Configuring fractionalization

Fractionalization is the process of funding a single loan via multiple investors. This is to build context for the procedure step below.

Fractionalization also occurs a single investor funds multiple borrowers. The lender allocates payment from the borrower to all the investors who funded the loan. Several online marketplace lending platforms fractionalize their loans with funding from multiple investors and collect a servicing fee for their services.

For example, if a borrower X, needs 5000 as loan amount and the investors choose to fund the loan in the following percentage.

The investors fund the loan as shown in the table below:

If the borrower makes a repayment of 1000 for the loan, then the investors are allocated payment in the same percentage listed above.

Prerequisites

None

Steps

Perform the following steps to set up Fractionalization:

1. Select the Enable Fractionalization checkbox to enable fractionalization in CL Loan.

If this checkbox is selected, the Investors tab appears on the contract where investment orders can be created.

       2. Select the Collect Service Fees on Total Payment checkbox to indicate if the service fee is computed on the entire payment made by the borrower or only on the investor's income. 

       3. Specify the Investor Payout job batch Size to set the batch size of the investor payout batch. If this field is specified, you must also specify the time at which this job to be run. 

       4. Select Manual Investment Payment Release. 

       5. Select Withhold Tax on Income Less Service Fees.

All the above fields are optional and impact the payment structure of the investors during the life cycle of a loan. If you choose to enable fractionalization, you must go through the above fields and configure them as per your requirement.

For more information about the fractionalization, see the Fractionalization.