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INTERNATIONAL MONETARY FUND (IMF

)
Objectives:
1. Promote international monetary cooperation and provide machinery for consultation &
collaboration on int. monetary problem.
2. Facilitate the expansion & balanced growth of int. trade & contribute to the promotion &
maintenance high levels of employment & real income
3. Promote exchange stability to maintain exchange arrangement among member & avoid
competitive exchange depreciation
4. Assist in the establishment of multilateral system payment in respect of current transaction
between members.
5. Making general resources to provide them opportunities to correct maladjustments destructive
to national and int. prosperity.
Activities:
1. Surveillance – economic policies
a. Exchange rate, monetary & fiscal policies – advice on issues exchange rate.
b. Financial sector issues – banking crisis
c. Assessment of risks & vulnerabilities
d. Inst. Issues
e. Structural policies
2. Lending – provide loans to countries experience balance of payments problem by provide
facility:
a. Stand-By Arrangements (SBA)
b. Extended Fund Facility (EFF)
c. Supplemental Reserve Facility (SRF)
d. Compensatory Financing Facility (CFF)
3. Technical assistance in areas:
a. Macroeconomic policy
b. Tax policy & revenue admin.
c. Exp. Management
d. Monetary policy
e. Exchange rate system
f. Financial sector sustainability
g. Macroeconomic & financial statistics.
WORLD BANK
Objectives:
1. Eradication of poverty
2. Provide financing & advice to countries
3. Encouraging & safeguarding int. investments
4. Assist & enhance eco. Growth & development less-developed countries.
Role of International Bank of Reconstruction & Development (IBRD)
1. Lending to middle-income & creditworthy poor countries
2. Financial intermediaries, borrowing funds in int. capital market for lending to member countries
3. Investment lending – to finance g&s in support eco. & social development projects
4. Development lending – social, structural & inst. Reforms
Role of International Development Association (IDA)
1. Lending without interest / very low interest to poorest countries
2. Largest resources of financial assistance to poorest countries
3. Amount lending received depends on countries quality of policies to promote growth & reduce
poverty
4. Finance by its own resources & by donor government
THE EUROPEAN MONETARY SYSTEM
Mission & objectives:
1. Responsible for monetary policy of the EU
2. Formulate monetary policy, conduct foreign exchange, hold currency reserves & authorize
issuance bank notes
3. Represent the state of monetary integration within the community
4. Strengthen central bank cooperation & monetary policy co-ordination
Other tasks:
1. Banknotes – exclusive right to authorize the issuance of banknotes within euro area
2. Statistics – cooperate with National central banks to collects statistical information
3. Financial stability & supervision – smooth conduct of policies

Internal

Extend technical assistance for capacity building Major contributions: 1. Extend support to muslim communities in non-member countries under Special Assistance Program 3. 3. Technical assistance for studies. including staffs & branches 2. Develop & using innovative instruments Islamic finance to mobilize resources. Create necessary financial infrastructure inst. Participation in the Equity of Islamic Fin. Subsidiary to conventional banks – operations & management clearly separate between subsidiary Islamic bank & parent conventional bank Three 1. 1. Participate in equity capital & grant loan for productive projects 2. creation employment opportunities. creation revenue & wealth. A meeting place for central bank – organize meeting & produce analytical statistical papers 2. Provide training facilities for personnel engaged in development act. Inst. Research & statistic – hub sharing statistical info amongst central bank 3. Help financial industry by identifying its future needs 3. Macroeconomic. & European cooperation ASIAN DEVELOPMENT BANK Functions: 1. core component in Islam Aqidah (Iman) – faith / believe in God Syariah (Islam) – Islamic law Akhlak (Moral & Ethics) – behavior. distribution wealth Internal .4. Full-pledged Islamic Bank – bank dedicated to offer Islamic banking products & services 3. Support activities of Standard Setting Bodies 4. 2. Offers two scholarship to meritorious students more in science & tech. Projects BANK OF INTERNATIONL SETTLEMENT Functions: 1. Promote dialogue among stakeholders 4. In muslim countries. Nation economic a. Int. Assist in coordination of development policies & plans to achieve better utilization resources 4. financing & execution of dev. trade financing aiming promotion of cooperation between countries through exchange expertise & trade for their eco & social development 2. 3. 3. Seminar & workshops 4. Islamic banking windows – conventional banks offer Islamic banking products & services using existing infrastructure. Development of Modes of Financing 2. & support adoption of harmonized standards 5. incentive scheme. Utilize the resources at disposal for financing development 3. Provide technical assistance for preparation. Worldwide by 5 strategy: 1. Authorize to accept deposits & mobilize financial resources through shariah guideline 4. Bank services for central bank – assist central bank & other monetary inst. In manage their foreign reserves ISLAMIC DEVELOPMENT BANK To promote & strengthen Islamic fin. Operational activities: 1. eco policy. Types of Islamic Banking Inst. attitude Man to God worship – Ibadah Man to man relationship (Muamalah) man to man activities (Fiqh Muamalah) Islamic Economic 1. Inst. development program. Policy Dialogue Functions: 1. Promote investment in the region 2. 2. Provide technical assistance to member countries 5. Research & Training 5. To establish & operate special funds for specific purposes include fund assistance to muslim communities in non-member countries.

Values .Hiding defects/weaknesses (tadlis al aib) of the good to be sold . Tahsiniyyat (extra/comfort) . Hajiyyat (basic need) .Prohibited products / goods .Satisfaction . zakat. Uruf – custom/practice Fundamental Philosophy Principle applied in making profit 1. To protect aqal – mind 3. Buy and sell . silver. Ijmak – collective opinion & consensus of scholars 4. Al-Quran 2.Big loss (al ghabnu al fahisy) Securing of Benefits (TAHSIL) . urgently need for food but there is no halal food without food she/he will die 2. cereal) including currency Internal .Gharar – uncertainty of contracts/goods (contracts not clear the goods not sure existence. Al Kharaj bil Daman – profit come with responsibilities Objective Maqasid Shariah 1. allow to use conventional banking to acquire 1st house 3.Maisir – Gambling (to secure easy money – elements of betting) .Manfaat .Market manipulation (al tanajusy) by syndicates/collaboration .Governing law shall be apply in this condition Classification of Riba (Usury) 1. finance. helping poor people & those in need. objective making profit & wealth accumulation. salt. Socio-Economic a.Riba’ – interest on loan . banking & capital mobilization 3.Riba’ Al Fadhlu (created when buying & selling transaction incorrect. waqf Primary sources of Shariah Law 1. dates. Assunah – the word of Prophet 3. activities includes baitulmal.2. Daruriyyat (urgently needed) . wheat. Economic of commerce & industry a. To protect the life of human being 4. Qias – analogy & comparison 5.In very critical conditions. To protect individual descendent of generation 5. To protect asset / wealth of individual & public To protect the interest of public by: Removing the Haram (IBQA) . fraud / short measure / short weight) . etc.Etc.Wealth creation . willingness to take risks 2.Riba’ Annasiah/Al Yadu (different in time of delivery & payment for trading ribawi goods such as gold. Prevention of haram (daf al darar) Maslahah: 1. no Islamic banking system offer halal financial product.Welfare Two principles: 1. activities include investment. Al Ghorm Bil Ghonm – no pain no gain. To protect religion 2. Promote socio-eco & welfare activities. Removal of hardship (ra’f al haraj) 2. profit come with risk. Covers all business & trade activities. price uncertain) .

lessee will purchase at agreed price by execute purchase contract 8. 1. Ibra’ (rebate) – withdraw rights to collect payment from a person who repay the amount borrowed 21. Haq tamalluk (o/ship right) – asset in the form of o/ship rights 19. Kafalah (guarantee) – provided in the event of debtor fails to fulfill his debt obligation. All parties contribute capital either in cash/any terms purpose for business. Rahn (collateral) – valuable asset made as collateral for debt. At the end of contract. Hiwalah (remittance) – allows debtor to transfer his debt obligation to 3rd party 22. Also to avoid gharar & big losses. 13. Supplier agrees to supply product ongoing basis ex. Economic & commercial value (have economic value. Like tender 17. Wakalah (agency) – one party authorize one party to act on behalf based on agreed terms & conditions as long as he alive 15. buyer return the goods to seller 6. Payment term as agreed by both parties in contract. Istisna’ (purchase order) – buyer request seller/contractor to deliver/construct asset to be completed in future based on specifications in S&P contract. Provide legal protection to all parties involved. 9. Will be used to settle debt when is in default Internal . 11. Tawarruq (tripartite sale) – purchase commodity on deferred price and selling to a third party for cash 14. Bai ‘Istijrar (Supply sale) – between client & supplier. Ijarah (leasing) – lessor (owner) leases out to lessee at agreed lease rental for predetermined lease period. o/ship of leased asset remain with lessor 7. Ijarah thumma bai’ (lease to purchase) – renting out lessor’s asset to lessee. Ittifaq dhimni (preagreed contract) – sale & repurchase of assets prices agreed by parties prior to complete the contract. Hibah (gifts) – rewarded to person on voluntary basis 20. Shariah principle & maqasid shariah (ensure product in accordance to the parameter of maqasid shariah) 2. Risk factors (high risk product should be able to generate high return otherwise it will not be justifiable) 4. Cost & profit margin (mark-up) are made known. Distribution profit from business will be based on pre-agreed ratio. Profit derived will distributed based on pre-agreed profit sharing ratio. An external agreement which must reached before contract can be concluded to allow for bidding process 23. 5. 18. Murabahah (cost plus sale) – S&P of assets. Amount repayment must equivalent to amount borrowed. Governing laws (monitor proper documentation on aqad/contract. bring beneficial. Bai’dayn (debt trading) – S&P securities of debt certificates (inline with shariah). 10. Monthly basis at agreed price & mode of payment 4.Riba’ Al Qardhu (any extra amount as condition/promised to be given to the lender for giving loan) . Bai’ muzayadah (open-bidding trading) – sell asset in open market through bidding process. 16. Bai ‘Inah (sale with immediate repurchase) – sale on deferred payment & buy back transaction on spot payment by seller to provide cash facility to customer 3. Asset will awarded to person who offered higher price. Bai ‘Salam (advance purchase) – S&P payment made in cash at point of contract but delivery will be deferred at predetermined date. Loss based on capital contribution 12. Shariah contracts approved by SAC of SC Malaysia 1. Musharakah (profit & loss sharing) – two/more parties to finance business. Be able to generate profit/income to investor) 3. transaction and operation.2.Riba’ Al Jahiliyah (excessive extra repayment (interest) over principal of loan when repayment period extended due to borrowers request) Factors to be observe in structuring Islamic products. Lending and borrowing . Mudharabah (Profit Sharing) – two parties consist of rabbul mal (capital provider) & mudarib (entrepreneur). Securities issued by debtor to creditor as an evidence of indebtedness. Bai ‘Wafa’ (sale & repurchase) – when seller pays back price of goods sold. Bai Bithaman Ajil (deferred-payment sale) – S&P on deferred & instalment basis with preagreed payment period 2. Losses be borne by capital provider solely. Qard Hassan (benevolent loan) – two parties on basis social welfare/to fulfill short term financial need borrower.

wakalah. Price & Contract / aqad) Ijarah (lessor.Ijarah (leasing) . contract/aqad) Trading contract (sale/ijarah) – debt financing – BBA / Inah/ Istisna’/ Tawarruq/ Ijarah – rahn. hibah of property made by a Deed of Hibah/ Letter of Hibah .Bai istijrar (supply/ wholesale financing) .Bai istisna (sale by order) . Item to be sold.Ibra’ encouraged to be given even to the defaulters Internal . It’s by documents only Supplementary Agreement . objective of contract.Al ijarah thumma bai (AITAB) Conventional vs. benefit – use/usufruct. Amount to be claimed is balance outstanding .Bai dayn (debt trading) 2. dealing with asset. kafalah/dhaman.Must be exercised . Ibra’. lessee. Buyer.Sarf (foreign exchange) .Bai inah (purchase for cash) . rental.Made of movable / immovable property . asset.No deeds of hibah are registered with land office to record these hibah transaction.Bai bithaman ajil (deferred payment sale) .Sale of gold & silver . Deferred payment . Tabarru’.In BBA. subject matter and offer & acceptance Underlying asset – asset traded/ subject matter of the transaction Security asset – used to provide security *seller must have o/ship over the subject/asset to be sold *asset must free from encumbrances HIBAH . lending money with charging interest Islamic Banking – financing by trading transactions & other non-interest bearing. this will operate change the nature of aqad and will be invalid Default .Because.No consideration (legal) required for hibah .Used to amend other terms of agreements etc. representation & warranties & negative covenants .Bai wadhiah (at a loss) . BBA to Ijarah .Gift made by one person to another .Bai salam (advance payment sale) . Ujrah (fee) – charge for utilization of services/manfaat.Deed of Hibah necessary in order registered property (donor) to give beneficial title of the property to another person .24.In financing transaction. Islamic Conventional banking – base on loan contract. Cash sales . wa’ad Partnership contract – equity financing – Mudharabah/ Musharakah – Hibah. asset based/economic activity based financing Aqad Parties of contract. customer has to pay sale price under the contract. Hiwalah Trading contract Types of sales – to be done immediate payment (ribawi items – spot & equal) 1.Cannot be used to change the contract of transaction etc.Bai murabahah (cost plus) . Condition to valid contract Sale (Seller.

Only small amount compensation & proceeds given to charity. Labuan financial services authority (LFSA) – to spearhead & coordinate efforts to promote & develop Labuan as an int. Securities commissions of Malaysia (SC) – promote fair. Source of income: financing. Is partners. business & financial centre 4. secure & transparent capital market & protect investor & to ensure proper conduct by market institutions 3. compensation rate applied is the bank’s current Islamic Money Market Rate on principal balance Banking system in Malaysia 1.Failure to pay any installments which failure continues beyond the maturity date.For housing financing. Accepting Islamic deposits on current. commission Differences between IB & Conventional Conventional Functions & operating modes based on fully manmade principles Investor assured on predetermined rate of interest Aims at maximizing profit without any restriction Not deal with zakat Lending money & getting back with compounding interest Charge additional money (penalty & compounded interest in case of default Relation with clients is creditor and debtors Has to guarantee all its deposits Functions structure of Islamic Bank Internal Islamic Based on principles of Islamic Shariah Promotes risk sharing between investor & user of funds Aim at maximizing profit but subject to Shariah restriction Service-oriented functions to be Zakat collection centre & pay out their zakat Participation in partnership business No provision to charge any extra money from defaulters. investors and trader.Early settlement . hibah 2. treasury. investment. normally impose ta’widh (compensation) if customer make early settlement within stipulated time called “lock-in period” . Such other business as prescribed under sec. dividend.Providing financing & investment Basic banking activities 1. compensation rate applied 1% per annum on the overdue amount .Accepting/ sourcing deposit . Provision of finance 4. efficient. based on principal wadiah . other bank/BNM (sourcing/borrowing) : bank pays profit. saving and other similar account with or without the business paying/ collecting cheques drawn by or paid in by customer 2. fee base : bank obtains profit. fee/service charge.Providing financial services .Customer can make early settlement earlier than due/expiry date .Failure to pay any installments of selling price form the date 1 st disbursement until date of maturity.3 Basic functions of bank . Accepting money under investment account 3. buyer & seller Can only guarantee deposits or deposit account. Sources of funds: shareholder funds. Malaysian deposit insurance corporation (PIDM) – administration of the deposits insurance system & takaful sectors & promote sound risks management practices by finance industry IFSA 2013 – Islamic Banking Business Section 2 (1) means: 1. Central bank of Malaysia (BNM) – to promote monetary & financial stability conducive to sustainable growth of Malaysian Economic 2. deposits.

To ensure increase in money supply & consistent with the growing needed .Concept of deposit multiplier is determine among others by Reserve Requirement (RR) . every 100m deposit mobilized by bank.Risks not fully captured under Pillar 1: related to under estimation/uncertainty risks such as parameter.This deposit known as Statutory Reserved Requirement (SRR) . (NIDs). asset & liability. shortage & excesses of bank fund 4. Treasury – manage liquidity .For assessing IB overall capital adequacy in relation to risk profile and strategy for maintaining appropriate capital levels . securitization risks. market & operational risks 2.Risk captured under Pillar 1: credit. liquidity management.Money in circulation & demand deposits of private sector known as M1 . operational risks .Role of credit & financing promote economic & business activities & facilitate the eco growth . . REPOs & foreign currency deposit of private sector place in commercial/ Islamic bank . negotiable instrument of dep.A broader money aggregate/ private sector liquidity known as M2 Deposit multiplier & financing . market.Total amount deposits mobilized by bank subject to deduction of certain % will be deposited at BNM . capital adequacy framework)  Increase money supply > increase in credit/ financing > increase in business & eco activities > increase of GDP Deposit & money supply . Pillar 2 aims to ensure that IB ins. corporate / investment department 3.M1 includes saving & fixed dep. Support – provide support requirement such as human resource & IT Functions of Deposits Deposits & Money Supply (M1 = Core Deposits.1. model methodology.Formula total deposited created by a bank from initial deposit Total deposit created (TD) = initial deposit (D) / SRR (R) Suppose SRR set at 5% & initial deposits is $100m. M3 = M1+M2) Money supply & financing Role of financing/loan Deposit multiplier Liquidity framework (statuary reserve requirement.05 = 2000m . IB to have in place the Internal Capital Adequacy Assessment Process (ICAAP). Total deposit = 100m / 0. Pillar 1 – specifies min capital requirements of firms to cover credit. . Internal . Pillar 3 – requires a set of disclosures to be made which enable market participants to assess information on firm’s capital. Pillar 2 – requires firms to assess the need to hold add capital to cover risk not covered under Pillar 1 3. D = $100M MD = 2000/100 = 20 times Means. Financing divisions – extend financing facilities to customer in carrying out their business & projects under consumer. risk exposures & risk assessment procedures. will create 2000m total deposit which can be used for giving financing Capital adequacy framework Basel II accords pillars: 1. Have adequate capital to support their operation and to comply more rigorous risk mgt techniques. M2 =Deposits of Private Sectors. Operation divisions – responsible to overall branch & banking operation.Influence IB’s decision making & determine mgt process & business application .Level of money supply influence total amount of financing/loan available to offered by banking system .Supply money & bank’s financing regulated by BNM .Formula total money/deposit created by the banking system Deposit multiplier (MD) = Total Deposit created (TD) / Initial Deposit (D) Given TD $2000M. mobilize deposits & provide banking services to customers 2. commercial.

Profit from investment will be shared between customer and bank on Profit Sharing Ratio . post dated . .Deposit will have to be specified period of investment . .For personal/private individual.No condition imposed to bank on extra payment to customer .Cheque book given to customer . org/inst. balance from dormant account be transferred under unclaimed monies .Dishonoring of cheques for valid reasons such as insufficient fund.Bank requests permission to use the fund for any banking act. invest the money to make a profit .IB accept deposit from depositors who looking for safe custody their funds .Bank actually borrow from customers on the amount deposited by customers . shall be liable to penalty = 1/10 x 1/100 x shortfall x no of days Shariah principle in deposit accounts 1.All profit generated by using this funds is belongs to bank . cash line (Islamic overdraft) . investment. company.- SRR - - Risk type not covered by Pillar 1: credit concentration.Unclaimed Money Act 1965.May access others facilities such as collection of cheques. irregular signature.Can be opened under personal.Any charges be imposed such as stamp duty.Stop payment on cheques is allowable for valid reason with early notification.Bank act as mudarib/entrepreneur/fund manager and customer rabbul mal .As custodian.Min initial deposit required Internal . Wakalah – agency . cable & telex charges . .But bank may pay hibah/present at certain rate as a token appreciated to depositors . societies. associations .Bank is free to used the money for banking act. reputational risks Monetary policy instrument available to BNM for purpose of liquidity mgt. Service charge may be imposed every request for stop payment Saving account-i .Will be provided with passbook. auto debit. interest rate/rate of return. maintained at BNM.Penalty imposed on cheque returns due to insufficient fund . Wadiah Yad Dhamanah (WYD) – guaranteed custody . transfer of fund.Depositor will pay wakalah fee to bank on managing their fund Current account –i .Min initial amount deposit required . Mudharabah – trustee profit sharing .Purpose depositors is for safe keeping or investment .Customers who are looking for investment opportunities .Bank acts as agent of the depositors .Have absolute convenience to used the funds when needed.Depositor allow to withdraw their money as long have balances . While the fund is remain in the bank . special investment account. All banks are required to maintain balances in their Statutory Reserve Account (SRA).Saving.Used in Saving & Current account 2.Losses will be bear by customer . standing instruction. withdrawal & deposit recorded . current.Interest free loan.Service charge/wakalah fee will be charged on account for servicing & maintaining account .Only current account under individual can be issue ATM . Qard Al Hassan (QH) – good loan . 4. equivalent to certain portion of their Eligible liabilities (EL) this portion being the SRR rate SRR rate is 4% of EL Average EL compute fortnightly Maintenance of balance in SRA flexible. If fails to comply with min SRR. trade bills.Bank may pay hibah/ present .Used in Saving & Current account 3. no tangible profit accrue .

List of IIMM Instruments: o Treasury bill issued by gov o Government investment certificates (GIC) now replace with government investment issues (GII) under concept qard Hassan Internal . etc. asset class.Interim profit – paying profit on half yearly basis for longer tenor of investment. bank act as agent/wakeel of customer who deposit money for investment purpose. will source capital fund from surplus bank to fund their asset.Deposit taking bank.Shariah contract Mudharabah based on profit sharing of 12 months gross profit rate for deficit bank .All IB need to square-off their position at the end of day .Two types: o Restricted investment account – IAH provides specific investment mandate to IB.Provide funding & investment for short tem .PSR subject to negotiation between bank & customer under mudhrabah Commodity murabahah investment / deposit account .An effective fin.with a promise to repurchase. Provide NRIC or birth certificate Must be undischarged bankrupt Payment hibah under wadhiah yad dhamanah & qard Hassan if any Formula Hibah Cumulative daily balance for the month/no of days in the month x rate x 1/12 Ex: cumulative balance $ 1.567 No of day in aug 31 days Hibah rate 2% 1.Central bank will come into picture when whole market in deficit . Bank will be paid wakalah fee. CMD is a fixed rate liability (FRL) by locking murabahah price. Interbank deposit/placement 2.567/31 x 0.For mudharabah. purpose.230. Calculation based on 6 months period. . Then to square-off their position by end of day.Profit under mudharabah = principal x rate x period of month / 100 x12 . economic sector & period for investment o Unrestricted investment account – IAH provides IB with the mandate to make ultimate decision without specify any particular restriction/conditions. wakalah.Balance will be used as funding sources for financing activities .For wakalah. .15 General investment account (GIA) operations . total profit can be known upfront . bank act as mudarib & investor rabbul mal. thus guarantees capital preservation and fixed return Islamic Inter-bank Money Market (IIMM) .02 x 1/12 = $66.Similar to GIA but only open to government/corporate customer .Refer to customer with investment account maintained at IB . Islamic money market instrument 3.IB which are in surplus (long) position will be invest into bank’s financial asset portfolio who are in deficit (short) position . Profit belong to customer .IB who in short.Surplus of fund after financing activities will be invested in IIMM. while shortage of fund will be sourcing from IIMM to cover it .Tawaruq commodity . Special investment account .Can be opened under mudharabah. Declaration be made by receiving bank at maturity date of mudharabah investment fund .Pricing for given amount & tenor depends on: o PSR which is to be negotiated o Gross profit rate before distribution of receiving bank on one yr investment that will declared.Any funds from pool of deposit deducted for SRR & LRR . Profit share between customer & bank .Overall function IIMM – 1. Infrastructure in facilitating growth of IB in Malaysia . murabahah/tawaruq .230. Islamic cheque clearing system .- Only one account for one party Must be aqil.Inter-bank liquidity – source funding & invest surplus fund .Specific for investment instruments/projects .

in multiples of RM50.000 (min).Modus operandi: o bank sells asset to customer for immediate cash. Repurchase agreement (REPOs) as sell and buy back agreement (SBBA) Commodity murabahah – based on crude palm oil (CPO) intended to be liquidity mgt tools Negotiable Islamic Debt Certificate (NIDC) Two types of concepts: 1.Specified future date (maturity date) not earlier than 90 days & not later than 60 months from date issue . all these will be sending to clearing house known as Espick .Paperless cheque clearing process . 2nd agreement – forward purchase agreement whereby buyer promises to sell back INI to original owner who shall buy back at specified price on specified future date .24 calendar months if PSR is determined every 6 months >2yr . or . unless agreed by both parties .Web-based system that facilitates the issuance of unlisted debt securities and money market instrument Internal . entrepreneur (IB) who manage the project c.Does not pay interim dividend or coupon profit Commodity murabahah .To accommodate depositors with lower risk appetites Cheques clearing system (Espick) Tendering (FAST) & Payment system (Rentas) .12 calendar months if the PSR determined every 3 months >1yr. Bai bithaman Ajil (BBA) – sale of goods on deferred basis .Nominal value : not less than RM50.IB sells identifies asset to customer at agreed price (sale price) which include customer’s markup (profit) . profit arising from project distributed according PSR d. 1st agreement – seller (owner) INI sells and buyer (investor) buys the instruments at specified price agreed 2.000 up to max RM10 Mill Sell and buy back agreement (Islamic repo) .bay inah Islamic accepted bills Cagamas mudarabah bond Negotiable certificate of deposits (NCD) saving deposit issued by banks.Clearing cheques either through and data truncation or data conversion Fullt automated system for issuing/tendering (FAST) . provider of the funds (customer) provide 100% capital for financing b.INI used for SBBA not required to be delivered.Central bank takes up roles of deposit taker. al mudharabah – refers to agreement between 2 parties a. former the role taken by commercial banks . . Loss borne by capital provider . simultaneously sells back asset to bank for credit price o deferred marked up credit price is re-paid by bank to customer within period from overnight up to 365 days o bank issues certificate of debt (Shahadah al-dayn) as evidence of bank’s debt to customer o o o o o o 2.Only for local cheques and outstation cheques.Transacting parties enter into two separate agreement 1.Serves as deposit placement facility & instrument to mop up surplus cash in banking sector . does not expose the parties to price risk associate with underlying commodities .Bank Negara negotiable notes (BNNN). And repayable to bearer on specified future date at nominal value of NIDC .Parallel back-to-back transaction involve commodities takes place simultaneously.INI may be sold subject following conditions: o An issuer shall not but its own INI under SBBA o Tenor SBBA must be within tenor of INI used for the transaction .O/ship INI shall transferred to buyer upon conclusion of 1 st agreement .Sum of money deposited with Banking Inst.Whatever account receives deposit through collection of cheques.Form of deposit instrument from customer to bank based on principle bay al inah (sell and buy back) .

BLR + Spread (risk premium) 4.This cost of capital also known as pricing of debt capital Price benchmarking 1. Component based on divided for 3 month mudharabah investment account and owned internal cost (3 month dividend rate for Mudhrabah investment account. operational cost) c. BNM monitoring & managing the eco through monetary policy. inah .Rate use to determine selling price . To indicate their offer on lending interest rate in Inter-bank money market c. All commercial bank will react on any movement of OPR. COF + Spread (risk premium) Fixed profit rate financing . To customer when interest rate in market declining downward below profit rate. Under home financing. Customer make repayment monthly fixed installment . customer identify house to buy and come to bank for financing. London inter-bank offer rate (LIBOR) – for international transactions 2. Develop own pricing bench marking known as BFR b.Disadvantages. Used as benchmark pricing for corporate banking for corporate client b. Statutory reserve cost. .Sale contract (BBA). Kuala Lumpur inter-bank offer rate (KLIBOR) – for Malaysia a. istisna.Debt capital involved certain elements: o True cost of capital – real interest rate based on true time value of money o Cost of administration o Cost of inflation/ cost of money losing value o Cost of default / cost of not getting repaid . operational cost) c. Component is based on KLIBOR and owned internal cost (3month KLIBOR rate. Component based (3months GIA dividend.Applicable in Islamic financing products that involve trade/sales contract for home & fixed asset financing under BBA / murabahah. Bank purchase the house at cost/purchase price and sell to customer at selling price on deferred payment. IF will develop their own pricing bench marking known as BLR b. selling price is fixed.- - Interfaces with RENTAS to facilitate primary market settlement. Flexible whereby also offer profit servicing & staged repayment amount to suit customer repayment capacity. includes issuance of scrip less securities with Bursa Malaysia electronic trading platform for reporting of secondary trading involving debt securities RENTAS is real-time gross settlement system enable the transfer and settlement of high value interbank payment and securities. SRR cost) d. Cheaper as compared to BLR/BFR while risk premium also lower as client normally having lower risk rating c. No loyalty to some customer.This cost also known as risk premium requested by owner of capital based on credit rating of customer. KLIBOR used as pricing benchmark for banking instruments 3. So profit for bank & cost to customer is fixed. Facing high market risk and mismatch funding risk. by over-night policy rate (OPR) and SRR policy b. Based financing rate (BFR) – Islamic bank a. BFR + Spread (risk premium) 5. . debt/receivable which funded by capital . Floating profit rate financing . Based lending rate (BLR) – conventional bank a.Advantages.Based on shariah principle Internal . IB might lost customer. Unhealthy price war.Loan activity involved creation of loan. Average lending rates in IMM offer by them known as KLIBOR d. Multi currency real time gross settlement Cost of fund and concept of pricing . Monthly installment fixed. Cost of fund (COF) a. Dual banking system pricing of product is critical to match the market. statuary reserved cost. Selling price cannot be changed therefore no compounding on profit in case of late payment.

any unearned profit will be rebated.Modus operandi: o Customer plan to construct house of bungalow & required financing $225. o He submit application under istisna’ contract.5% + benchmark rate Customer is given option to continue paying the same monthly installment. disbursement will be based on progress development o Share buy back/repayment agreement where bank & customer enter into ijarah o Customer agreed to rent house at certain rental rate for a period o Monthly rental paid by customer will be used to buy back capital owned by the bank o Full o/ship will be transferred to customer at the end of financing/ up to full settlement of bank’s capital. o Pricing for floating rate determine by BFR + spread.Ijarah home/fixed asset financing floating rental rate – the rate can be change according market o Musharakah mutanaqisah home financing – monthly rental subject to changes beside buy back of equity by customer o BBA / Murabahah home Rate applied to determine monthly installment subject to changes/fluctuations in market along the financing period Modus operandi: o Bank enters into purchase & sales contract with customer on house purchased by customer. while BBA deferred on multi installment payments for long term financing . Diff between PP & SP known as profit/unearned income. For complete house.7.. For house under construction.a.Involve manufacturing.000. EPR become 7. Rescheduling of facility is allowed At maturity.a. bank & customer enter into agreement musharakah with agreed on capital contribution ratio (CCR) at 90% bank & 10% customer o Bank will disburse only 90% to seller.Modus operandi o Customer purchased house from developer and pay sum deposit/urbun Internal . say 1.BBA contract of buy on deferred payment but not compulsory to declare cost price .5% pa.Murabahah deferred lump sum payment for short term financing. producing / constructing . For example current BFR computed at 6% p. full disbursement will be paid to seller.Seller must declare cost price of the good to be sold .000 (PP) o Contractor construct the house & handing over completed house to customer o Customer make monthly repayment to bank BBA/Murabahah house financing . Istisna’ home financing . o Customer putting 1st order instruct bank to build & complete the house at $393.674 (SP up to 25yrs) o Bank placing 2nd order to contractor in form of letter of undertaking to pay contractor amount $225.g 6% Max spread for EPR is 2. o Profit rate agreed by both party used to determine SP.Sale of good on selling price (cost plus profit) with deferred payment . EPR also changed/reviewed Spread for ceiling rate in calculating SP cannot be higher than 4% plus benchmark rate e. this rate become a capping/ceiling rate of total profit/cost and cannot change to higher amount o Floating effective profit rate (EPR) will be introduced based on benchmark rate/BFR. say 10% p.5%) will be waived by granting ibra’ (rebate) o Ibra’ will be deducted from profit /unearned income portion o Calculated based on monthly principal balances based on EPR charged o EPR charged subject to changes of BFR but capped at max profit of 10% o When BFR changed.5% o Diff between inst of SP and EPR (10% . o - - Musharakah mutanaqisah house financing . o After financing approved.5% = 2.Modus operandi: (two types of contract involved – musharakah (partnership) & ijarah (leasing) o Customer identify house to purchase and pay deposit of 10% of total PP o Customer submit application house financing to bank for partially finance the purchase of house.

bank 1st sell asset to customer at price comprising financing amount plus bank profit margin. Asset must be free from encumbrances .Contract of loan between two parties basis on social welfare/ fulfill borrower financial needs .profit rate: fixed/floating BBA personal financing .Customer comes to bank and submit application.applied when customer don’t have any asset to be transferred with the bank .000 cash Internal . Customer make monthly payment of $2125 for 60mth. where customer allow to withdraw/utilize amount up to the limit given . o Banks buy commodity from trader 1 at $ 270000. profit over financing period .At the end of period. Upon approval bank agreed to purchase house at PP $270. o Bank sells commodity to customer on SP with profit on deferred payment (amount + profit) $472409 (principal + profit 5% @ 25 yrs) o As o/ship of CPO belong to customer.500 pay by cash note.when customer bank in deposit into current account. bank sells commodity to trader 2 o Bank credit proceeds from sales of commodity $270000 customer’s House Financing Account (Financing amount) o Financing amount used to pay price of the house o Customer settle debt by monthly installment o Ijarah Financing .selling price include principal. o Agent to customer.Bank lend cash money to cutomer $127.subsequently bank will sell the asset to customer on deferred payment . customer be able to lease assets from IB with option to acquire leased assets at the end of lease tenure .o/standing balance will be higher for higher utilization . building. Customer will utilize this amount for personal purpose .Modus operandi o Customer submit application then bank approved $270000 & partially finance 90% PP is $300000.Bank will purchase vehicle from dealer & pay price of the car .amount will become financing principal.profit only charge to customer’s account on the amount utilized & ibra’ will be given for unutilized portion .offered to customer who having valuable asset such as land.95 (1 USD = RM2.Amount will be set as facility limit.AITAB leasing with option to purchase at the end of leasing period .bank will purchase the asset and pay amount of PP on the spot . .95 with RM100.Bank may structure Cash Note facility with element of profit . Extra amount consider hibah .customer will make fixed payment inah personal financing . bank will sell at nominal amount & o/ship of vehicle transferred to customer Cash line tawarruq personal financing .Bank cannot ask for extra amount of total repayment otherwise will be riba . Customer then sell USD379. Under product structure customer require to purchase US dollar currency amounted to USD379.Payment selling price by customer on deferred term until end of repayment period .Subsequently bank purchase back asset from customer on cash basis spot payment which equivalent to financing amount Qard Hassan benevolent loan .500.409 (principal + profit 5%) o Customer make fixed monthly installment $1578 Tawarruq/home financing . o/standing balance will be reduce .Under concept of Ijarah Muntahia bi al tamlik (AIMAT) / al ijarah thumma al bai (AITAB). customer itself on their own willingness can make extra payment to bank.Bank provide cash loan to borrower with certain period of time .000 (Financing principal) o Subsequently bank sell house to customer at SP $472. she request the bank as agent to sell commodity to another trader in the market.Principal amount of PP and profit potion of SP will be assigned into customer current account through out financing period .98) with $127.However.

Trading cycle/operating cycle/cash cycle (within the larger cycle) a.Invoice as representing of debt. building materials for constructions company 3. Asset conversion cycle (the “larger cycle”) a. office space & supplies. account receivable from sales made & cash receivable collected 2. Such as purchase of land. materials. account receivable are created > account receivable are collected A typical cycle for manufacturing company involve 5 steps.Bank sell the asset to customer at price financing amount + bank profit margin. collecting payment. SG&A expenses are incurred. hence add accrued expenses are incurred > FG are sold. To understand requirement for specific assets.Bank appoints customer as agent to purchase goods.Repayment of SP shall be paid in lump sum amount at maturity date .Profit made known by seller & buyer agreed . Bai ad dayn working capital (BWCF) .Business requirement 1. Such as require staff/semi & skill worker. Murabahah working capital financing (MWCF) . bank will pay cost of the goods to supplier .As o/ship transaferred from bank to customer.Facility is given under revolving basis. Runs from purchase of inventory/stocks/raw material to production of product or services.Seller/customer must paid on cash by crediting into their account .Customer supplied/sold their goods on credit term to their purchaser & issue invoice .Bank then sells the good to customer on SP inclusive of cost of the good plus profit margin . then sold to bank at discounted price up to max 80% value of invoice .Sale of a debt arising from trade transaction in form of receivable /deferred payment . To increase capacity/ cost reduction. Payment by customer on deferred payment term (1st contract) . employ professional. SG & A expenses are incurred & accounts receivable are created > collection of accounts receivables. RM are being processed & accrued expenses are incurred > FG are completed with more value added. estimated costs & estimated eco life span Operating cycle A typical operating cycle for trading company involve 3 steps. Cash > goods for resale are acquired & accounts payable may be created > goods are sold. raw material for manufacturing company.SP of asset belong to bank in the 1st contract.Bank should identified valuable asset to facilitate the transaction . Cash > raw materials are acquired & accounts payable may be created > with value added. construction of building/factory. bank will purchase back the asset from customer on cash basis equivalent to financing amount (2nd contract) . plants & equipment. For capital expenditure (CAPEX) – to acquire fixed asset land/building/factory. Internal . other business activities Working capital is amount of money/capital needed to keep the business operations running Capital expenditure is fixed assets needed by business. Understanding the business Business nature & size by relating operating & capital investment to the financial statements 1.Upon receipts document/invoices on purchase of goods from supplier. beginning with people. to sales & finally conversion to cash 3. Capital investment cycles (within the larger cycle) a. Runs from everything that goes into production process. purchase/installation of machinery. Such as stock for trading business. For working capital/overhead expenses – production marketing & sale mgt & admin. renovation of building/factory 2.The payment of debt then will be by original debtor before/up to maturity bai inah cash line (OD) working capital . stock / raw material for their business . For working capital – purchase of stock/raw materials.