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Multi Currency

This feature allows Microfinance Institutions to operate in a variety of foreign currencies in addition to the local currency or ‘Base Currency’. The number of foreign currencies that can be defined in Loan Performer is not limited.

How to setup a Multi-Currency Database in LPF

To setup a Multi-Currency Database in LPF you need to first ensure the following:

• One currency has to be defined as the Base Currency usually the local currency. This currency is selected at installation but you can also set it at Support Files/Currencies as long as no transactions have been posted yet. The base currency is the yard stick against which other currencies are measured.
• Exchange rates have to be entered as "1 foreign currency equals … local currency" (and not the other way round) under menu Support Files /Exchange rates.
• Each Shares/Savings/Loans product is defined by it’s own currency.
• The GL accounts of each Shares/Savings/Loans product must be of the same currency as the product itself. You cannot have a USD Savings product with a GL Savings account in Kenya Shillings!
• If you define products in foreign currency, you should have cash and bank accounts in those foreign currencies as well.
• If you have loans in a foreign currency you must have the Loan revolving fund account in the same currency.
• A Currency Revaluation GL account must be defined at System/Configuration/Forex Transactions. This has to be defined in the local currency. This is the account where currency gains or losses are booked because of changes in the exchange rate. In general, these are only Balance Sheet accounts.
• The user has the flexibility to have the GL Account revalued or not. This can be defined at menu "Chart of Accounts".
• Exchange rates must be entered at menu Support Files /Exchange rates before a foreign currency transaction is entered. You cannot enter a transaction in a foreign currency and then, afterwards change the exchange rate that should have been applicable. But you can enter a foreign currency transaction before the last exchange rate entered as long as there is another exchange rate defined for that day.
• Financial reports can be filtered according to the product currency as seen below from the break down per account report:

• This makes it possible for financial institutions to report to the Central Bank in a local currency while reporting to the donor’s partners in a foreign currency.

• The Financial reports can be produced in any currency for which you have defined the exchange rates like the Trial balance below produced in US dollars.

GL transactions across different currencies (Multi curreny)

• A user can have both GLs in the same currency just like the normal expense cash transactions in loan performer.
• A user can have both GL in the same foreign currency i.e not the base currency.
• A user can have one GL in local currency and the other in foreign currency.
• A receipt will also be generated in the transaction currency.
• With the introduction of the currency column, you can now also import your GL transaction in foreign currency.

With exchange rate changes scenario (Currency Revaluation and devaluation),

The example below demonstrates scenarios of exchange rate changes (Currency Revaluation and devaluation), and presentation of financial statements in both base and foreign currencies.

• Suppose you have a database in local currency and you buy an asset with foreign currency. Say a vehicle at $100 (foreign currency). At the time of buying the exchange rate was $1 = 2,000 LC (local currency). So you book: GL Account Vehicles debit with 100$ and GL Account Bank credit with the same amount.
• The LPF reports will show local currency 200,000 i.e ($100 x 2,000).
• If the exchange rate changes upwards and we get for instance 1$ = 2,500 LC. The value of our vehicle does not change in dollars ($) - it is still worth $100 - but in local currency it now is worth 250,000 LC ($100 x 2,500 LC). LPF books this for you when you enter the new rate at "Support Files/Exchange Rates". When saving the new rate, LPF checks which are the GL accounts held in this currency, what are their balances and multiplies the $ balances with the new rate divided by the old exchange rate (200,000 x 2,500/2,000). It then books: GL Account Vehicles debit 50,000 LC and GL Account Currency Gains and Losses (the Currency Revaluation account) credit 50,000 LC. This is an income, though no money has been received!
• The Trial Balance will show the vehicles account with a balance of "$100" if run in foreign currency (Dollars) or "250,000" if run in local currency. This is on condition that the GL Account Vehicles has been activated for currency revaluation in the chart of accounts.

• Note that the booking of financial transactions between a foreign currency account and a local currency account is possible with menu Accounts/GL Transactions/Add and Modify Transactions. In addition, it is possible to import financial transactions between different currency accounts..
  

  Cross currency transactions:

  LPF also allows the following under the Pay\receive in local currency feature:

  • A user can transact having both GLs in the same currency just like the normal expense cash transactions in loan performer.
  • A user can transact having both GLs in the same foreign currency.
  • A user can transact having one GL in local currency and the other in foreign currency.
  • A receipt will also be generated in the transaction currency.
  • A user can also import GL transactions in both local and foreign currency. (Bug IDs 50911,50912,50913,50914)

  Scenario of different currency GLs

  A salary payment to Eria Paulo of 4000 dollars whose GL account (540013) is in foreign currency and the money is drawn from a cash account whose GL (127010) is in local currency (Shillings).The system will do the necessary conversion and posting.

  

   

  • Two accounts of different currencies (127010 and 540013) are involved in one transaction as indicated by the above validation message.
  • When it is a cross currency transaction, the receipt is generated in the transaction currency (Paid\received in) in this case it was in Dollars as seen below:

  

   

  The expense account is debited with the amount while the cash account is credited with an equivalent in local currency as seen below:

  

  

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