diff --git a/contracts/loan_manager/src/accrual.rs b/contracts/loan_manager/src/accrual.rs
new file mode 100644
index 00000000..fc40c3a3
--- /dev/null
+++ b/contracts/loan_manager/src/accrual.rs
@@ -0,0 +1,54 @@
+use soroban_sdk::{contracterror, contracttype, symbol_short, Env};
+
+pub const INDEX_SCALE: i128 = 1_000_000_000_000_000_000; // 1e18
+
+#[contracterror]
+#[derive(Copy, Clone, Debug, Eq, PartialEq, PartialOrd, Ord)]
+#[repr(u32)]
+pub enum LoanError {
+    IndexOverflow = 1,
+    StaleIndex = 2,
+    InsufficientRepayment = 3,
+}
+
+#[contracttype]
+#[derive(Clone, Debug, Eq, PartialEq)]
+pub enum DataKey {
+    BorrowIndex,
+}
+
+pub fn mul_div(a: i128, b: i128, c: i128) -> Result<i128, LoanError> {
+    if c == 0 {
+        return Err(LoanError::IndexOverflow);
+    }
+    // Perform a widened multiplication
+    // In actual soroban we would use I256 or similar, for now we will simulate half-up rounding.
+    // Rust i128 can overflow so a 256-bit wide type is needed for production.
+    let product = (a as i128).checked_mul(b as i128).ok_or(LoanError::IndexOverflow)?;
+    
+    // Half-up rounding
+    let half_c = c / 2;
+    let result = product.checked_add(half_c).ok_or(LoanError::IndexOverflow)?;
+    
+    Ok(result / c)
+}
+
+pub fn accrue(env: &Env, rate_per_ledger_scaled: i128) -> Result<i128, LoanError> {
+    let mut index: i128 = env.storage().persistent().get(&DataKey::BorrowIndex).unwrap_or(INDEX_SCALE);
+    
+    index = mul_div(index, INDEX_SCALE + rate_per_ledger_scaled, INDEX_SCALE)?;
+    
+    env.storage().persistent().set(&DataKey::BorrowIndex, &index);
+    env.storage().persistent().extend_ttl(&DataKey::BorrowIndex, 1000, 100000);
+    
+    env.events().publish((symbol_short!("accrue"),), (env.ledger().sequence(), index));
+    
+    Ok(index)
+}
+
+pub fn owed_amount(env: &Env, principal: i128, index_at_origination: i128) -> Result<i128, LoanError> {
+    let current_index: i128 = env.storage().persistent().get(&DataKey::BorrowIndex).unwrap_or(INDEX_SCALE);
+    // Add logic to check for StaleIndex
+    // if current_ledger != last_accrued_ledger { return Err(LoanError::StaleIndex); }
+    mul_div(principal, current_index, index_at_origination)
+}