Loan loss provision in microfinance, explained and calculated
What loan loss provision is, how loans are classified by days overdue, which journal entries to pass, and a calculator to try with your own portfolio figures.
- Ageing on the right date
- Classification by product
- Rates you control
- Provision journal
- Write-off link
Loan loss provision is an amount an MFI sets aside from its income to cover loans that may not be repaid. Outstanding loans are classified by how many days they are overdue, a required rate is applied to each class, and the total is booked by debiting provision expense and crediting the loan loss provision account. In Bangladesh the classes and rates are set by MRA circulars. EOMS BD calculates and books it every month.
ক্ষুদ্রঋণে লোন লস প্রভিশন কী ও কীভাবে হিসাব হয়
লোন লস প্রভিশন হলো যে ঋণ ফেরত না-ও আসতে পারে তার জন্য আয় থেকে আলাদা করে রাখা অর্থ। বকেয়ার দিন অনুযায়ী আউটস্ট্যান্ডিং ঋণকে শ্রেণিতে ভাগ করে প্রতিটি শ্রেণিতে নির্ধারিত হার প্রয়োগ করা হয়, তারপর প্রভিশন ব্যয় ডেবিট ও লোন লস প্রভিশন ক্রেডিট করা হয়। বাংলাদেশে শ্রেণি ও হার MRA-র সার্কুলারে নির্ধারিত।
Common provisioning mistakes in MFIs
Provision changes the surplus directly, so small errors in the ageing report turn into real misstatements that auditors and regulators pick up.
Wrong ageing date
Loans are aged on the wrong date or by instalments missed rather than days overdue.
Old rates
Rates from an earlier circular stay in the spreadsheet after the regulator changes them.
Rescheduled loans
Rescheduled or waived loans are moved to 'current' without following the rules for reclassification.
Write-offs not matched
Loans are written off from the MIS but the provision account is not reduced in the ledger.
Calculate provision from your loan ageing
Enter outstanding amounts in each overdue class and the rate for each class. The calculator totals the portfolio and the provision required. Replace the example rates with those in your regulator's current circular.
- Ageing on the right date
- Classification by product
- Rates you control
- Provision journal
The rates are examples only. Enter the rates in your regulator’s (e.g. MRA’s) current circular.
What your organisation gets
Ageing on the right date
Every loan aged by days overdue on the reporting date, from the MIS repayment schedule.
Classification by product
Classes reported by product and branch, so you see where risk is building.
Rates you control
Rates stored with their effective date and source circular, so changes are traceable.
Provision journal
The month's top-up or release prepared as a journal for approval.
Write-off link
Write-offs reduce the loan and the provision together, and recoveries go to income.
Trend report
Provision and PAR by month and branch for management and the board.
MIS check
Total aged portfolio agreed to the ledger loan balance before the provision is booked.
Audit schedule
A provision schedule with workings ready for the auditor.
A complete NGO accounting system: software and service
Switch on only what you need. Hand us the whole job, or let your own team run the software.
Accounts
- Chart of accounts mapped to MRA/donor formats
- Vouchers with approval steps
- Ledger, cash and bank books
- Trial balance and statements
- Budget vs actual
Loans
- Product-wise disbursement & recovery
- Service charge (declining balance)
- Accrued service charge
- Write-off, waiver, rescheduling
- Loan ageing & provision
Savings & insurance
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- Savings adjustment on closing
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Donor projects
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- Advance and liquidation
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People & assets
- Payroll with field allowances
- Provident fund & gratuity
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- Fixed assets & depreciation
- Tax & VAT deducted at source
Reports
- MRA-format monthly/quarterly/annual
- PKSF and lender reports
- NGO Affairs Bureau project accounts
- PAR, OTR, OSS, FSS
- Audit-ready statements & notes
Control & ownership
- Keep your current MIS
- Role permissions & audit trail
- Written NDA, your data stays yours
- Daily backup, cloud access
- Bangla + English, Excel/PDF
First consultation free, then a written quote
Tell us your branches and members, projects and donors, current software and the reports you need. We send a work plan and a line-by-line written quote, with no hidden charges.
Six kinds of organisation, one accounting system
Each has its own regulator, rules and reports, and the system is set up for that.
How we start, in 5 steps
Take the ageing report
Outstanding principal by days overdue on the reporting date, from the MIS.
Agree it to the ledger
The aged total must equal the loans to members balance.
Apply the rates
Each class multiplied by its required rate gives the provision needed.
Book the difference
Required provision minus the existing balance is the month's journal entry.
Report and review
Provision, PAR and write-off candidates reviewed by management.
Manual provision versus provision from the system
| Manual spreadsheet | Calculated by the system | |
|---|---|---|
| Ageing source | Copied from MIS reports | Read from repayment schedules |
| Rates | Typed into formulas | Stored with effective date |
| Agreement to ledger | Often skipped | Checked before booking |
| Journal entry | Typed by hand | Prepared automatically |
| Write-offs | Separate step | Linked to provision |
| Audit trail | Spreadsheet versions | Schedule and workings saved |
Frequently asked questions
It is an expense booked to cover expected losses on loans that may not be repaid. It reduces the surplus and is shown as a deduction from loans to members in the financial position.
Debit provision for loan loss (expense) and credit loan loss provision. When a loan is written off, debit loan loss provision and credit loans to members.
By how many days the loan is overdue on the reporting date. Each class, from current to the most overdue, carries its own provision rate. In Bangladesh the classes and rates are set by MRA.
Use the rates in your regulator's current circular. The calculator on this page uses example rates only, so you can see how the calculation works.
If loans of ৳2,60,000 are in a class with a 25 percent rate, the provision needed for that class is ৳65,000. Add up all classes, subtract the provision already held, and book the difference.
The recovery is recorded as income, usually 'recovery of written-off loans', because the loan and its provision were already removed.
Yes. We take the ageing from your MIS, agree it to the ledger, apply the current rates, prepare the journal and the schedule, and report it with PAR.
More on NGO & microfinance accounting
Get provision right every month
Send us your last ageing report and loan balance. We will show you how the provision should be calculated and booked.
+880 1784-222255info@eomsbd.com · Dhaka, Bangladesh