Temenos T24 Islamic Banking User Guide

TEMENOS T24 Islamic Banking User Guide

Corporate Murabaha

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Corporate Murabaha

Table of Contents Preface ...................................................................................................................................... 3 Overview ................................................................................................................................... 3 Prerequisites............................................................................................................................. 4 Parameter setup ................................................................................................................ 4 Getting Started ......................................................................................................................... 8 What if Scenarios..................................................................................................................... 8 What if – Negotiation (Flat rate/ reduced rate/ Profit amount) ................................... 8 What if – Negotiation (Manual schedule) .................................................................... 10 Corporate Murabaha ............................................................................................................. 12 Workflow diagram ........................................................................................................... 12 Asset request ................................................................................................................... 13 Asset Purchase ............................................................................................................... 17 Payment Activities........................................................................................................... 22 Asset Sale ........................................................................................................................ 27 Amend – Asset Sale ....................................................................................................... 31 Asset Sale – Manual schedule...................................................................................... 35 Amend – Asset sale – Manual schedule ..................................................................... 36 Past due Ops ................................................................................................................... 37 Repossess Ops ............................................................................................................... 38 Enquires .................................................................................................................................. 40 Limits ....................................................................................................................................... 44 Delivery ................................................................................................................................... 44 Services................................................................................................................................... 45 Accounting Process............................................................................................................... 45 No Accounting entries........................................................................................................... 45 Troubleshooting ..................................................................................................................... 48 Example for inputting different type of repayment schedules .................................. 48 Glossary .................................................................................................................................. 63 Index ........................................................................................................................................ 63

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

Overview Murabaha, a “cost-plus sale” in which parties bargains on the margin of profit over the known cost price. The seller has to reveal the cost-incurred by him for acquisition of the goods and provide all cost-related information to the buyer. Repayments are paid usually in instalments is specified in the contract. The seller is obliged to tell the buyer his cost price and the profit he is making. The price, once fixed as per agreement it cannot be further increased. If the client defaults on the payment, the seller isn’t allowed to charge extra fees as late payment or penalty charges. The prospective seller in Murabaha is required to disclose all aspects relating to the commodity any defects or additional benefits and the mode of payment to the original seller/supplier. Goods to be traded should be real, but not necessarily tangible. Rights and royalties are examples of non-tangibles that can be traded through Murabaha, as they have value, are owned and can be sold on credit.

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Prerequisites Install Islamic banking pack as per the details provided in the installation guide.

Parameter setup Basic parameters are already setup for Corporate Murabaha product. Product Type - IS.H.PRODUCT.TYPES, ISB The description of the product is pre-defined as shown below.

Products - IS.H.PRODUCTS, ISB The basic product parameters are pre-defined as shown below.

Category code can be changed if required.

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Parameter - IS.H.PARAMETER, ISB Product level parameter is setup in this file. The defined parameter details can be amended by the user.

Update Limit for Profit – This field is used to setup whether Limit needs to be updated for the Profit amount or not. Accounting for Profit – This field is used to setup whether accounting entries for Profit amount needs to be generated during sale booking or not. Installment round off – This field is used to setup whether installment amount should be rounded off during profit calculation.

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Commodity – IS.H.COMMODITY, ISB The commodity codes are defined in this file.

Sub asset types – IS.H.SUB.ASSET.TYPE Commodity details can be sub classified as shown below.

Additional Costs – IS.H.COST.TYPES, ISB This file is used to define the additional costs that need to be defined in the purchase contract. These costs can be added to the purchase price if required. Additional costs are debited from the Expenses category defined in this file.

Check List – IS.H.CONTRACTS.ACTION.TEXT, ISB This file is used to parameterize the check list items needs to be displayed in the Asset purchase stage.

Appraiser details – IS.H.APPRAISER, ISB This file is used to parameterize the list of approved appraisers for evaluating the corporate customers.

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Define corporate customer – CUSTOMER, CUS.OR.BANK This screen is used to define the corporate customer for Islamic banking to be used in Asset request.

LIMIT.PARAMETER Product level limit reference can be created by using LIMIT.REFERENCE and this has to be linked to Corporate Murabaha product by using LIMIT.PARAMETER. Refer to LIMITS user guide for more information about setting up the Limit parameter.

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Getting Started What if Scenarios In order to support the customer enquiries for Murabaha finance what if menu is provided. This is to simulate the sale contract creation based upon the details provided by the customer. This is used to input the Purchase amount, currency, profit rate, repayment schedule type, down payment amount, repayment frequency and Term. It will automatically calculate the profit amount and Murabaha selling price. The repayment schedules can be printed. T24 – What if menu structure is shown below.

What if – Negotiation (Flat rate/ reduced rate/ Profit amount) This screen is used to do the simulation of sale contract by using flat rate/ reduced rate/ profit amount. User has to input the Total purchase cost, down payment, repayment schedule type, and repayment frequency, Term, flat rate / reduced rate / profit amount. Upon committing the repayment schedules are built. The generated repayment schedules can be viewed by using dedicated enquiries.

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Schedules created can be viewed by inputting the simulation reference number using enquiry.

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What if – Negotiation (Manual schedule) This screen is used to do the simulation of sale contract by inputting Manual repayment schedules. User has to input the Total purchase cost, down payment, value date, final pay date. User can choose the required schedule definition from the options available. 1). Installment frequency based 2). Installment Non frequency based 3). Manual Installment payment date and Installment payment amount can be inputted for Installment frequency based and Installment Non frequency based schedule definitions. The reduced rate is calculated based upon the repayment schedules. In case of “manual schedule” can input principal and profit payment amount for each installment in the schedule definition screen. The reduced rate is not calculated. The repayment schedules can be viewed by using dedicated enquiries.

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Corporate Murabaha Workflow diagram

Asset request

Asset Preapproval

Asset Purchase

Down Payment

• Customer requests to the bank for purchase of Asset. • Bank receives the asset details and captures it in Asset request screen (or)Using What if analysis screen the Murabaha sale details can be captured to serve the customer request. • Customer has to be defined as "Corporate". • Appraiser evaluation has to be captured along with the payment to appraiser.

• Asset request has to be linked to Pre - approval for acceptance to do the Asset purchase.

• Approved asset is purchased from the Vendor/ supplier. • Profit rate, Number of schedules, Repayment frequency, Down payment if any is defined in the Asset purchase. • Profit amount and repayment schedules are calculated for Automatic schedules.

• Down payment captured in the Asset purchase is collected from the customer.

• Payment is made to the vendor/ supplier for the purchased asset. • Payment is made to the Cost counter party if additional costs are defined in Asset Payment to purchase. • Payment is made to the Appraiser for the evaluation. Vendor

Asset Sale

• Purchased asset is sold to the customer for purchase price + profit amount. The repayment schedules are defined for deferred payment.

• Rescheduling • Partial Payment • Postponement Amend - • Early Maturity Asset sale • Amend settlement account

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T24 – Corporate Murabaha menu structure is shown below. It is possible to input/ capture the asset request details for the assets/ commodities shown in the menu structure.

Asset request This is the first stage in the workflow which is used to define the customer and his requested asset details. The customer approaches bank with the request for purchasing goods. The basic details like customer number, required number of assets, and unit price of each asset and vendor ID/supplier details are captured. User can input either the Vendor ID or Supplier ID or Supplier name. Workflows related to the handling of vendor payments are provided in the Vendor payment user guide. Appraiser customer number can be inputted with the appraised value along with the Appraiser fee. The asset details may vary based upon nomenclature of the asset as detailed; 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 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.

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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. 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.

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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. 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.

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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. Miscellaneous asset/ Goods Murabaha/ Shares Murabaha

Asset short title This is used to input short title of the Asset. Sample Vehicle asset request screen is shown below.

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No accounting entries are created during authorization of Asset request.

Asset Purchase This is segregated into two steps. 1). Asset Pre – approval 2). Asset Purchase

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The first step is to do the pre-approval for the requested asset. This is the stage where the customer will sign on the PTPS (Promise to Purchase and Sale) to agree upon the Murabaha terms. During authorisation of pre-approval the purchase order accounting entries are generated. The customer number and Request reference number has to be inputted/ selected by the user. The details inputted in the Asset request screen are populated automatically to the relevant fields. If the contract is booked for Top up purpose then Top up flag can be set as Yes. By default it will be defaulted as No. Down payment related information can be captured in the “Down payment details” tab. Down payment is inputted as Percentage or Amount. Also the customer contribution to the contract as “Cash” or “Asset” can be selected for information purpose. If down payment is inputted as Percentage then down payment amount can be calculated as, Down payment = Purchase price * Down payment percentage / 100 The customer and bank contribution percentage is calculated by using the below formula, Customer contribution = Down payment percentage Bank contribution = 100 – Customer contribution During authorisation of pre-approval the purchase order accounting entries are generated. DR Goods in Transit Account (Purchase price) CR Purchase order Account (Purchase price)

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The second step is to purchase the asset from the vendor/ supplier. Bank purchases the asset from vendor and receives the title of ownership from the vendor. The preapproval details are linked to the purchase record. Additional costs for procuring the goods can be defined in the purchase stage which can be added to the Murabaha purchase price if required. These additional costs are defined in IS.H.COST.TYPES file. The insurance details for the asset can be captured.

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Additional notes/ check list may be added for information purposes. This check list items are defined in IS.H.CONTRACTS.ACTION.TEXT, ISB file.

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During authorization the purchase order 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

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

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Murabaha down payment

Down payment for the Murabaha contract can be collected by usi ng this screen. User has to input the customer number and asset purchase reference number. The debit account number, credit account number are populated in the relevant fields. User can input the down payment amount. During authorization the below accounting entries are generated. DR

Customer Account

CR

Purchase account

Miscellaneous charges

The ad-hoc charges that have to be collected from the customer can be performed by using this screen. The charges collected are debited from the debit account and credited to the category defined in the charge code.

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Payment to Vendor (Internal/ External)

The purchase amount is transferred to the vendor account using this screen. There may be chance that the vendor may or may not have account with the bank. If the vendor is having an account with the bank then this payment can be transferred using “Vendor payment – Internal” screen. If the vendor is not having account with the bank then this payment can be transferred to the other bank by using SWIFT message from the “Vendor payment – External” screen. User has to input the customer number and asset purchase reference number. The debit account number, credit account number and payment amount are populated in the relevant fields. User can make changes to the payment amount defaulted from the purchase contract. It can be decreased and may be paid in more than one transaction. However it cannot be increased more than what defined in the purchase contract. During authorization below accounting entries are generated. DR

Multi supplier Account

CR

Vendor/ Supplier account

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Payment to Cost counterparty (Internal/ External)

The additional costs inputted in the purchase contract can be paid to the cost counterparty by using this screen. There may be chance that the counterparty may or may not have account with the bank. If the counterparty is having an account with the bank then this payment can be transferred using “Payment to Cost counterparty – Internal” screen. If the counterparty is not having account with the bank then this payment can be transferred to the other bank by using SWIFT message from the “Payment to Cost counterparty – External” screen. User has to input the customer number and asset purchase reference number. The values to the relevant fields are auto populated. During authorization below accounting entries are generated. DR

Multi supplier Account

CR

Vendor/ Supplier account

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Appraiser Payment

The appraiser fee inputted in the Asset request can be paid to the appraiser by using this screen. There may be chance that the multiple appraisers are involved in the single asset request. In case if single appraiser is linked to the asset request then “Appraiser Payment – Single” screen can be used. For Multiple appraisers “Appraiser payment – Multiple” screen has to be used. During authorization below accounting entries are generated. User has to input the customer number and asset purchase reference number. The values to the relevant fields are auto populated. DR

Valuation Expenses Account

CR

Appraiser Account

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Asset Sale The purchased asset is sold to the customer by using this screen. After signing the Murabaha agreement with the customer the asset is handed over to him.

User has to input the Customer number and Asset purchase reference number. The financial details captured in the asset purchase stage are defaulted to the relevant fields. The Top up finance details can be inputted in the Top up details Tab. By default it will be set as “Fresh finance”. If required it can be set as “Buy out”. If the financing type is set as “Refinance/ Top up” then Old finance reference number needs to be inputted. The finance details like value date, profit basis, repayment frequency, term, grace period type, repayment type, profit type, flat rate/ reduced rate/ profit amount.  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. Page 27 of 63

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     

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 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. 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.

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 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.  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. User has to commit and authorize the sale transaction.

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During authorization of asset sale below accounting entries are generated. DR

Murabaha receivable (Purchase amount)

CR

Purchase Account (Purchase amount)

DR

Murabaha profit receivable (Profit)

CR

Profit Capitalization (Profit)

Amend – Asset Sale It is possible to do below amendments to the authorized Asset sale contract. 1). Rescheduling 2). Partial Payment 3). Postponement 4). Early Maturity 5). Amend settlement accounts Rescheduling

This screen is used to increase/ decrease the maturity date of the contract by changing the repayment frequency. Page 31 of 63

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User can navigate to this screen and choose the below options.     

Increase maturity date Change repayment date Increase maturity date Change last repayment date Increase maturity date Installment amount reduction Decrease maturity date Increase last installment amount Decrease maturity date Increase repayment amount

The installment amount is recalculated based upon the outstanding amount. Repayment schedules are built automatically based upon the new repayment date/ repayment amount. No accounting entries are generated after authorization. Partial Payment - Respite

This screen is used to do partial payment based upon the number of schedules outstanding. User can navigate to this screen and input the number of schedules requested to be paid by the customer. The installment amount is unchanged and next upcoming schedules are removed based upon the number of schedules paid. This is applicable only for Constant (Annuity) type and Scheduled disbursement with constant type of repayment schedules. During authorization below accounting entries are generated. DR

Customer Account (Principal)

CR

Murabaha receivable

DR

Customer Account (Profit)

CR

Murabaha profit receivable

Partial Payment – Compression

Customer can pay the “N” number of installment in advance but can continue to make repayment for the remaining installment from next month till the contract maturity. It will adjust the number of installments “N” paid in advance as per repayment schedule and reduce the loan tenor with paid installments. The maturity date of the finance contract will be preponed based upon the number of installments. This screen is used to do the partial payment based upon the number of schedules outstanding. User can navigate to this screen and input the number of schedules requested to be paid by the customer. At the time of committing the Transaction the repayment schedules will be built automatically based upon the number of schedules paid by the customer. Page 32 of 63

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This is applicable only for Constant (Annuity) type and Scheduled disbursement with constant type of repayment schedules. During authorization below accounting entries are generated. DR

Customer Account (Principal)

CR

Murabaha receivable

DR

Customer Account (Profit)

CR

Murabaha profit receivable

Partial Payment - Online

This screen is used to do the partial payment for the outstanding principal and profit amount. User can navigate to this screen for inputting the Principal and profit amount paid by the Customer. Repayment schedules will be generated after recalculation of installment amount for the remaining tenor. If required the contract term can be amended before recalculation of instalment. During authorization below accounting entries are generated. DR

Customer Account (Principal)

CR

Murabaha receivable

DR

Customer Account (Profit)

CR

Murabaha profit receivable

Postponement

This screen is used to do the postponement of installments in terms of number of payments. User can navigate to this screen and input the number of schedules to be postponed. Below options are available to choose the redefinition of repayment schedules.  Add to Next installment – The installment amount scheduled during the postponement period will be added to the subsequent installment that comes after the postponement period.  Add to Last installment – The installment amount scheduled during the postponement period will be added to the Last installment (Maturity date).  Extend maturity date – The maturity date of the contract will be extended based upon the number of schedules postponed.

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The installment amount is unchanged and the next upcoming schedules are postponed based upon the repayment frequency. No accounting entries are generated after authorization. Repayment schedules cannot be postponed if the contract is having outstanding grace period instalments. Early Maturity

This screen is used to mature the asset sale contract before the maturity date. User can navigate to this screen and the maturity date is defaulted as Today’s date. There is an option available to provide certain percentage of the outstanding profit portion as bonus amount. If required the unearned profit amount can be reversed. If Top up flag is set as “Yes” then user will have to choose the principal and profit liquidation account for settling the old finance contract. The repayment schedules are removed and contract maturity accounting entries are generated after authorization.

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

Customer Account (Outstanding Amount)

CR

Murabaha Receivable (Outstanding Amount)

DR

Customer Account (Profit Amount)

CR

Murabaha Profit Receivable (Profit Amount)

DR

Profit Capitalization (Outstanding Profit) Page 34 of 63

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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)

CR

Murabaha Receivable (Outstanding Amount)

DR

Customer Account (Adjusted profit)

CR

Murabaha Profit Receivable (Adjusted Profit)

DR

Profit Capitalization (Un-Accrued Profit – Adjusted Profit)

CR

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

Amend settlement account

This screen is used to do the amendment of settlement accounts. User can navigate to this screen and modify the Principal, profit liquidation accounts.

Asset Sale – Manual schedule If the user wants to manually define the repayment schedule then “Sale – Manual schedule” screen has to be used for booking the Asset sale contract. User can navigate to this screen for inputting the Customer ID and Asset purchase reference number. 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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During authorization of asset sale below accounting entries are generated. DR

Murabaha receivable (Principal)

CR

Purchase Account (Principal)

DR

Murabaha profit receivable (Profit)

CR

Profit capitalization (Profit)

Amend – Asset sale – Manual schedule Amend – Manual – Frequency Based schedule

It is possible to do below amendments to the authorized Asset sale contract. 1). Rescheduling – Only increasing/ decreasing the maturity date is allowed. 2). Partial Payment 3). Early Maturity Page 36 of 63

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4). Amend settlement accounts Amend – Manual – Non Frequency Based schedule

It is possible to do the below amendments to the authorized Asset sale contract. After amendment will have to manually redefine the installment date and Installment amount for each repayment. 1). Partial Payment 2). Maturity date change 3). Amend settlement account 4). Early Maturity Amend – Manual – Manual schedule

It is possible to do the below amendments to the authorized Asset sale contract. After amendment the repayment schedule along with principal and profit payment for each repayment date to be defined manually. 1). Partial Payment 2). Maturity date change 3). Amend settlement account 4). Early Maturity

Past due Ops If the repayment amount is not available on the due date in customer account then the payment is moved to past due for settlement. After customer credits the funds to his account the past due can be settled in online / COB. This can be settled in online by using “Customer – PD repayments” screen.

Provisioning for the unsettled past due portion can be handled by using “Manual PD provisioning” screen. Page 37 of 63

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Refer to the Past due user guide for more information about settling the past due.

Repossess Ops The assets sold to the customer can be repossessed on or before the maturity date if he cannot repay his installments due to various reasons. The repossessed asset can be sold to a different customer using outright sale or it can be sold to a different customer on deferred payments. The bank can sell it for profit or loss.

The workflow for repossessing the asset is shown below.

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Bank settle PD payments

•Ba nk has to s ettle the Pa s t due outstanding us i ng the Internal a ccount

Re-Possess Murabaha contract

•Outs ta nding a mount i n the As s et sale contract is settled us i ng the Internal account. The ma rket price of the asset is ca ptured in this s creen •Repossessed asset ca n be s old to a third pa rty for outri ght s a le or a new a sset Resale Murabaha purcha se is booked for s elling it i n Asset/ deferred Repurchase repa yments. Murabaha Asset •The di fference between the Ma rket pri ce a nd the s old pri ce is a ccounted as Profi t or l oss for the ba nk.

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Enquires Enquiry 1: Accounting entries summary

Enquiry 2: Customer Murabaha contract summary

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Enquiry 3: View schedule balances full details

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Enquiry 4: View schedule

Enquiry 5: Murabaha accruals enquiry

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Enquiry 6: Murabaha outstanding contracts summary

Enquiry 7: Murabaha deal report

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Enquiry 8: Finance position of a Customer

Enquiry 9: Finance position of a Guarantor

Enquiry 10: View Murabaha Purchase Transactions

Limits 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.

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Corporate Murabaha

Services BNK/ OFS.MESSAGE.SERVICE have to be setup in “Auto” mode for generating the accounting entries after Asset pre-approval/ Asset purchase. BNK/IS.B.SB.SCH.DISB have to be attached in COB for automatic disbursement of scheduled disbursements.

Accounting Process Asset Request

No Accounting entries. Asset Pre – approval

DR CR

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

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

Page 45 of 63

Corporate Murabaha

Payment to vendor

DR

Multi supplier Account

CR

Vendor/ Supplier Account

Payment to Cost counterparty

DR

Multi supplier Account

CR

Vendor/ Supplier Account

Asset sale – Automatic/ Manual Schedule

DR

Murabaha receivable (Purchase amount)

CR

Purchase Account (Purchase amount)

DR

Murabaha 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

Murabaha Receivable (Repayment Principal Amount)

DR

Customer Account (Repayment Profit Amount)

CR

Murabaha profit receivable (Repayment Profit Amount)

Unpaid schedule repayment

DR

Past due account

CR

Murabaha Receivable (Principal)

CR

Murabaha profit receivable (Profit)

Partial Payment

DR

Customer Account (Principal)

CR

Murabaha receivable (Principal)

DR

Customer Account (Profit)

CR

Murabaha profit receivable (Profit)

Contract Early Maturity

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

Customer Account (Outstanding Amount) Page 46 of 63

Corporate Murabaha

CR

Murabaha Receivable (Outstanding Amount)

DR

Customer Account (Profit Amount)

CR

Murabaha 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)

CR

Murabaha Receivable (Outstanding Amount)

DR

Customer Account (Adjusted profit)

CR

Murabaha Profit Receivable (Adjusted Profit)

DR

Profit Capitalization (Un-Accrued Profit – Adjusted Profit)

CR

Murabaha 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

Murabaha 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) Page 47 of 63

Corporate Murabaha

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

Troubleshooting Example for inputting different type of repayment schedules Finance details needs to be inputted in Asset sale for Corporate Murabaha contracts. Constant (Annuity) Principal Amount

= 108000

Profit rate (Flat)

= 5%

Term

= 12M

Value date

= 01-Jul-2014

Profit start date

= 03-Jul-2014

Repay frequency

= 20140801M0110

Page 48 of 63

Corporate Murabaha

Scheduled disbursement + Constant repayment Principal Amount

= 108000

Profit rate (Reduced) = 4.54% Term

= 12M

Value date

= 03-Jul-2014

Profit start date

= 03-Jul-2014

Repay frequency

= 20140801M0110

Scheduled disbursement date, Amount = 3-Jul-2014, 20000; 10-Jul-2014, 35000; 25-Jul-2014, 53000

Page 49 of 63

Corporate Murabaha

Constant + Balloon payments Principal Amount

= 108000

Profit Amount

= 3500

Term

= 12M

Value date

= 03-Jul-2014

Profit start date

= 03-Jul-2014

Repay frequency

= 20140814M0122

Balloon Payment = 5000 on every 3 Months once starting from 1-Sep-2014 till 1Mar-2015, 10000 on every 1 month once starting from 1-Mar-2015 till Maturity date.

Page 50 of 63

Corporate Murabaha

Linear repayments Principal Amount

= 108000

Profit rate (Flat)

= 3.5%

Term

= 60M

Value date

= 03-Jul-2014

Profit start date

= 03-Jul-2014

Repay frequency

= 20150225M0122

Principal payment and No of schedules = 1000, 30 schedules; 5000, 10 schedules; 2000, 14 schedules

Page 51 of 63

Corporate Murabaha

Percentage based repayments - EMI Principal Amount

= 108000

Profit rate (Reduced) = 5.5% Term

= 36M

Value date

= 03-Jul-2014

Profit start date

= 03-Jul-2014

Repay frequency

= 20140923M0115

Percentage calc Type = EMI Repayment % and No of instalments = 15%, 7 Installments; 50%, 20 Installments; 35%, 8 Installments **Total percentage defined for repayments should be equal to 100

Page 52 of 63

Corporate Murabaha

Percentage based repayments - Principal Principal Amount

= 108000

Profit rate (Reduced) = 5.5% Term

= 36M

Value date

= 03-Jul-2014

Profit start date

= 03-Jul-2014

Repay frequency

= 20140923M0115

Percentage calc Type = Principal Repayment % and No of instalments = 15%, 7 Installments; 50%, 20 Installments; 35%, 8 Installments **Total percentage defined for principal payments should be equal to 100

Page 53 of 63

Corporate Murabaha

Step up - EMI Principal Amount

= 108000

Profit rate (Reduced) = 5.5% Term

= 36M

Value date

= 03-Jul-2014

Profit start date

= 03-Jul-2014

Repay frequency

= 20140923M0115

Percentage calc Type = EMI Repayment % and No of instalments = 60%, 18 Installments; 90%, 9 Installments; 150%, 8 Installments **Total percentage defined should be equal to the Number of multi values [Assume 100% for each multi value]. Suppose if there are three multi values defined then total needs to be equal to 300.

Page 54 of 63

Corporate Murabaha

Step up - Principal Principal Amount

= 108000

Profit rate (Reduced) = 5.5% Term

= 36M

Value date

= 03-Jul-2014

Profit start date

= 03-Jul-2014

Repay frequency

= 20140923M0115

Percentage calc Type = Principal Repayment % and No of instalments = 15%, 10 Installments; 35%, 9 Installments; 50%, 16 Installments **Total percentage defined for principal payments should be equal to 100

Page 55 of 63

Corporate Murabaha

Step down - Principal Principal Amount

= 108000

Profit rate (Flat)

= 7.5%

Term

= 36M

Value date

= 03-Jul-2014

Profit start date

= 03-Jul-2014

Repay frequency

= 20140923M0115

Percentage calc Type = Principal Repayment % and No of instalments = 35%, 5 Installments; 30%, 10 Installments; 20%, 15 Installments; 15%, 5 Installments; **Total percentage defined for principal payments should be equal to 100

Page 56 of 63

Corporate Murabaha

Step down - EMI Principal Amount

= 108000

Profit rate (Flat)

= 7.5%

Term

= 36M

Value date

= 03-Jul-2014

Profit start date

= 03-Jul-2014

Repay frequency

= 20140923M0115

Percentage calc Type = EMI Repayment % and No of instalments = 235%, 12 Installments; 120%, 10 Installments; 25%, 12 Installments; 20%, 1 Installments; **Total percentage defined should be equal to the Number of multi values [Assume 100% for each multi value]. Suppose if there are three multi values defined then total needs to be equal

Page 57 of 63

Corporate Murabaha

Profit only plus Constant Principal Amount

= 108000

Profit rate (Flat)

= 7.5%

Term

= 36M

Value date

= 03-Jul-2014

Profit start date

= 03-Jul-2014

Repay frequency

= 20140923M0115

Profit only payment for 23 Installments Constant payment for 12 Installments

Page 58 of 63

Corporate Murabaha

Profit only plus Bullet Principal Amount

= 108000

Profit rate (Reduced) = 2.5% Term

= 23M

Value date

= 03-Jul-2014

Profit start date

= 03-Jul-2014

Repay frequency

= 20141012M0125

Profit only payment for 22 Installments

Page 59 of 63

Corporate Murabaha

Manual schedule – Frequency based Principal Amount

= 23000.00

Profit Amount

= 247.00

Term

= 3M

Value date

= 02-Nov-2014

Profit start date

= 02-Nov-2014

Repay frequency

= 20141205M0125

Page 60 of 63

Corporate Murabaha

Manual schedule – Non Frequency based Principal Amount

= 28000

Profit Amount

= 1100

Term

= 3M

Value date

= 02-Nov-2014

Profit start date

= 02-Nov-2014

Page 61 of 63

Corporate Murabaha

Manual schedule - Manual Principal Amount

= 108000

Profit Amount

= 4500

Term

= 28M

Profit rate

= 5%

Value date

= 03-Jul-2014

Profit start date

= 03-Jul-2014

Page 62 of 63

Corporate Murabaha

Glossary ………..

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

Page 63 of 63