diff --git a/CHANGELOG.md b/CHANGELOG.md
index d62e57e..411ea86 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -7,7 +7,9 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 
 ## [Unreleased]
 
-_No unreleased changes._
+### Fixed
+- Allow local modules to be initialized and compiled in their respective
+  directories, instead of forcing them to be "installed" inside `ZIM_HOME`.
 
 ## [1.2.1] - 2020-05-26
 
diff --git a/README.md b/README.md
index 7d1459e..680082e 100644
--- a/README.md
+++ b/README.md
@@ -87,8 +87,8 @@ Usage: <strong>zmodule</strong> &lt;url&gt; [<strong>-n</strong>|<strong>--name<
 Add <strong>zmodule</strong> calls to your <strong>~/.zimrc</strong> file to define the modules to be initialized. The modules are
 initialized in the same order they are defined.
 
-  &lt;url&gt;                          Required repository URL or path. The following formats are
-                                 equivalent: <strong>name</strong>, <strong>zimfw/name</strong>, <strong>https://github.com/zimfw/name.git</strong>.
+  &lt;url&gt;                          Module absolute path or repository URL. The following URL formats
+                                 are equivalent: <strong>name</strong>, <strong>zimfw/name</strong>, <strong>https://github.com/zimfw/name.git</strong>.
   <strong>-n</strong>|<strong>--name</strong> &lt;module_name&gt;        Set a custom module name. Default: the last component in the &lt;url&gt;.
 
 Repository options:
diff --git a/src/stage2/29_zimfw_build_login_init.zsh.erb b/src/stage2/29_zimfw_build_login_init.zsh.erb
index 89eb2f1..3438828 100644
--- a/src/stage2/29_zimfw_build_login_init.zsh.erb
+++ b/src/stage2/29_zimfw_build_login_init.zsh.erb
@@ -1,4 +1,6 @@
 _zimfw_build_login_init() {
+  local -Ur zscriptdirs=(${ZIM_HOME} ${${_zscripts%%${ZIM_HOME}/*}:h})
+  local -r zscriptglob=("${^zscriptdirs[@]}/(^*test*/)#*.zsh(|-theme)(N-.)")
   local -r ztarget=${ZIM_HOME}/login_init.zsh
   _zimfw_mv =(
     print -Rn "<%= render_escaped("src/templates/login_init.zsh.erb") %>"
diff --git a/src/stage2/30_zmodule.zsh.erb b/src/stage2/30_zmodule.zsh.erb
index e090498..e957ffb 100644
--- a/src/stage2/30_zmodule.zsh.erb
+++ b/src/stage2/30_zmodule.zsh.erb
@@ -4,8 +4,8 @@ zmodule() {
 Add %Bzmodule%b calls to your %B${ZDOTDIR:-${HOME}}/.zimrc%b file to define the modules to be initialized.
 The modules are initialized in the same order they are defined.
 
-  <url>                          Required repository URL or path. The following formats are
-                                 equivalent: %Bname%b, %Bzimfw/name%b, %Bhttps://github.com/zimfw/name.git%b.
+  <url>                          Module absolute path or repository URL. The following URL formats
+                                 are equivalent: %Bname%b, %Bzimfw/name%b, %Bhttps://github.com/zimfw/name.git%b.
   %B-n%b|%B--name%b <module_name>        Set a custom module name. Default: the last component in the <url>.
 
 Repository options:
@@ -39,7 +39,7 @@ Initialization options:
   local ztype=branch zrev=master
   local -i zdisabled=0 zfrozen=0
   local -a zfpaths zfunctions zscripts
-  local zarg
+  local zarg zdir
   if [[ ${zurl} =~ ^[^:/]+: ]]; then
     zmodule=${zmodule%.git}
   elif [[ ${zurl} != /* ]]; then
@@ -60,7 +60,11 @@ Initialization options:
     zmodule=${1}
     shift
   fi
-  local -r zdir=${ZIM_HOME}/modules/${zmodule}
+  if [[ ${zurl} == /* ]]; then
+    zdir=${zurl}
+  else
+    zdir=${ZIM_HOME}/modules/${zmodule}
+  fi
   while (( # > 0 )); do
     case ${1} in
       -b|--branch|-t|--tag|-f|--fpath|-a|--autoload|-s|--source)
diff --git a/src/stage2/80_zimfw.zsh.erb b/src/stage2/80_zimfw.zsh.erb
index 1710d8a..9501cc0 100644
--- a/src/stage2/80_zimfw.zsh.erb
+++ b/src/stage2/80_zimfw.zsh.erb
@@ -60,7 +60,7 @@ Options:
     clean) _zimfw_clean_compiled && _zimfw_clean_dumpfile ;;
     clean-compiled) _zimfw_clean_compiled ;;
     clean-dumpfile) _zimfw_clean_dumpfile ;;
-    compile) _zimfw_build_login_init && _zimfw_compile ;;
+    compile) _zimfw_source_zimrc && _zimfw_build_login_init && _zimfw_compile ;;
     help) print -PR ${zusage} ;;
     info) _zimfw_info ;;
     install|update)
diff --git a/src/templates/login_init.zsh.erb b/src/templates/login_init.zsh.erb
index 3076a44..fad8904 100644
--- a/src/templates/login_init.zsh.erb
+++ b/src/templates/login_init.zsh.erb
@@ -10,16 +10,14 @@
   fi
 
   # Compile Zsh startup files
-  for zfile in ${1} <%= home %>/<%= startup_files_glob %>(N-.); do
+  for zfile in <%= home %>/<%= startup_files_glob %>(N-.); do
     zrecompile -p ${1} ${zfile} || return 1
   done
 
   # Compile Zim scripts
-  for zfile in ${ZIM_HOME}/(^*test*/)#*.zsh(|-theme)(N-.); do
+  for zfile in #{zscriptglob}; do
     zrecompile -p ${1} ${zfile} || return 1
   done
 
-  if [[ ${1} != -q ]]; then
-    print -P '<%= done %>Done with compile.'
-  fi
+  if [[ ${1} != -q ]] print -P '<%= done %>Done with compile.'
 } "${@}"
diff --git a/src/zimfw.zsh.erb b/src/zimfw.zsh.erb
index b156412..2b80fae 100644
--- a/src/zimfw.zsh.erb
+++ b/src/zimfw.zsh.erb
@@ -6,7 +6,7 @@ class Zim
     @home = "${ZDOTDIR:-${HOME}}"
     @min_zsh_version = "5.2"
     @startup_files_glob = ".z(shenv|profile|shrc|login|logout)"
-    @version = "1.2.1"
+    @version = "1.2.2-SNAPSHOT"
     @ellipsis = " ..."
     @okay = "%F{green})%f "
     @warn = "! "
@@ -24,7 +24,7 @@ class Zim
   end
 
   def render_escaped(filename)
-    render(filename).gsub(/(?=\$[^']|"|`)/, "\\\\")
+    render(filename).gsub(/(?=\$[^']|"|`)/, "\\\\").gsub(/#\{/, "$\{")
   end
 
   def render_commented(filename)
diff --git a/zimfw.zsh b/zimfw.zsh
index 552591d..357d17c 100644
--- a/zimfw.zsh
+++ b/zimfw.zsh
@@ -65,6 +65,8 @@ _zimfw_build_init() {
 }
 
 _zimfw_build_login_init() {
+  local -Ur zscriptdirs=(${ZIM_HOME} ${${_zscripts%%${ZIM_HOME}/*}:h})
+  local -r zscriptglob=("${^zscriptdirs[@]}/(^*test*/)#*.zsh(|-theme)(N-.)")
   local -r ztarget=${ZIM_HOME}/login_init.zsh
   _zimfw_mv =(
     print -Rn "() {
@@ -79,18 +81,16 @@ _zimfw_build_login_init() {
   fi
 
   # Compile Zsh startup files
-  for zfile in \${1} \${ZDOTDIR:-\${HOME}}/.z(shenv|profile|shrc|login|logout)(N-.); do
+  for zfile in \${ZDOTDIR:-\${HOME}}/.z(shenv|profile|shrc|login|logout)(N-.); do
     zrecompile -p \${1} \${zfile} || return 1
   done
 
   # Compile Zim scripts
-  for zfile in \${ZIM_HOME}/(^*test*/)#*.zsh(|-theme)(N-.); do
+  for zfile in ${zscriptglob}; do
     zrecompile -p \${1} \${zfile} || return 1
   done
 
-  if [[ \${1} != -q ]]; then
-    print -P 'Done with compile.'
-  fi
+  if [[ \${1} != -q ]] print -P 'Done with compile.'
 } \"\${@}\"
 "
   ) ${ztarget}
@@ -106,8 +106,8 @@ zmodule() {
 Add %Bzmodule%b calls to your %B${ZDOTDIR:-${HOME}}/.zimrc%b file to define the modules to be initialized.
 The modules are initialized in the same order they are defined.
 
-  <url>                          Required repository URL or path. The following formats are
-                                 equivalent: %Bname%b, %Bzimfw/name%b, %Bhttps://github.com/zimfw/name.git%b.
+  <url>                          Module absolute path or repository URL. The following URL formats
+                                 are equivalent: %Bname%b, %Bzimfw/name%b, %Bhttps://github.com/zimfw/name.git%b.
   %B-n%b|%B--name%b <module_name>        Set a custom module name. Default: the last component in the <url>.
 
 Repository options:
@@ -141,7 +141,7 @@ Initialization options:
   local ztype=branch zrev=master
   local -i zdisabled=0 zfrozen=0
   local -a zfpaths zfunctions zscripts
-  local zarg
+  local zarg zdir
   if [[ ${zurl} =~ ^[^:/]+: ]]; then
     zmodule=${zmodule%.git}
   elif [[ ${zurl} != /* ]]; then
@@ -162,7 +162,11 @@ Initialization options:
     zmodule=${1}
     shift
   fi
-  local -r zdir=${ZIM_HOME}/modules/${zmodule}
+  if [[ ${zurl} == /* ]]; then
+    zdir=${zurl}
+  else
+    zdir=${ZIM_HOME}/modules/${zmodule}
+  fi
   while (( # > 0 )); do
     case ${1} in
       -b|--branch|-t|--tag|-f|--fpath|-a|--autoload|-s|--source)
@@ -299,7 +303,7 @@ _zimfw_compile() {
 }
 
 _zimfw_info() {
-  print -R 'zimfw version: '${_zversion}' (previous commit is c0d7862)'
+  print -R 'zimfw version: '${_zversion}' (previous commit is 9890c9d)'
   print -R 'ZIM_HOME:      '${ZIM_HOME}
   print -R 'Zsh version:   '${ZSH_VERSION}
   print -R 'System info:   '$(command uname -a)
@@ -343,7 +347,7 @@ _zimfw_upgrade() {
 }
 
 zimfw() {
-  local -r _zversion='1.2.1'
+  local -r _zversion='1.2.2-SNAPSHOT'
   local -r zusage="Usage: %B${0}%b <action> [%B-q%b|%B-v%b]
 
 Actions:
@@ -482,7 +486,7 @@ fi
     clean) _zimfw_clean_compiled && _zimfw_clean_dumpfile ;;
     clean-compiled) _zimfw_clean_compiled ;;
     clean-dumpfile) _zimfw_clean_dumpfile ;;
-    compile) _zimfw_build_login_init && _zimfw_compile ;;
+    compile) _zimfw_source_zimrc && _zimfw_build_login_init && _zimfw_compile ;;
     help) print -PR ${zusage} ;;
     info) _zimfw_info ;;
     install|update)