Exposure Tile	Value Displayed	Financial Significance
Principal Balance	KES Outstanding	The core capital asset being removed from the books.
Accrued Interest	KES Overdue	Contractual interest that will be reversed out of receivables.
Fees & Penalties	KES Accumulated	Late charges that will be canceled upon write-off.
Impairment Provision	KES Held in Reserve	The specific provision already recognized in GL account `12900`.
Net P&L Hit	KES Additional Cost	Remaining unprovisioned exposure that will hit this period’s P&L expense.

Select the Exit Path:
- Choose Write-off the exposure (for dead or non-performing loans).
- Choose Force-settle the loan (enabled only if the total remaining debt is below the maximum waiver ceiling).

Step 2: The Reason (`#reason`)

Regulatory bodies and external auditors require an explicit, unalterable justification for every write-off:

Documented Reason Categories:
- Borrower Deceased (Attach death certificate / chief’s letter).
- Permanent Business Insolvency / Closure (Attach auctioneer final return).
- Untraceable Borrower / Skip (Attach skip tracing and field investigation report).
- Legal Settlement / Dispute Compromise (Attach court consent or arbitration agreement).
Audit Narrative: Type a clear narrative explaining the recovery efforts exhausted, legal notices served, and why further recovery is commercially unviable.

Step 3: Confirm & Sign Off (`#confirm`)

Review the exact accounting entries generated by the transaction:

Double-Entry Journal:
  Dr 12900 Allowance for Loan Impairment   (Absorbs existing provision)
  Dr 52000 Loan Write-Off Expense          (Absorbs unprovisioned remainder)
      Cr 12100 Gross Loan Portfolio Asset  (Reduces loan book to zero)
      Cr 12200 Interest Receivable         (Reverses uncollected accrual)

Statutory Acknowledgment: Check the confirmation box: “I confirm that all commercial and field recovery remedies have been exhausted, and authorize the permanent write-off of this asset.”
Execute Write-Off: Click Sign and Write Off.

3. Post-Write-Off Protocol & Ongoing Recovery

[!CAUTION] Legal Liability Remains Intact: Writing off a loan is an internal balance sheet accounting procedure. It does not discharge the borrower’s debt or release guarantors.

CRB Adverse Status: The credit bureau record is updated to Written Off / Defaulted.
Secondary Recovery Book: The loan transfers to the institutional recovery queue (/loans?status=written_off).
Accounting for Future Recoveries: Any future cash received on this facility is recognized directly as 43000 Bad Debt Recoveries Revenue, directly boosting institutional net income.

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