KFS Is No Longer a Document Exercise

The Key Fact Statement (KFS) has moved from being a digital-lending formality to a universal regulatory requirement.

Under recent RBI directives, every Retail and MSME loan—digital, physical, or hybrid—must be issued with a standardized KFS. There are no carve-outs by channel or ticket size.

More importantly, the regulator has raised the bar on what must be disclosed. The KFS must now include a mathematically accurate Annual Percentage Rate (APR) that captures all costs borne by the borrower, including third-party charges.

This is where many lending systems struggle.

Because KFS compliance is not a PDF problem.
It is a data and computation problem.

The Core Issue: APR Is Not a Field, It Is a Calculation

Historically, most lenders communicated pricing using an Effective Interest Rate (EIR).

A simple example:

• Loan Amount: ₹1,00,000
• Interest Rate: 12%
• Processing Fee: ₹2,000

From the borrower’s perspective, the message was straightforward: “I am borrowing at 12%.”

Under the revised KFS framework, that is no longer sufficient.

The lender must disclose the APR, defined as the internal rate of return (IRR) of the borrower’s actual cash flows—after accounting for:

• Up-front deductions
• Processing fees
• Insurance premiums
• Legal or documentation charges
• Any other mandatory costs

This APR is often materially higher than the headline interest rate.

If the system cannot compute this accurately, the KFS is incorrect—even if the PDF looks perfect.

Why Legacy LMS Architectures Break

Most older LMS platforms evolved around a structural assumption:

• Interest affects yield
• Fees are peripheral bookkeeping entries

This separation works for accounting, but it fails for regulatory disclosure.

To generate an RBI-compliant APR, the system must:

1. Aggregate all borrower-borne charges, including third-party fees
2. Model the full repayment cash-flow schedule
3. Reverse-solve the effective annualized yield using an XIRR-grade engine

If your LMS calculates a 12% interest rate, but the true APR is 14.3% once fees are included—and you disclose 12%—you are non-compliant by definition.

There is no manual workaround for this at scale.

The Cooling-Off Period Compounds the Complexity

The updated KFS framework also reinforces the borrower’s right to a Cooling-Off / Look-Up Period.

During this window, the borrower can exit the loan by repaying:

• Principal disbursed
• Proportionate APR-based charges

This introduces a second-order challenge.

A system that cannot:

• Recompute accruals mid-cycle
• Reverse fee components cleanly
• Maintain an auditable ledger trail

will struggle to operationalize cooling-off exits without manual intervention or accounting inconsistencies.

How Encore Lend Treats KFS as a Computation Outcome

At Encore, we do not treat the KFS as a document to be generated at sanction time.
We treat it as the output of the loan engine itself.

1. Real-Time APR Computation

Encore Lend includes a native XIRR-based APR engine that runs before loan sanction.

You can configure:

• Which fee heads contribute to APR
• Whether a charge is lender-retained or third-party
• How deductions affect net disbursal

The APR displayed in the KFS is the same value driving internal yield calculations—no reconciliation required.

2. Explicit Third-Party Fee Classification

Regulations require clear disclosure of fees paid to LSPs and external providers.

Encore allows fee components to be explicitly tagged as third-party. These automatically flow into the correct KFS sections without custom logic or manual mapping.

3. System-Level Cooling-Off Handling

Cooling-off exits are handled as first-class transactions, not exceptions.

• Cancellations and partial cancellations are executed through structured workflows
• Fees and interest are reversed using ledger-consistent entries
• The audit trail remains intact, without backdated edits or balance overrides

This ensures regulatory compliance and clean financial books.

Compliance Is Now a System Property

The RBI’s message is unambiguous: transparency is non-negotiable.

NBFCs cannot meet this expectation with static templates or downstream calculations. KFS accuracy depends on whether the core loan engine understands the math behind the regulation.

If the APR lives in Excel or is computed after disbursement, compliance is fragile.

Encore Lend embeds the mandate into the system itself—so every loan, every time, produces a compliant outcome by design.

Is your current LMS equipped to calculate and disclose true APRs?
Book a Demo to see how Encore Lend generates RBI-compliant KFS outputs automatically.