ISLAMIC BANKING PRODUCT MURABAHA

ISLAMIC BANKING PRODUCT

MURABAHA

User Guide

Islamic Banking User Guide

Murabaha

TEMENOS Confidential of 51 November 2007

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Murabaha


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Item Detail

PRODUCT NAME MURABAHA

DOCUMENT TYPE User Guide

CONTACT BACK TO [email protected]

SPECIAL COMMENTS (1)

( Document Specific )

If Field Information is Crossed Out, it implies that the field is Not used under the current version of the Development.


(Development / Support) Specific


(Client Specific)


Murabaha


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Serial No Last Updated

Doc Version Author Comments

1.0 10.06.2006 Version 1 Liril Thomas New

1.1 11.11.2007 Version 2 Jude Roy Jaideep

Browser Release

Table of Contents ISLAMIC BANKING PRODUCT ....................................................................................................... 1

User Guide ........................................................................................................................................ 1

Overview of this guide ...................................................................................................................... 6

Assumptions .................................................................................................................................. 6

Document Support ........................................................................................................................ 6

Scope of this guide ....................................................................................................................... 6


Murabaha


Introduction ....................................................................................................................................... 7

Document Purpose ....................................................................................................................... 7

TEMENOS T24 TM

Modules Supported ........................................................................................ 7

Abbreviations used in this Guide .................................................................................................. 8

Murabaha Work Flow ....................................................................................................................... 8

WHATIF ANALYSIS ...................................................................................................................... 9

Process Flow .................................................................................................................................. 12

MURABAHA PROCESSING ....................................................................................................... 12

Asset Request ................................................................................................................................ 13

Asset Purchase ............................................................................................................................... 16

Murabaha Purchase (Pre-Approval) ........................................................................................... 16

Murabaha Purchase .................................................................................................................... 18

Murabaha Down Payment .......................................................................................................... 21

Miscellaneous Charges: .............................................................................................................. 22

Payment to Vendor/Supplier ....................................................................................................... 22

Reverse Asset Purchase ............................................................................................................ 23

SALE MURABAHA ......................................................................................................................... 24

Sale Murabaha to Client ............................................................................................................. 25

Reduce/Increase maturity dates ................................................................................................. 26

Postponement Murabaha Contract ............................................................................................. 29

Murabaha Early Maturity ............................................................................................................. 30

RE-Possess Operations ................................................................................................................. 31

Bank settle PD Payments ........................................................................................................... 31

Re-POSSESS Murabaha Contract ............................................................................................. 32

Resale Murabaha Asset .............................................................................................................. 33

Re-Purchase Murabaha Asset .................................................................................................... 34

Past Due Operations ...................................................................................................................... 35

Customer's PD repayments ........................................................................................................ 35

Charity Operations .......................................................................................................................... 36

Payment of Overdue charity Amount .......................................................................................... 36

LC Murabaha .................................................................................................................................. 37

Basic ISB Set Up Tables ............................................................................................................. 39

ISB Products ............................................................................................................................... 39

ISB Product Parameter ............................................................................................................... 40

ISB Cost Types ........................................................................................................................... 46

ISB Commodities ........................................................................................................................ 47

MURABAHA Accounting Entries .................................................................................................... 48


Murabaha


Overview of this guide

The purpose of this guide is to help the user to understand the various templates and the fields in

the templates and the crucial setup of any PARAMETER Files in the MURABAHA product.

Assumptions

It is assumed that the reader of this guide has knowledge of the following.

Fair knowledge in TEMENOS T24 TM

Basic knowledge in LD.LOANS.AND.DEPOSITS module

If any of the above assumptions are not met, then get back to the Project Manager Onsite for HELP.

Document Support

Any queries in any part of this document can be addressed to [email protected]. Refer to the

Contact Back To address in the Document Detail pane on Page 3 of this Guide for support.

Scope of this guide

User Reference information of this particular development is the only scope of this guide.

Installation, Customization Procedures, Release Information, Guidelines for testing, Operation and Migration procedures are NOT under the scope of this Document

mailto:[email protected]


Murabaha


Introduction

The Murabaha contract revolves around the purchase of an asset by the Bank and the onward sale of the same by the Bank to a customer. The purchase may involve commodities, real estate, vehicle etc

The bank makes a profit on the transaction, which is the difference between the price, which it pays to the supplier of the goods, and the price at which it sells the commodity to the customer. This mark-up will be agreed between the Bank and the customer in advance. The financed amount and profit are due and payable on terms agreed between the two parties.

Document Purpose

This document provides information to the user to understand the different parameter files and their setup. This document provides detailed information about every Field of all the Files used in the MURABAHA Islamic Product

TEMENOS T24 TM Modules Supported

The following Files in the Following Modules are Supported and Used by this Murabaha Islamic Product.

LD.LOANS.AND.DEPOSITS

FUNDS.TRANSFER

PD.PAYMENT.DUE

LIMIT

LMM.CHARGE.CONDITIONS

FT.TXN.TYPE.CONDITION

PD.PARAMETER


Murabaha


Abbreviations used in this Guide

S – Single Value Field

M – Multi Value Field

AMS – Associated Multi Value Starts Here

AM – Member of Associated Multi Value

AMC – Associated Multi Value Closes Here

Murabaha Work Flow

1. Corporate / Retail customers will apply to bank for purchase of asset or service for their business or personal needs. The customer will sign a Murabaha request form and also furnish the specification of required Assets (Car/Property/Goods/Equipment…) along with the supplier details, and quotation.

2. Bank will approve the customer's request and give an acceptance to initiate the transactions to customer.

3. Customer will sign the PTPS promise for purchase and sale. At this stage, bank may take a certain amount as Aarbun (Down payment).

4. Bank will purchase the asset from market. All necessary external costs incurred by the bank to bring the asset to its intended use will be added to the total cost of the asset or can be waived by the bank

5. Once the asset as per agreed specifications is in possession of bank, the customer will sign the Murabaha agreement with the bank at an agreed fixed price (including profit amount. At this stage, Aarbun amount (if taken earlier) will be adjusted in the sale price.)

6. The repayment of the Murabaha Amount will be fixed for the asset and profit by a defined frequency and calculated automatically by system.

7. System will cover all basic features for finance processing like Re-schedule / Early maturity / Partial repayment / Reversing Murabaha / Postponement/ And Liability Transfer

8. System will capture required information for Guarantor and will generate a Guarantor enquiry / Report


Murabaha


WHATIF ANALYSIS

This function will be used by the Murabaha Dealer to try different scenarios for instalments and profit rate calculations. Once the user gets the final results, they can print the final estimate and get it signed from the customer before proceeding to the murabaha sale contract (Finance contract).

User has to input the Total Cost of the Asset, Down payment if any, Frequency of the contract, Number of months, Flat rate or Murabaha profit Amount or Murabaha Reduced Rate.

As soon the user enters the down payment, the same amount will get debited from the Total Purchase Cost Amount and the field will show the reduced amount.

WHAT-IF Analysis Results

o No of Instalments

o Total Murabaha profit Amount

o Instalment Amount


Murabaha


Mur Repay Frequency: The frequency of the schedules. It can be in terms of number of days or months.

Murabaha Amount: (Purchase amount + Mur Profit Amount)

No of Instalments: Number of instalments in the particular Murabaha contract


Murabaha


Following WHAT IF option, will allow the user to input the Installment amount payable on every instalment and will calculate the maximum finance amount that can be provided.


Murabaha


Process Flow

MURABAHA PROCESSING

The following screenshot shows the menu for all processes concerning a Murabaha contract:


Murabaha


Asset Request

The first stage in Murabaha Processing is to define an asset and the supplier from whom the bank is buying it. Use the Asset Request from the menu. On clicking the "New Deal" Icon, an automatic ID is generated for the contract (hereafter called the IAR contract). The ID has the format IAR- Julian Date - Unique serial number.

The options available in "Asset Request" are:

Vehicle

Real Estate

Equipment

Movable Equipment

Miscellaneous Asset


Murabaha


Applied Customer ID: The party to whom the goods are going to be leased under the Murabaha contract. Enter the customer id in this field

Supplier ID: The party from whom the goods are being purchased. Should be a valid entry in the CUSTOMER file

Supplier Name: The name of the Supplier. We have the option to input either supplier id or supplier name

Supplier's Acc: The account of the purchase counter party with the bank. If no account exists, an internal account can be input.

Purchase Price: The price per unit of the goods being purchased

Total Goods Cost: The product of the PURCHASE.PRICE multiplied by the PURCHASE.QTY

Currency: The currency in which the contract is undertaken. This will have to be the same as the currency to be used for purchase. This is a no input field

Note: A single customer can have more than one asset defined in ISB.ASSET.REGISTER table

Each Option available under the Asset request, like Vehicle, Real Estate etc, will contain asset details field relevant to its type. Following screen will show the Asset details screen available under Vehicle Asset type.


Murabaha



Murabaha


Asset Purchase

The second stage in Murabaha Processing is the Asset Purchase. Choose the option Asset Purchase from the menu. The actions carried out in Asset Purchase are:

Murabaha Purchase (Pre-Approval)

Murabaha Purchase (Received Goods)

Murabaha Down Payment

Miscellaneous Charges

Payment to Vendor/Supplier

Reverse Asset Purchase

Murabaha Purchase (Pre-Approval)

The first stage is to approve the purchase of the asset. To do the pre-approval, click on the 'Murabaha Purchase (Pre-Approval)' item on the menu. On clicking the "New Deal" icon, an automatic ID is generated for the contract (hereafter called the IS contract).

The ID has the format IS- Julian Date - Unique serial number.


Murabaha


The first tab in this screen "Murabaha Request" has the following fields:

PRODUCT.CODE: The product that is being purchased for this particular Murabaha contract. This is a no-input field, which will be defaulted by the system and has to be a valid record in the IS.H.PRODUCTS file. Value in the PRODUCT.CODE field will determine which parameter record the system has to access for further processing.

Customer Sale Cparty: The party to whom the goods are going to be leased under the Murabaha contract. Enter the customer id in this field

Multiple Asset/Supplier: This field defines whether there are multiple assets/suppliers

Asset ID: A Valid record in ISB.ASSET.REGISTER application. Choose the appropriate asset id from the drop-down menu

Currency: The currency in which the contract is undertaken. This will have to be the same as the currency to be used for purchase of the goods at a later stage. Should be a valid record in the CURRENCY file.

Purchase Price: This is a mandatory field, which contains the total Cost of the Asset. Enter the purchase amount in this field.


Murabaha


Find below the screenshot of the 'IS.H.CONTRACTS' after authorisation.

When the MULTI.SUPPLIER field is set to YES, it is possible to attach more than one asset under a single purchase contract.

Murabaha Purchase

After the Pre-Approval of the contract, the bank will purchase the required goods from the market. The 'Murabaha Purchase' option has to be chosen from the menu. The same contract ID that was used when doing the Pre-Approval will have to be input in the ID line.

The 'Purchase Details’ tab will default information that has been captured at the time of doing the Pre-Approval. The last field AVAILABLE.QTY shows the number of units of the commodity purchased that are still available with the bank.

Choose the option Murabaha purchase under Asset Purchase


Murabaha



Murabaha


The actual information regarding purchase is captured under the tab 'Purchase Details', containing the following fields:

COST.TYPE: This is a valid record in IS.H.COST.TYPES. It should have been defined earlier by using the 'ISB Cost Types' option under 'Basic ISB Set up Tables' in the Menu

Cost Amt: The amount of the cost incurred for the cost type mentioned in the previous field.

Cost Date: The date on which the costs were incurred

Cost. Cparty.Acc: The account of the counter party to whom the costs are being paid. If such account does not exist, an internal account can be input here.

Add.To.Total: The allowed inputs for this field are YES or NO. If YES is chosen, then the cost in COST.AMT is added to the basic cost of the goods, as it appears in the TOTAL.GOODS.COST.

If the input in this field is NO, then the amount in COST.AMT is not added to the basic cost of the goods.

Net Cost: This field shows the net amount (Total.Goods.Cost + Cost.Amt depends on the ADD.TO.TOTAL field)


Murabaha


Murabaha Down Payment

If the customer is making a down payment, the user can choose Murabaha Down payment from Asset Purchase option. Note that any down payment in Murabaha should be done before entering into the actual Murabaha contract with the customer (Sale Murabaha to Client option from the menu). This will generate a FT ID for the contract.

Enter the Customer number in Customer ID field and in IS Contract Id field, the relevant IS contract will have to be input. The user has to enter the amount in the Down Payment Amt field


Murabaha


Miscellaneous Charges:

Additional charges which will not be linked to the Purchase / finance contract can be captured using this option.

These charges can be captured during any stage.

User will input the Customer ID, Purchase reference under the customer name, and the charge details to be captured.

Payment to Vendor/Supplier

During the Murabaha contract process, the bank can start the payment process to the Vendor/Supplier. Choose the option Payment to Vendor/Supplier under Asset Purchase. The user has to enter customer number in the Customer ID field as shown below. This will automatically generate a FT ID for the contract.

In the field Purchase Contract Id, the relevant IS contract will have to be input and choose the relevant asset id from the drop down menu. The amount will get automatically displayed in the Credit Amount field. Banks can even do the partial payment by entering the amount in this field.


Murabaha


Reverse Asset Purchase

After the conclusion of purchase transaction, if the customer backs out from his promise to purchase the asset from bank, the purchase transaction will be cancelled by using the 'Reverse Asset Purchase'

Upon authorisation of such Reversal, contra entries will be generated for the entries generated at the time of authorisation of input of the corresponding purchase transaction.


Murabaha


SALE MURABAHA

The actions carried out in Sale Murabaha are:

Sale Murabaha to Client

Reduce/Increase Maturity Dates

Partial Murabaha Payment

Postponement Murabaha Contract

Murabaha Early Maturity

Murabaha Amendment of Accounts


Murabaha


Sale Murabaha to Client

This option is used to capture the actual Murabaha Contract. The screen shot is given below:

The user has to enter the Customer number in the Customer ID field and choose the relevant IS contract id from the drop down menu. User can enter the same frequency, No of months and Profit Amount that were captured from the What if Analysis Screen. This will automatically generate a LD ID for the Murabaha contract as shown below:


Murabaha


Customer ID: Murabaha Counter party. Mandatory field. Enter the customer id in this field

Pur Contract Id: The id of the pre-approved contract. Choose the corresponding contract id from the drop down menu.

Mur Repay Frequency: The frequency of the schedules. It can be in terms of number of days or months.

No of Instalments: Number of instalments in the particular Murabaha contract

Reduce/Increase maturity dates

The user may wish to extend or reduce the maturity of the contract, in which case, the Final Pay Date field has to be input with the new maturity date. On committing the contract, he/she would be required to define schedules again in the new screen

The Instalment Amount field will show the new calculated instalment Amount based on the new Final Pay Date.


Murabaha



Murabaha


Partial Murabaha Payment

At any time during the tenure of the contract, the customer is allowed to pay the instalment amount in advance, by choosing 'Partial Murabaha Payment' option from the Menu. User has to enter the no of instalments that the customer is going to pay in advance in „No of Inst to Pay’ field as shown below.


Murabaha


Postponement Murabaha Contract

During the Murabaha Contract, User can postpone the instalment to pay, by choosing 'Postponement Murabaha Contract' option from the Menu. User has to enter the no of instalments that the customer is going to postpone in No of Instalments field as shown below. The Final Pay date will get updated with the new pay date based on the number of months that the customer is extending.

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Murabaha


Murabaha Early Maturity

The customer will use this action in case of early settlement of a Murabaha contract.

During the pre – closure of the contract, a specified percentage of the profit amount will be given to the customer as bonus. The percentage is defined in EARLY.RATE field in IS.H.PARAMETER table. The bonus amount is reflected in Bonus Amount field.

The closure can be done only with effect the bank date. On retrieving the desired contract, the date in FINAL.PAY.DATE will automatically be set to current date. On committing the contract, any pre-defined schedules that may exist will be removed by the system.


Murabaha


RE-Possess Operations

The actions carried out in Repossess of Murabaha Contract are:

Bank Settle PD Payments

Re-POSSESS Murabaha Contract

Resale Murabaha Asset

Re-Purchase Murabaha Asset

Bank settle PD Payments

If the customer is defaulted for some months, the bank will take the decision of repossessing the asset by settling the PD amounts. Choose the option “Bank Settle PD payments” under “RE-Possess OPS”. To choose the appropriate record, prefix the LD contract with 'PD' and commit the record.


Murabaha


Re-POSSESS Murabaha Contract

In case of non-recovery of murabaha instalments from murabaha customer, a Murabaha contract will be suspended after the number of day‟s set-up on SUSP.OD.DAYS field on murabaha contract. After suspension of murabaha contract, bank will have to resort to repossession of the asset from murabaha customer. At the time of repossession, based on the difference between book value of the asset and the market value of the asset the bank may make a profit or a loss. User should input the market value of the asset at the time of repossession in MARKET.VALUE field.

Note: After the Re-possession of the asset the bank can make a decision to either sell the asset in the market or can enter into a new murabaha contract. Choose the option “Resale Murabaha Asset” or “Re-purchase Murabaha asset “under “RE-Possess OPS”.


Murabaha


Resale Murabaha Asset

This action will be used in cases where murabaha contract asset has been repossessed by the bank due to non-recovery of rental instalments from the original murabaha customer. Should input the resale counter party & counter party account in Resale Cparty & Resale Cparty Acc fields respectively under the Resale Details tab. Also input the Date in the Resale Date field.


Murabaha


Re-Purchase Murabaha Asset

The bank to enter into a new murabaha contract by the pre-approval of the Purchase contract id will use this action. An automatic ID is generated for the contract (hereafter called the IS contract). The ID has the format IS- Julian Date - Unique serial number. Choose the option “Re-Purchase Murabaha Asset” under “RE-Possess OPS”.

Re-Possessed Purchase ID: Enter the IS contract id used in the Murabaha contract.

Customer Sale Cparty: Enter the new murabaha customer id. This is a mandatory field

Asset ID: Choose the appropriate asset id from the drop-down menu


Murabaha


Past Due Operations

Customer's PD repayments

During the murabaha Contract, the customer can settle the PD amounts if any. Choose the option “Customer’s PD repayments” under “Past Due OPS”. To choose the appropriate record, prefix the LD contract with 'PD'

The field VALUE.DATE is used to input the date on which the repayment is being made and the amount to be repaid can be input in the REPAYMENT.AMOUNT field. The ACCOUNT.TO.DEBIT field should contain the customer's account.


Murabaha


Charity Operations

Payment of Overdue charity Amount

The calculations of penalty charges for the over dues will happen only after the PEN.GRACE in the Murabaha contract have been crossed. To see the amount of penalty charges outstanding or to make repayment of the same, choose 'Payment of Overdue Charity Amount' on the Menu. If the entire penalty is to be waived, an amount of 0.00 can be input in the PENALTY.CHARGE.PAID field and the whole penalty amount can be input in PENALTY.CHARGE.WAIVED. The user can even repay a part of the penalty amount and the rest can be waived. To choose the appropriate record, prefix the LD contract with 'PD'

The 'Charge Default Details' tab shows the date-wise penalty amounts that have fallen due.

The 'Repayment Details' tab shows the amounts that have been paid online


Murabaha


LC Murabaha

LC Murabaha is different from Regular Murabaha processing in that, the asset is a Trade finance contract.

The customer requests the Bank to provide LC facility to purchase or import goods indicating that he is willing to purchase the goods from the Bank on their arrival.

Bank will open the LC for the customer goods and payment will be made by the Bank to the negotiating Bank.

To understand the functionalities of LC / Drawings, kindly refer to the Core T24 User guides.

Following screen is used to capture the LC.


Murabaha


On arrival of the goods, the Bank will make the drawings on the LC. Supplier payment will happen at this stage.

Up on arrival of the Goods (After making the drawings contract on that LC) the bank will enter in to a Murabaha contract with the customer at a pre-agreed price that is comprised of the cost plus a profit margin (Mark-Up). System allows the Drawings Contract to be linked to the Retail Murabaha Finance.


Murabaha


Basic ISB Set Up Tables

The tables mentioned below are one time set-up that is used in Murabaha implementation. Choose the option 'Basic ISB Set Up Tables' from the menu 1 to view these tables.

ISB Products

IS.H.PRODUCTS

File Type: H

About This File… Each Islamic Product should have a valid id in this table. Record id '1' is used to define Murabaha product. IS.H.PRODUCTS - Field Description and Population Rules…

No Field Name Length M / S Description

2.1.0 PRODUCT.CODE 5 S The id of the file. The product id for the particular Islamic product

2.1.1 GB DESCRIPTION 35 AMS Description of the product

2.1.2 SHORT.DESC 35 AMC Short description of the product

2.1.3 PROFIT.BASIS 3 S Valid id in INTEREST.BASIS table

2.1.4 TWQ.FLAG 1 S Contain the value “YES” or “NO”

2.1.5 CDT.FLAG 1 S Contains the value “YES” or “NO”

2.1.6 FWL.FLAG 1 S Contains the value “YES” or “NO”

2.1.7 PRODUCT.TYPE 3 S Valid record in IS.H.PRODUCTS.TYPES table

2.1.8 CORP.FLAG 3 S To Define whether this is a corporate product. Used for Limit purposes.

2.1.9 VENDOR.PAY 8 S If set to EXTERNAL, supplier account will be defaulted to internal supplier account.

If set to INTERNAL, supplier account will be inputted manually or defaulted based on the Supplier ID.

2.1.10 LOCAL.REF 35 M Local Ref field

Figure 1 - IS.H.PRODUCTS


Murabaha


ISB Product Parameter

IS.H.PARAMETER

File Type: H

About This File…

This is a system parameter file, governs the processing and accounting of Murabaha. The ID of this file has to be defined first in IS.H.PRODUCTS file. Record is '1' is used to define the Murabaha product in this table

IS.H.PARAMETER - Field Description and Population Rules…


2.3.0 @ID 5 S The product id created for murabaha in IS.H.PRODUCTS table

2.3.1 PUR.CATEG 5 S This is an internal account category. When the bank purchases an asset for the purpose of leasing it out in financial Murabaha, a sundry debtors account opened under this category, in the currency of purchase, is debited.

2.3.2 SEC.DEP.CATEG 54 S Customer account category. The Hamish Jiddiyya, which is received from the customer, is debited to the murabaha client's account under this category. This account is opened automatically by the system when a Hamish Jiddiyya is taken.

2.3.3 RESALE.PL.CATEG 54 S If after the purchase of commodity for the purpose of leasing, the Murabaha customer backs out of his promise to lease the same, the bank may have to do an outright resale of the commodity in open market. If the bank makes a profit on account of selling the goods in the open market, such profit is credited to this P/L category

2.3.4 LOSS.REC.CATEG 4 M When the bank makes a loss on account of selling the goods in the open market, such loss is debited to the internal account in this category. The bank may thereafter try to recover the loss from the original customer of the Murabaha, or write it off to Profit and Loss Account.


Murabaha


2.3.5 POST.RESTR.CODE 35 M For customer accounts that are opened by the system under the categories mentioned in SEC.DEP.CATEG, PROFIT.RECD.ADV and SUSP.CATEG fields, there should be no manual interference from users at a later stage, as these accounts have been opened for specific purposes. Input in the POST.RESTR.CODE here will be defaulted by the system into the POSTING.RESTRICT field of the account record, which it opens automatically. If any manual changes are done in this account and the record is committed, the system will raise an override. The value that is input in the POST.RESTR.CODE field should be a valid record ID in the POSTING.RESTRICT file

2.3.6 TRANSIT.CATEG 3 S Not used

2.3.7 CHARITY.CATEG 16 S The internal account category to which penalty charges received from defaulting customers is credited. These funds are meant to be used for charitable purposes.

2.3.8 RESERVED.11 35 S No input

2.3.9 PUR.TXN.TYPE 4 S Contains the ID to a record in the FT.TXN.TYPE.CONDITION file, which in turn contains the transaction codes that are to be used by the system when purchase of goods is done.

2.3.10 SEC.DEP.TXN.TYPE 4 S Contains the ID to a record in the FT.TXN.TYPE.CONDITION file, which in turn contains the transaction codes that are to be used by the system when Hamish Jiddiyya is taken from the customer.

2.3.11 SALE.MAIN.TXN.TYPE 4 S Contains the ID to a record in the FT.TXN.TYPE.CONDITION file, which in turn contains the transaction codes that are to be used by the system for the sale proceeds when a market resale is done.

2.3.12 SALE.SDA.TXN.TYPE 4 S Contains the ID to a record in the FT.TXN.TYPE.CONDITION file, which in turn contains the transaction codes that are to be used by the system when a loss is incurred on a market resale and the available Hamish Jiddiyya


Murabaha


amount is used to offset such loss.

2.3.13 SALE.PRF.TXN.TYPE 4 S Contains the ID to a record in the FT.TXN.TYPE.CONDITION file, which in turn contains the transaction codes that are to be used by the system when a profit is made on a market resale and such profit is credited to the appropriate P/L category.

2.3.14 SALE.LRL.TXN.TYPE 4 S Contains the ID to a record in the FT.TXN.TYPE.CONDITION file, which in turn contains the transaction codes that are to be used by the system when a loss is incurred on a market resale and such loss or a portion thereof is to be recovered from the original Murabaha customer.

2.3.15 SALE.LRD.TXN.TYPE 4 S Contains the ID to a record in the FT.TXN.TYPE.CONDITION file, which in turn contains the transaction codes that are to be used by the system when a loss is incurred on a market resale and such loss or a portion thereof has been recovered from the original Financial Murabaha customer

2.3.16 COST.TXN.TYPE 4 S Contains the ID to a record in the FT.TXN.TYPE.CONDITION file, which in turn contains the transaction codes that are to be used by the system when additional costs are incurred along with the purchase.

2.3.17 SALE.CPTY.TXN.TYPE 4 S Not used

2.3.18 PENALTY.TXN.TYPE 4 S Contains the ID to a record in the FT.TXN.TYPE.CONDITION file, which in turn contains the transaction codes that are to be used by the system when penalty charges are collected from the Financial murabaha customer on default in payment.

2.3.19 PROFIT.CENTRE.DEPT 4 S The Profit Centre under which deals are booked. This should be a valid entry in the DEPT.ACCT.OFFICER file.

2.3.20 PROFIT.RECD.ADV 5 S The profit that is built into a Murabaha contract will be credited to a customer account under the category given in this field. This account is opened by the system.

2.3.21 ACCR.DR.CODE 3 S The transaction code that is used when daily amortisation of profit is done by debit to the Profit Recd Adv customer


Murabaha


account. Should be a valid entry in the TRANSACTION file

2.3.22 ACCR.CR.CODE 3 S Accrual Credit Txn Code

2.3.23 SUSP.CATEG 5 S When the Murabaha customer defaults in making repayments and the profit amortisation is to be suspended, the suspended profit is credited to a customer account under this category, instead of to the Profit and Loss category. This account is opened by the system.

2.3.24 SUSP.DR.CODE 3 S When profit amortisation is to be suspended, the transaction code in this field will be used for the debit to Profit Recd Adv account. Should be a valid entry in the TRANSACTION file.

2.3.25 SUSP.CR.CODE 3 S When profit amortisation is to be suspended, the transaction code in this field will be used for credit to the to SUSP.CATEG account. Should be a valid entry in the TRANSACTION file.

2.3.26 SUSP.OD.DAYS 3 S The number of days after a payment becomes overdue (and is still overdue) that the amortisation of profit received in advance is suspended. If the number of days is not mentioned at the contract level or the customer level, the number of days specified in this field will be defaulted to the Murabaha contract

2.3.27 PEN.DR.CODE 3 The transaction code that is used when the customer's account is debited for the penalty charge. Should be a valid entry in the TRANSACTION file.

2.3.28 PEN.CR.CODE 3 S The transaction code that is used when the charity account mentioned in CHARITY.CATEG is credited with the penalty charge recovered from the defaulting customer.

2.3.29 PEN.FEE 19 S The penalty charge (flat amount) that is to be levied if the customer defaults. Either a penalty fee or a penalty rate (next field) can be used.

2.3.30 PEN.RATE 11 S The penalty rate that is to be levied if the customer defaults. This amount is levied on the amount of the overdue, for the period that it is overdue. Either a penalty rate or a penalty fee (previous


Murabaha


field) can be used.

2.3.31 PEN.GRACE 3 S The penalty fee/rate will be applied only if the overdues are not cleared within a certain number of days, specified in this field.

2.3.32 EARLY.RATE 11 S When a Murabaha contract is prematurely closed, the bank may refund a percentage of the unamortized profit received in advance to the Murabaha customer. If the early rate is not mentioned at the contract level or the customer level, the rate specified in this field will be defaulted to the Murabaha contract.

2.3.33 EARLY.CATEG 5 S When the early rate is applied to a Murabaha contract, the P/L category that is debited to pay the customer is input in this field.

2.3.34 EARLY.DR.CODE 3 S The transaction code that is used when the EARLY.CATEG (previous field) is debited to pay the customer his portion of the unamortized profit in case of early closure of a contract

2.3.35 EARLY.CR.CODE 3 S The transaction code that is used when the customer's account is credited his portion of the unamortized profit in case of early closure of a contract

2.3.36 AMORT.PRFT.Y.N 1 S This is the flag, which the system uses to recognise whether the parameter record belongs to a financial lease or operational lease. For Murabaha contracts, this field should always be set to Y.

2.3.37 PRFT.ON.NET.Y.N 1 S Not used for Murabaha

2.3.38 PEN.GRACE.Y.N 1 S In cases where a penalty rate on default is specified, the system will start charging such rate on the expiry of the number of days given in PEN.GRACE field. If this field is set to Y then the rate will be applicable from the beginning of the grace period (i.e the date of default). If set to N, the rate will be applicable after the grace period has expired.

2.3.39 PRA.PL.CATEG 5 S Not used for Murabaha

2.3.40 PRE.APP.ENTRIES 1 S The valid values are “YES” or “NO”

2.3.41 GOODS.TR.CATEG 5 S A valid record in Category table

2.3.42 PUR.ORDER.CATEG 5 S A valid record in Category table


Murabaha


2.3.43 PRE.APP.TXN.TYPE 4 S A valid record in FT.TXN.TYPE.CONDITION file

2.3.44 ACCRUAL.CHARITY 1 S

2.3.45 CU.CHARITY.CATEG 5 S A valid record in CATEGORY file

2.3.46 CHARITY.PAY.CATEG 5 S A valid record in CATEGORY file

2.3.47 ACCR.CHARITY.FREQ 5 S The frequency to be entered. The valid values are “D_M_Q_Y”

2.3.48 FWL.CU.PURCHASE 5 S A valid record in CATEGORY file

2.3.49 FWL.REPOCESS.CATEG

5 S A valid record in CATEGORY file

2.3.50 FWL.PAYMENTS.PFT 3 S A valid record in LMM.CHARGE.CONDITION file

2.3.51 FWL.REPOSSES.PFT 3 S A valid record in LMM.CHARGE.CONDITION file

2.3.52 FWL.REPOSSES.LOSS 3 S A valid record in LMM.CHARGE.CONDITION file

2.3.53 FWL.RESELL.PFT 3 S A valid record in LMM.CHARGE.CONDITION file

2.3.54 FWL.RESELL.LOSS 3 S A valid record in LMM.CHARGE.CONDITION file

2.3.55 FWL.EM.PIN 3 S A valid record in LMM.CHARGE.CONDITION file

2.3.56 TXN.LIMIT.AMT 19 S The transaction limit amount

Figure 2 - IS.H.PARAMETER


Murabaha


ISB Cost Types

IS.H.COST.TYPES

File Type: H

About This File…

This table is used to create cost types for material and immaterial costs that might be incurred during the life of lease contract for maintenance and repair of the asset.

IS.H.COST.TYPES - Field Description and Population Rules…


2.4.0 @ID 4 S Id should be any numeric value

2.4.1 DESCRIPTION 35 M Description of the cost type

2.4.2 EXP.CATEG 5 S The Profit and Loss Category to which the cost should be debited (field EXP.CATEG) in case of additional costs at the time of purchase or immaterial costs incurred during the life of murabaha contract.

2.4.3 CAP.EXP.CATEG 5 S This is an internal account category code, which should be debited initially for material costs incurred during the life of murabaha contract. And then on a daily basis there will be amortisation of cost from EXP.CATEG PL to this internal account.

2.4.4 PROV.CATEG 5 S As OFS.GLOBUS.MANAGER is being used to process some of the transactions through FT, these FT's could go in INAO status due to OVERRIDE.CLASS. In order to avoid this, all OVERRIDE.CLASS IDs being used onsite should be set-up in OVERRIDE.CLASS field

2.4.5 LOCAL.REF 35 M Local ref fields

Figure 3 - IS.H.COST.TYPES


Murabaha


ISB Commodities

IS.H.COMMODITY

File Type: H

About This File…

The ID of this file should have a numeric value. This file is meant to give a description to various types of commodities that are purchased and leased by the bank (e.g. land, houses, cars, equipment etc).

IS.H.COMMODITY - Field Description and Population Rules…


2.5.0 COMMODITY.CODE 4 S The id used for defining the commodity

2.5.1 DESCRIPTION 35 M Description of the commodity

2.5.2 UNITS 15 S Commodity in units. It could be acres, square feet, etc

2.5.3 TWQ.FLAG 5 M Contains “YES” or “NO”

2.5.4 LOCAL.REF 35 S Local ref field

2.5.5 PROD.CODE 5 M A valid id in IS.H.PRODUCTS table

Figure 4 - IS.H.COMMODITY


Murabaha


MURABAHA Accounting Entries

Action Accounting Entries Entry

type

Request and approval

DR MURABAHA.TRANSIT.ACCT

CR MURABAHA.PURCHASE.ORDER

Online

Purchase Order Authorization

Reverse Approval Entries

DR - MURABAHA.PURCHASE.ORDER

CR - MURABAHA.TRANSIT.ACCT

Asset Purchase Value

If single supplier/asset

DR - MURABAHA.PURCHASE.ACCT

CR - SUPPLIER.CURR.ACCT

If Multiple Supplier/Asset


CR – SUSP.INTERNAL.ACCT

Additional Cost(s) added to Asset Value


CR – COST.CPARTY.ACCT

Additional Cost(s) Not Added to Asset Value

DR - EXPENSE.PL.CATEG

CR - COST.CPARTY.ACCT

Online

Down Payment DR MUR.CUST.ACCT

CR MURABAHA.PURCHASE.ACCT

Online

Payment to Vendor (If Multi Supplier/Asset flag is “YES”)

DR SUSP.INTERNAL.ACCT

CR SUPPLIER.CURR.ACCT

Online

Authorize Finance Murabaha Contract

Asset Finance Entries

DR LD RECEIVABLE (LIVEDB)

CR MUR.PURCHASE.ACCT

Assign Murbaha Profit Amt to Customer Differed profit

Online


Murabaha


DR - MUR.PUR.ACCT with Profit Amt

CR - P/L Category (Capitalisation of Profit)

Daily Profit Amortization

DR - LD Accrual

CR - PL Profit Category

COB

Monthly (Periodic) Instalments

Monthly Profit Payments

DR CUSTOMER.LIQ.ACCT

CR LD Accrual

Monthly principal payments

DR CUSTOMER.LIQ.ACCT

CR LD RECEIVABLE (LIVEDB)

COB

Murabaha Early Maturity (Without any PD amts)

DR CUSTOMER.ACCT

CR LD RECEIVABLE (LIVEDB)

o Any Bonus

DR P/L.ACCT

CR CUST.FEE.PAY.ACCT\

o Any Fees/Charges

DR CHARGE.LIQ.ACCT

CR P/L Acct

Online

In case of Instalments not paid (PD entries)

Amount Not Paid Entry

DR - PD.ACCT

CR - LD Receivable (LIVEDB) Or LD Accrual Or Pl Charges and Fees

PD Collection (Online or at COB)

DB - CUSTOMER.LIQ.ACCT

CR - PD.ACCT

COB

RE-POSSESSION Entries (1/2)

Bank to settle PD txns for Murabaha overdue amounts through (PD.REPOSSESS.VERSION)

DR - MURABAHA.REPOSSESS.ACCT

CR – OVERDUEDB & Update MURABAHA contract with PD amounts Settled in Field TOTAL.PD.AMT

MURABAHA.REPOSSESS VERSION

- System will check that there is no overdue amounts for this contract in PD

- System will check that Field TOTAL.PD.AMT in MURABAHA contract not equal zero or null

Online


Murabaha


RE-POSSESSION

Entries (2/2)

- Version will display Following fields to User

<TOTAL.PD.AMT>: XXXX <TOT.MURABAHA.OS.AMT>: XXXX <TOT.PFT.OS.AMT>: XXXX <TOT.REPOSSESS.COST>: XXXX

- User should input Market Value for repossess function <ASSET.MARKET.VALUE>: < >

- System Automatically will default following values

<MATURITY.DATE>: Today Date

<PRINC.LIQ.ACCT>:MURABAHA.REPOSSESS.ACCT

<PFT.LIQ.ACCT>:MURABAHA.REPOSSESS.ACCT

- System will update

ASSET.MARKET.VALUE in MURABAHA purchase contract

__________________________________________

RE-POSSESS Accounting Entries

- MURABAHA CONTRACT CLOSE ENTRIES

DR - MURABAHA.REPOSSESS.ACCT (with outstanding LD Amt)

CR - LIVEDB (OS LD AMT.)

DR – Capitalisation of profit (SPEC Entry)

CR – Pft rcvd in adv (OS Profit AMT.) (Categ Entry)

&

- RE-POSSES Profit & Loss Entries CURRENT.ASSET.COST = (OS asset Amt. + Total PD Amt.)

REPOSSESS.DIFF = (CURRENT.ASSET.COST - MARKET VALUE)

Case 1: Current Asset value greater than Market Value (Loss Case)

DR: MURABAHA.REPOSSES.LOSS.CATEG

CR: MURABAHA.REPOSSESS.ACCT (Repossess Diff.)

Case 2: Current Asset value less than Market Value (Profit Case)

DR: MURABAHA.REPOSSESS.ACCT (Repossess Diff.) CR: MURABAHA.REPOSSESS.PFT.CATEG


Murabaha


Asset Market Resell

Sell Entries

DR: Customer third party current acct (to whom the bank is selling)

CR: MURABAHA.REPOSSESS.ACCT (Asset Sell Amount)

PL Entries for Asset Resell Transaction

Sell Diff Amt.= Asset Sell Amount - Asset Market Value

Case 1: Lose Case

DR: MURABAHA.RESELL.LOSS.CATEG

CR: MURABAHA.REPOSSESS.ACCT

Case 2: Profit Case

DR: CUSTOMER THIRDPARTY CURR.ACCT

CR: MURABAHA.PROFIT.ON.SALE.CATEG

Charity Entries for non paid PD overdue amounts

When repayment of penalty charges is done, the system will raise the following accounting entry

DR - Settlement Account Penalty Charge Paid (Given under the 'Basic Details' tab)

CR - Charity Account Penalty Charge Paid

(The Charity Account is the internal account that has to be opened by the user, with the category the same as that mentioned in the CHARITY.CATEG field in the parameter file).

Early Maturity (Pre-Closure) Of Sale Contract

In MURABAHA Lease Contract the FINAL.PAY.DATE will have to be set to current date.

When the contract is committed and authorised, the following entries will take place for the unamortized profit amount:

DR - CUSTOMER LIQ ACCT

CR - LIVE DB

DR - CUSTOMER INT LIQ ACCT

CR - P/L ACCT

COB

ISLAMIC BANKING PRODUCT MURABAHA

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