Temenos T24 Islamic Banking User Guide

TEMENOS T24 Islamic Banking User Guide

Wakala Musawama

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Wakala Musawama

Table of Contents Preface ........................................................................................................................3 Overview .....................................................................................................................3 Prerequisites ...............................................................................................................3 Getting Started ............................................................................................................3 Wakala - Musawama ...................................................................................................3 Work flow diagram .................................................................................................3 Asset request .........................................................................................................6 Asset Purchase....................................................................................................12 Payment Activities ...............................................................................................16 Asset Sale – Automatic Schedule ........................................................................16 Asset Sale – Manual schedule.............................................................................20 Enquires ....................................................................................................................22 Limits .........................................................................................................................26 Delivery .....................................................................................................................26 Services .....................................................................................................................26 Accounting Process ...................................................................................................27 No Accounting entries. ..............................................................................................27 Troubleshooting .........................................................................................................30 Glossary ....................................................................................................................30 Index..........................................................................................................................30

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Wakala Musawama

Preface The scope of the user guide is to explain the functionalities/ workflow for Corporate Wakala-Musawama. The reader needs to have the basic understanding in Islamic banking, T24 – LD.LOANS.AND.DEPOSITS and T24 – Past due applications.

Overview Wakala Musawama is a structured finance product. The Wakala contract is linked to the Musawama contract with Wakala reference ID in the Musawama contract. The Wakala contract will have no Profit Rate specified and hence there will be no accruals during the Wakala period. The Musawama contract is manually opened in the same client name. The profit calculation at the Musawama stage is from the Value date specified or manually specified date till the Maturity date of the Musawama. The Musawama value date cannot be prior to the Value date of the Wakala contract. The total profit including the Wakala period Profit till the Musawama maturity date is added to Musawama Principal and repayment scheduled. .

Prerequisites Install Islamic banking pack as per the details provided in the installation guide. Basic parameter set up to be completed .

Getting Started

Wakala - Musawama Work flow diagram

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Wakala Musawama

Wakala Asset

Liquidate Wakala Asset

Musawama Asset Request

•Input Wakala Asset with Zero percent profit rate •The credit will be to the Client Account

•Wakala Asset contract is liquidated from Wakala settlement Internal account.

•Open Musawama Asset Request which will capture the asset details and the Wakala Contract reference ID.

Musawama • Musawama Purchase Pre Approval which will raise contra entries Asset Pre Approval

Musawama •Musawama Asset Purchase will raise Purchase entries and reverse the contra entries. Asset Purchase

•Musawama Asset sale can be done with both the flat and Reduced types of Profit calculation. Wakala Reference to be defaulted from Asset request . Profit calculation from Musawama the Value date till musawama aturity date will be calculated and accounted . Asset sale

The work flow for Wakala Musawama starts with opening a Wakala finance contract which is handled under LD module. The menu structure for Wakala Finance consists of Input, Amendment and Authorisation screens. Provision for handling PD part is provided.

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Wakala Musawama

The Customer ID , Currency, Finance Amount, start and End date, Profit Basis, and Settlement accounts are to be input. The Liquidation mode by default is Semi Automatic and can be modified by the user. The Profit rate for the contract is default as zero percent and is no change field. The contract is committed and authorized. Upon authorization the system generated the following accounting entries Dr Wakala Asset Cr Customer Account. The next stage is to open the Asset Request for the Musawama contract. The Wakala ID is referenced in the Musawama contract in the field Wakala reference.

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Wakala Musawama

Asset request

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Wakala Musawama

Customer ID, Currency, Supplier Name is input and the Wakala Reference is selected from the drop down Enquiry. Based on the Wakala reference, the system auto defaults the Purchase price and the total goods cost. The asset details are updated. Separate screens are provided for different Asset types like Vehicle, Real Estate, Equipment, Movable Equipment and Miscellaneous Asset. The asset details fields for updating are based on the asset type. The screen below displays the Asset details for Vehicle. Appraiser details are updated at this stage. Vehicle Asset short title This is used to input the short title of the Asset Year of Manufacture This is used to input the Year of manufacturing

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Wakala Musawama

Vehicle condition (New/ used) This is used to input the Vehicle condition as whether it is New or Used. Engine Number This is used to input the Engine number of the vehicle. Chassis Number This is used to input the Chassis number. Capacity (in CC) This is used to input the capacity of the vehicle in CC. Capacity (in Seating) This is used to input the capacity of the seats. Make This is used to input the Vehicle make. Model This is used to input the Vehicle model Accessories This is used to input the accessories requested for the vehicle. Multiple values can be inputted by the user. Country of Origin This is used to input the country of origin of the vehicle. Car Color This is used to input the car color. Use This is used to input the use of the car. Dealer Name This is used to input the dealer name. Dealer Code This is used to input the dealer code. Registration Number This is used to input the registration number. Registered in This is used to input the vehicle registered country. Plate color This is used to input the plate color.

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Wakala Musawama

Type Plate (Private/ Public/ Taxi) This is used to input whether the plate of the vehicle is for Private/ Public/ Taxi. Invoice Number This is used to input the Invoice Number. Registration card expiry date This is used to input the expiry date. Real Estate

Asset short title This is used to input the short title of the asset. Property type (New/ Old) This is used to input the Property type as whether it is New or old. Ownership type This is used to input the Ownership type. Year of construction This is used to input the Year of construction of the building. Address The address of the property can be captured in multiple lines. Overall area in square feet The overall area of the property in terms of square feet can be inputted in this field. Number of rooms This is used to input the Number of rooms. Nearest land mark This is used to input the nearest land mark for the property. Use This is used to input the use of the property. Builder Name This is used to input the Builder name. Builder Code This is used to input the Builder code Registered/ Survey number This is used to input the registered survey number of the property.

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Wakala Musawama

Municipality name This is used to input the Municipality name of the property. Title deed date This is used to input the Title deed date. Title deed number This is used to input the Title deed number. Title deed from date This is used to input the Title deed from date. Title deed to date This is used to input the Title deed to date. Place of issue This is used to input the place of issue.

Equipment

Asset short title This is used to input the short title of the equipment. Vintage This is used to input whether the equipment is old or new. Year of manufacture This is used to input the year of manufacturing of the equipment. Equipment name This is used to input name of the equipment. Country of origin This is used to input the country of origin. Make This is used to input the equipment make. Model This is used to input the model name of the equipment. Dealer Name This is used to input the dealer name. Dealer Code This is used to input the dealer code.

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Wakala Musawama

Equipment installed at This can be used to input the installation location of the equipment in multiple lines. Invoice Number This is used to input the Invoice number. Movable equipment

Asset short title This is used to input the short title of the equipment. Equipment name This is used to input name of the equipment. Make This is used to input the equipment make. Model This is used to input the model name of the equipment. Year of manufacture This is used to input the year of manufacturing of the equipment. Vintage This is used to input whether the equipment is old or new. Country of origin This is used to input the country of origin. Registration number This is used to input the registration number of the equipment. Emirate This is used to input the name of the emirates. Plate color This is used to input the plate color Invoice number This is used to input the invoice number. Registration card expiry date This is used to input the registration card expiry date. Asset short title This is used to input the short title of the Asset.

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Wakala Musawama

No accounting entries are generated upon authorization of Musawama Asset request.

Asset Purchase Asset Pre Approval and Asset Purchase are handled in Asset Purchase from the menus given.

Upon Asset Pre Approval authorization, system generates contra accounting entries which gets auto reversed when the Purchase is authorised. DR CR

Goods in Transit Account (Purchase price) Purchase order Account (Purchase price)

The Appraiser details updated in the Asset Request stage is defaulted in this stage . The user can capture the check list details.

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Wakala Musawama

The second step is Musawama purchase where the Pre Approval Contra entries are reversed and Purchase entries are generated.

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Wakala Musawama

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Wakala Musawama

Additional costs for procuring the goods can be defined in the purchase stage which can be added to the Musawama purchase price if required. These additional costs are defined in IS.H.COST.TYPES file. The insurance details, Collateral details for the asset can be captured. During authorization the Pre Approval accounting entries are reversed and Asset purchase entries are generated. DR

Purchase order Account (Purchase price)

CR

Goods in Transit Account (Purchase price)

DR

Purchase Account

CR

Multi supplier Account

If Additional costs are defined, DR

Expenses category

CR

Cost counterparty Account Page 15 of 30

Wakala Musawama

Accounting entries :

Payment Activities The payment activities like payment to the vendor, down payment, payment to cost counterparty are handled in the other services menu.

Musawama Sale: It is possible to define Auto schedule or Manual schedule for Musawama. The Wakala Finance ID is shown in Musawama contract.

Asset Sale – Automatic Schedule The schedules are auto generated based on the repayment details input.

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Wakala Musawama

User has to input the Customer number and Asset purchase reference number. User has to commit and authorize the sale transaction. In sale stage, the customer and Purchase ID is input and details like repayment type, grace period type, profit start date profit basis, profit rate type, profit rate, repayment frequency, Tenor is given. The No of instalments, profit amount and repayment amount are calculated and displayed.  Repayment type – This field is used to choose the instalment repayment type available in the drop down. o Constant (Annuity): Equated instalment amount is calculated for the purchase price based upon the term, repayment frequency and profit rate inputted. o Scheduled disbursement and Constant repayment: Automatic disbursement of purchase price based upon the disbursement dates and disbursement amount inputted in the “Payment schedule” tab. Equated instalment amount is calculated for the purchase price considering the disbursements based upon the term, repayment frequency, and profit rate inputted. o Constant and Balloon payment: Equated instalment amount with balloon payment in between. Balloon payment dates and amount can be captured in the “Payment schedule” tab. Equated instalment amount is calculated for the purchase price based upon the term, repayment frequency, balloon payment amount and date, profit rate inputted. o Linear Repayments: Principal repayment for number of instalments can be captured in the “Payment schedule” tab. Profit payment is automatically calculated by considering the term, repayment frequency and profit rate inputted. o Percentage based Repayments: Repayment of Instalment amount/ principal can be defined in terms of percentage. Number of instalment and percentage of payment can be inputted in the “Payment schedule” tab. Percentage instalments/ principal amount is calculated considering the repayment frequency, percentage of payment, repayment type, profit rate and tenor. o Step up/ Step down payments: Repayment of instalment amount/ principal can be defined in Increasing/ decreasing percentage. The repayment percentage and number of instalments can be captured in the “Payment schedule” tab. Percentage instalments/ principal amount is calculated considering the repayment frequency, percentage of payment, repayment type, profit rate and tenor. o Profit only plus constant: Repayment of profit amount for certain period of the contract and then pay the equated instalment amount to settle the outstanding amount. The payment of Profit, Number of instalments, Payment of constant amount and Number of instalments can be Page 17 of 30

Wakala Musawama

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captured in the “Payment schedule” tab. Equated instalment amount is calculated by considering the term, purchase price and profit rate inputted. o Profit only plus bullet payment: Repayment of profit for the certain period of the contract and then pay the outstanding amount as Bullet payment. The payment of profit, Number of instalments can be captured in the “Payment schedule” tab. o Manual schedule: This is used to input the Principal and profit repayment amount for each instalment date by user. The repayment date and amount can be captured in the Asset sale stage. The amortization rate is calculated based upon the Principal and profit amount inputted. Update limit for Profit – This field is used to choose whether limit needs to be updated for Profit amount or not. It is defaulted from IS.H.PARAMETER and it can be changed if required. Profit basis – This field is used to choose the list of available profit basis applied in profit calculation and amortization. Profit Method – This field is used to choose the profit calculation method. Profit value – This field is used to input the profit rate/ profit amount based upon the value selected in the Profit method field. Value date – This field is used to input the value date of the sale contract. Repayment frequency – The repayment frequency of the instalment payment can be inputted in this field. Profit start date – This field is used to input the profit calculation start date. By default the value inputted in “value date” is populated. It can be amended if required. It should be greater than or equal to value date. Term – This field is used to input the tenor of the sale contract from the value date. The number of instalments is calculated by considering the Repayment frequency and term. Grace period type – This field is used to choose whether the profit amount calculated during grace period needs to be collected immediately [Settle] or it needs to be apportioned [Apportion] in the subsequent repayment dates. Options available for user input are “Apportion” and “Settle”. Disbursement amount and Disbursement date – These fields are used to input the disbursement date and amount for schedule disbursement contracts. Balloon payment amount and Balloon payment frequency – These fields are used to input the balloon payment frequency and amount which will be considered for “Constant and balloon payment” schedules. Linear amount and No of instalments – These fields are used to input the principal repayment amount and No of instalments for “Linear repayment” schedules. It can be multi valued to define multiple principal amounts. Profit/ constant type and No of instalments – These fields are used to input the type of payment and the number of instalments. It can be multi valued to define multiple type of payments.

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Wakala Musawama

 Repayment percentage, No of instalments, percentage calc type – These fields are used to input the percentage of repayment and the number of instalments. The percentage calculation type decides whether percentage needs to be applied on instalments amount or principal amount.

The Wakala Reference is captured in Musawama Contract.

Accounting Entries raised is shown: Page 19 of 30

Wakala Musawama

Asset Sale – Manual schedule If the user wants to manually define the repayment schedule then “Sale – Manual schedule” screen is used for booking the Asset sale contract. Input the Customer ID and Asset purchase reference number. Below options are available for schedule definition. 1). Instalment Frequency Based – This option can be used if the instalment date and Instalment amount is available with Proper frequency. The reduced rate is calculated automatically based upon the schedules defined. 2). Instalment Non Frequency Based – This option can be used if the instalment date and Instalment amount is available in ad-hoc dates. The reduced rate is calculated automatically based upon the schedules defined. 3). Manual – This option can be used if the Principal and profit amount for each instalment date is available. Reduced rate is not calculated and the amortization will happen automatically by using linear amortization method. The principal and profit repayment amount for each repayment date should be inputted manually in the schedule screen.

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Wakala Musawama

The Repossess and Past Due operations are as per standard pack functionality.

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Wakala Musawama

Enquires Enquiry 1: Accounting entries summary

Enquiry 2: Customer Musawama contract summary

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Wakala Musawama

Enquiry 3: View schedule balances full details

Enquiry 4: View schedule

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Wakala Musawama

Enquiry 5: Musawama accruals enquiry

Enquiry 6: Musawama outstanding contracts summary

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Wakala Musawama

Enquiry 7: Musawama deal report

Enquiry 8: Finance position of a Customer

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Wakala Musawama

Limits Limits are not applicable for retail Musawama contracts. If required bank can do the set up in the Limit reference and Limit parameter applications. The Limit is updated for the sale amount after authorization of Asset sale. Refer to LIMITS user guide for more information about setting up Limits.

Delivery Refer to DELIVERY user guide for more information about delivery setup.

Services BNK/ OFS.MESSAGE.SERVICE have to be setup in “Auto” mode for generating the accounting entries after Asset pre-approval/ Asset purchase.

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Wakala Musawama

BNK/IS.B.SB.SCH.DISB have to be attached in COB for automatic disbursement of scheduled disbursements.

Accounting Process Wakala : Dr Wakala Asset Cr Customer Account

Asset Request

No Accounting entries. Asset Pre – approval

DR CR

Goods in Transit Account (Purchase price) Purchase order Account (Purchase price)

Asset Purchase

DR

Purchase order Account (Purchase price)

CR

Goods in Transit Account (Purchase price)

DR

Purchase Account

CR

Multi supplier Account

If Additional costs are defined, DR

Expenses category

CR

Cost counterparty Account

Down payment

DR

Customer Account

CR

Purchase Account

Asset sale – Automatic/ Manual Schedule

DR

Musawama receivable (Purchase amount)

CR

Purchase Account (Purchase amount) Page 27 of 30

Wakala Musawama

DR

Musawama profit receivable (Profit amount)

CR

Profit Capitalization (Profit amount)

Daily Accrual – Automatic Schedule

DR

Profit Capitalization

CR

Profit and Loss Account

Schedule repayment

DR

Customer Account (Repayment Principal Amount)

CR

Musawama Receivable (Repayment Principal Amount)

DR

Customer Account (Repayment Profit Amount)

CR

Musawama profit receivable (Repayment Profit Amount)

Unpaid schedule repayment

DR

Past due account

CR

Musawama Receivable (Principal)

CR

Musawama profit receivable (Profit)

Partial Payment

DR

Customer Account (Principal)

CR

Musawama receivable (Principal)

DR

Customer Account (Profit)

CR

Musawama profit receivable (Profit)

Contract Early Maturity

If early maturity type is set as “Return profit” then, DR

Customer Account (Outstanding Amount)

CR

Musawama Receivable (Outstanding Amount)

DR

Customer Account (Profit Amount)

CR

Musawama Profit Receivable (Profit Amount)

DR

Profit Capitalization (Outstanding Profit)

CR

Profit and Loss Account (Outstanding Profit)

DR

Profit and Loss Account (Bonus Amount)

CR

Customer Account (Bonus Amount)

If early maturity type is set as “Reverse un-accrued profit” then, DR

Customer Account (Outstanding Amount) Page 28 of 30

Wakala Musawama

CR

Musawama Receivable (Outstanding Amount)

DR

Customer Account (Adjusted profit)

CR

Musawama Profit Receivable (Adjusted Profit)

DR

Profit Capitalization (Un-Accrued Profit – Adjusted Profit)

CR

Musawama profit receivable (Un-Accrued Profit – Adjusted Profit)

Past due settlement

DR

Customer Account

CR

Past due Account (Principal)

DR

Customer Account

CR

Past due Account (Profit)

Bank settle PD

DR

Repossess Account (Past due outstanding)

CR

Past due Account (Past due outstanding)

Repossess the Asset

DR

Repossess Account (Sale outstanding)

CR

Musawama receivable (Sale outstanding)

Resale the Asset for Profit

DR

Third party customer account (Sold Amount)

CR

Repossess account (Outstanding settlement)

CR

Profit and Loss account (Sold amount – Outstanding settlement)

Resale the Asset for Loss

DR

Third party customer account (Sold Amount)

DR

Profit and Loss account (Outstanding settlement – Sold amount)

CR

Repossess account (Outstanding settlement)

Repurchase the Asset

DR

Purchase Order Account

CR

Goods in Transit Account

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Wakala Musawama

Troubleshooting Glossary ………..

Index ...............

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