ISLAMIC BANKING

LC Murabaha and LC Musharaka

FUNCTIONAL SPECIFICATIONS
DOCUMENT

Information in this document is subject to change without notice.

No part of this document may be reproduced or transmitted in any form or by any means,
electronic or mechanical, for any purpose, without the express written permission of TEMENOS Holdings NV.

Copyright 2002-2003 TEMENOS Holdings NV. All rights reserved.

LC Murabaha & LC Musharaka Finance

Sign Off

The following business representatives shall sign off on the functional

requirements document proposed as below.

Sign Off Date Signature

Note: Any changes subsequent to the signoff of this document will be subject to
the standard change control procedures.

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LC Murabaha & LC Musharaka Finance

TABLE OF CONTENTS

INTRODUCTION.............................................................................................................................. 4

T24 OVERVIEW ............................................................................................................................... 5

Functional Overview ...................................................................................................................... 6

LC Murabaha .................................................................................................................................. 7
LC Murabaha Accounting Entries ................................................................................................ 9

LC Musharaka ............................................................................................................................... 10
LC Musharaka Accounting Entries ............................................................................................ 12

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LC Murabaha & LC Musharaka Finance

INTRODUCTION
This document covers the business requirements for the Islamic trade Finance.

Important notes:

Any functionality missing or changed in the final version of this document will be
subject to standard change control procedures.

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LC Murabaha & LC Musharaka Finance

T24 OVERVIEW

The function for managing commercial and retail financing is within the T24
“Loans and deposits” module.

LC Murabaha and LC Musharaka deals with the financing of "Letter of Credit"

using the Islamic financing models.

For Islamic financing products, T24’s “Loans and Deposits” module will be used
in conjunction with other applications developed specifically to cater to the
requirements of Islamic mode of financing.

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LC Murabaha & LC Musharaka Finance

Functional Overview
In LC Murabaha, the bank will finance the LC for the Customer. The LC will be
in the name of the customer.

In LC Musharaka, the customer will share a portion of the LC Amount with the
bank. The LC will be in the name of the customer.
The Customer and bank will agree on the Sharing percentage and portion of
the Customer Share amount will be taken as provision by the bank.
This provision amount will be refunded to the customer on issue of the
Drawings.

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LC Murabaha
Steps for Financing:
1. Issuance Of LC
Bank will do the LC and finance the customer for this LC amount.

2. Issuance of Drawings

T24 will default the following fields in the Drawings record:

- Currency
- Drawing Amount
- Payment acct Debit
- Payment Method
- Payment Acct Credit
If necessary, the fields Payment Method and Payment Acct Credit can be opened, so
that the bank can pay directly to the Nostro account.

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3. Murabaha Finance
Upon issuance of the drawings the bank will enter in to the finance contract with the
customer.

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LC Murabaha & LC Musharaka Finance

LC Murabaha Accounting Entries

Action Accounting Entries Entry Type

LC Issuance LC Issuance Entries Online
CR LC ISSUE
DR LC ISSUEBL

Drawings on LC Reversal of LC Issuance Entries Online

DR LC ISSUE
CR LC ISSUEBL

Payment to Supplier
DR MUSHARAKA.PURCHASE.ACCOUNT
CR. MUSHARAKA.SUPPLIER.ACCOUNT

Musharaka Finance Contract Refer to Murabaha Guide for Accounting entries

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LC Murabaha & LC Musharaka Finance

LC Musharaka
Steps for Financing:
1. Issuance Of LC
Bank and Customer will agree on the sharing percentage. Bank will collect the provision
from the customer. This provision is calculated on the Musharaka percentage of the LC
Amount.
Apart from the normal LC Fields, following fields are required to be input in an LC
Musharaka:
- Musharaka Percent
- Customer Musharaka Account
- Musharaka Provision Percent

On authorisation of the LC, T24 will take the provision from the LC Customer.

2. Issuance of Drawings
Bank will refund the Provision amount to the customer.
Musharaka sharing percentage of the LC Amount will be debited from the Customer
account and credited to Musharaka Purchase account.

T24 will default the following fields in the Drawings record:

- Currency
- Drawing Amount
- Payment acct Debit
- Payment Method
- Payment Acct Credit
If necessary, the fields Payment Method and Payment Acct Credit can be opened, so
that the bank can pay directly to the Nostro account.

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LC Murabaha & LC Musharaka Finance

3. Murabaha Finance
Bank will issue the finance contract for the customer. The finance contract will be linked
to the Drawings Reference.

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LC Musharaka Accounting Entries

Action Accounting Entries Entry Type

LC Issuance LC Issuance Entries Online
CR LC ISSUE
DR LC ISSUEBL

With Musharxaka Provision Percent

DR Customer Musharaka A/c
CR MUSHARAKA.PROVISION.ACCOUNT

Drawings on LC Reversal of LC Issuance Entries Online

DR LC ISSUE
CR LC ISSUEBL

Reversal of Provision Entries

DR MUSHARAKA.PROVISION.ACCOUNT
CR Customer Musharaka A/c

With Customer Musharaka Percentage

DR Customer A/c
CR MUSHARAKA.PURCHASE.ACCOUNT

Payment to Supplier
DR MUSHARAKA.PURCHASE.ACCOUNT
CR. MUSHARAKA.SUPPLIER.ACCOUNT

Musharaka Finance Contract Refer to Murabaha Guide for Accounting entries

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