Product Risks

Islamic Banking Products – Risks and Mitigants

Murabahah Product

RISKS MITIGANTS

1. Failure of Supplier to deliver goods In advance payment cases, the supplier, upon funds receipt, may refuse to deliver the goods due to any reason: a- The supplier may also refuse to return the amount paid In such case, IBI will be dependent upon the Client to recover funds. IBI's entire principal amount can be at stake. b- The supplier may return the payment after certain delay. In such case, IBI will remain out of funds for a certain period and will not be able to receive any profit from Client. In case no negligence of the Agent/Client is proved, then IBI will have to bear the loss.

Agent/Client's responsibility Since the Supplier was chosen by the Agent, therefore, Agent would be asked to arrange the receipt of funds from Supplier. IBI should ask the Agent to purchase IBI's goods only from prominent suppliers who have a history devoid of any such fraud/deceit.

Murabahah – Risks and Mitigants

RISKS MITIGANTS

2. Transportation risk Client, as IBI's Agent, purchases goods and takes delivery from Supplier. During the transfer of goods from Supplier's site to the Client's factory, there is a risk that the Murabahah goods may be stolen/theft or damaged/destroyed. Any loss/damage to goods, unless negligence of Agent is proved, will have to be borne by IBI, since IBI is the owner of the goods.

Takaful Coverage Takaful coverage of goods in transit can be obtained by IBI. However, if the Takaful claim is less than the disbursed funds, then IBI will have to bear the loss.


RISKS MITIGANTS

3. Client's Refusal to buy the goods from IBI Once the goods come into IBI's constructive possession, Client may refuse to purchase the goods from IBI on Murabahah basis. In such case, IBI has the option to sell the goods in the market. However, there is an added risk that IBI may face difficulty in selling the goods in the market in case the goods are rarely traded.

Legal Coverage / Security Coverage The Client undertakes in Purchase Requisition that if he fails to purchase the Goods from IBI, then any loss (excluding opportunity cost) incurred by IBI, during the sale of goods to third party, would be borne by the Client. IBI can sell the purchased goods in the market. If the market price received is lower than the disbursed funds, then the differential can be recovered through liquidation of security.


RISKS MITIGANTS

4. Storage Risk The Client, after purchase of goods as IBI's Agent, stores the goods at its factory/premises. There is a risk that the goods may be stolen/damaged or subject to theft/destruction before IBI sells the goods to the Client via signing of Murabahah Declaration. Any loss/damage to goods, unless negligence of Client is proved, will have to be borne by IBI, since IBI is the owner of the goods.

(a) Timely Signing of Declaration

IBI shall sell the goods to the Client i.e. execute the Declaration, immediately upon the receipt of goods by Client/Agent. Any delay would expose IBI to this risk.

(b) Takaful CoverageTakaful coverage for the stored

goods can be obtained by IBI. However, if the Takaful claim is less than the disbursed funds, then IBI will have to bear the loss.


RISKS MITIGANTS

5. Payment Default/Delay Risk The Client may delay/default in the payment of Murabahah Contract Price.

(a) Security Coverage IBI can liquidate the security to recover the Murabahah contract price and charity. (b) Legal Coverage In the Main Murabahah Facility Agreement signed between Client and IBI, the Client undertakes that in case of any delay in payments he would pay charity to the Charity Fund constituted by IBI. This clause would keep pressure on the Client to timely settle the payment. Contd.


RISKS MITIGANTS

5. Payment Default/Delay Risk (Contd.)

(c) Structuring of Payments Since rollover is not allowed in Murabahah transactions, one of the reasons for delay in payments is that generally the entire Murabahah contract price has to be paid by the Client on bullet payment and he usually shows inability to make the bullet payment timely. Payments can be kept in installment, with brief gaps between installments, which would help the Client to manage his cash flows and make timely payment.


RISKS MITIGANTS

6. Shariah Non-compliance Risk Murabahah is a sensitive transaction and all the steps and documentation need to be executed in a particular sequence. Any violation e.g. signing of Declaration without possession of the goods, delay in signing of Declaration etc. may lead to transaction being void and profit being given in charity fund.

Clear Understanding of Murabahah Procurement Process Flow CRM/CRO should have clear understanding regarding the Procurement Process Flow and should follow-up with Client. In this regard, different training sessions are carried out to ensure that the understanding of Murabahah product is clear. CRM/CRO should also educate the Client to ensure Shariah compliance at all steps.


Ijarah Product

RISKS MITIGANTS

1. Failure of Supplier to deliver AssetsIn case of new assets Ijarah, Client purchases the asset as agent of IBI. The supplier, upon receipt of funds, may refuse to deliver the assets due to any reason: a- The supplier may also refuse to return the amount paid. In such case, IBI will be dependent upon the Client to recover the funds from Supplier. IBI's entire principal amount can be at stake in such case. b- The supplier may return the payment after certain delay. In such case, IBI will remain out of funds for a certain period and will not be able to receive any profit from Client. In case no negligence of the Agent/Client is proved, then IBI will have to bear the loss.

Agent/Client's responsibility Since the Supplier was chosen by the Agent, therefore, Agent would be asked to arrange the receipt of funds from Supplier. The Bank should ask the Agent to purchase IBI's assets only from prominent suppliers who have a history devoid of any such fraud/deceit.

Ijarah – Risks and Mitigants

RISKS MITIGANTS

2. Transportation risk In cases of new asset Ijarah, Client, as IBI's Agent, purchases fixed assets and takes delivery from Supplier. During the transfer of assets from Supplier's site to the Client's factory, there is a risk that the Ijarah assets may be stolen/theft or damaged/destroyed. Any loss/damage to Ijarah assets, unless negligence of Agent is proved, will have to be borne by IBI, since IBI is the owner of the assets.

Takaful Coverage Takaful coverage of assets in transit can be obtained by IBI. However, if the Takaful claim is less than the disbursed funds, then IBI will have to bear the loss.


RISKS MITIGANTS

3. Total/Partial Loss Risk Total/Partial Loss means the destruction (total loss) of, or partial damage (partial loss) to the Ijarah Asset.

IBI, being the owner of the asset, will have to bear any loss incurred in such case, provided the loss is not due to negligence or misconduct of Client. As per AAOIFI Shariah standards , IBI will also have to return the difference in the market rental and the Ijarah rental.

Takaful Coverage Takaful coverage of assets should be obtained by IBI. However, if the Takaful claim is less than the outstanding Ijarah financing, then IBI will have to bear the loss.


RISKS MITIGANTS

4. Failure in Timely Revision of Rentals In variable rental Ijarah cases, the rentals have to be revised on a periodical basis. Rental revision cannot happen automatically upon end of a period. Mutual consensus of the Client and IBI such as signing of revised Rental Schedule/written correspondence with Client, is required for rentals to be revised. Similarly, rentals cannot be revised retrospectively.

IBI will only be able to receive revised rentals if the Rental Schedules have been revised.

Rental Revision Mechanism A control mechanism should be in place whereby it is ensured that rentals for the new period are revised immediately upon end of the previous period. Secondly, it shall be ensured that the revised rentals have been communicated to the Client.


RISKS MITIGANTS

5. Payment Default/Delay Risk The Client may delay/default in the payment of rentals.

Security Coverage / Legal Coverage In the Ijarah Agreement signed between the Client and IBI, the Client undertakes that in case of any delay in payments he would pay charity to the Charity Fund constituted by IBI. This clause would keep a pressure on the Client to timely settle the rental payments. Contd.


RISKS MITIGANTS


Security Coverage / Legal Coverage (Contd.) In case of default in rental payments, Ijarah Agreement will be terminated and Client will be obliged to purchase the Ijarah asset from IBI as per its Undertaking to Purchase. In case Client fails to do so, IBI can sell the Ijarah asset in the market to recover any unpaid rentals and charity due. If the asset price received does not cover rentals/charity, then the deficient amount will be recovered from the Client.


RISKS MITIGANTS

6. Shariah Non-compliance Risk While executing Ijarah transaction, all relevant Shariah rules need to be followed. Any violation e.g. receipt of rentals before delivery, may lead to profit being given in charity fund.

Clear Understanding of Ijarah Process Flow CRM/CRO should have clear understanding regarding the Ijarah Process Flow. In this regard, different training sessions are carried out to ensure that the understanding of Ijarah product is clear. CRM/CRO should also educate the Client to ensure Shariah compliance at all steps.


Diminishing Musharakah Product

RISKS MITIGANTS

1. Failure of Supplier to deliver AssetsIn cases of new asset DM, Client purchases the asset as agent of IBI. The supplier of the Client, upon receipt of funds, may refuse to deliver the assets due to any reason: a- The supplier may also refuse to return the amount paid to it. In such case, IBI will be dependent upon the Client to recover the funds from Supplier. IBI's entire principal amount can be at stake in such case. b- The supplier may return the payment after certain delay. In such case, IBI will remain out of funds for a certain period and will not be able to receive any profit from Client. In case no negligence of the Agent/Client is proved, then IBI will have to bear the loss.

Agent/Client's responsibility Since the Supplier was chosen by the Agent, therefore, Agent would be asked to arrange the receipt of funds from Supplier. The Bank should ask the Agent to purchase IBI's assets only from prominent suppliers who have a history devoid of any such fraud/deceit.

DM – Risks and Mitigants

RISKS MITIGANTS

2. Transportation risk In cases of new assets DM, Client, as IBI's Agent, purchases fixed assets and takes delivery from Supplier. During the transfer of assets from Supplier's site to the Client's factory, there is a risk that the DM assets may be stolen/theft or damaged/destroyed. Any loss/damage to DM assets, unless negligence of Agent is proved, will have to be borne by IBI, since IBI is the owner of the assets.

Takaful Coverage Takaful coverage of assets in transit can be obtained by IBI. Any Takaful proceeds would, however, be shared as per proportionate ownership ratio.

D.M. – Risks and Mitigants

RISKS MITIGANTS

3. Total/Partial Loss Risk Total/Partial Loss means the destruction (total loss) of, or partial damage (partial loss) to the DM Asset. IBI, being the co-owner of the asset, will have to bear any loss (proportionately) incurred in such case up to its ownership share, provided the loss is not due to negligence or misconduct of Client.

Takaful Coverage Takaful coverage of assets should be obtained by IBI. Any Takaful proceeds would, however, be shared as per proportionate ownership ratio.


RISKS MITIGANTS

4. Failure in Timely Revision of Rentals In variable rental DM cases, the rentals have to be revised on a periodical basis. Rental revision cannot happen automatically upon end of a period. Mutual consensus of the Client and IBI such as signing of revised Rental Schedule/written correspondence with Client, is required for rentals to be revised. Similarly, rentals cannot be revised retrospectively.

IBI will only be able to receive revised rentals if the Rental Schedules have been revised.

Rental Revision Mechanism A control mechanism should be in place whereby it is ensured that rentals for the new period are revised immediately upon end of the previous period. Secondly, it shall be ensured that the revised rentals have been communicated to the Client.


RISKS MITIGANTS

5. DM Assets Replacement Risk IBI may enter into Sale and Lease Back based DM transaction in certain assets which need replacement before the tenure of DM ends. In such case, if the DM asset is sold in the market at a lower value i.e. at loss, then IBI will have to share the loss as per its proportionate ownership in the DM asset.

Asset Selection:

Best efforts should be made to select those assets which would survive the DM financing tenure. CRM should coordinate with the Client to ensure this.


RISKS MITIGANTS

6. DM Assets already financed by other Islamic Banks In Sale and Lease back cases, IBI may enter into DM in certain Client's assets which are already under DM/Ijarah transaction with any other Islamic Bank. In such case, the DM assets are completely (in Ijarah) or partially (in DM) owned by the other Islamic Bank. Therefore, any profit earned in such transaction may be given to charity.

CRM/Client's Responsibility CRM should educate the Client that DM can be executed only in those assets which have not been already financed by any other Islamic Bank under Ijarah or Diminishing Musharakah.


RISKS MITIGANTS

7. Payment Default/Delay Risk The Client may delay/default in the payment of rentals/purchase of Musharakah units.

Security Coverage / Legal Coverage In the Payment (Ijarah) Agreement signed between the Client and IBI, the Client undertakes that in case of any delay in payments he would pay charity to the Charity Fund constituted by IBI. This clause would keep pressure on the Client to timely settle the rental payments/unit purchase payment.

Contd.


RISKS MITIGANTS


Security Coverage / Legal Coverage (Contd.) In case of default in rental payments/failure to purchase Musharakah units, IBI can sell the DM asset in the market to recover any unpaid rentals/Musharakah units price and charity due. If the asset price received does not cover unit price/rentals/charity, then the deficient amount will be recovered from the Client.


RISKS MITIGANTS

8. Shariah Non-compliance Risk While executing DM transaction, all relevant Shariah rules need to be followed. Any violation e.g. receipt of rentals before delivery, may lead to profit being given in charity fund.

Clear Understanding of DM Process Flow CRM/CRO should have clear understanding regarding the DM Process Flow. In this regard, different training sessions are carried out to ensure that the understanding of DM product is clear. CRM/CRO should also educate the Client to ensure Shariah compliance at all steps.


Istisna Product

RISKS MITIGANTS

1. Performance Failure Risk

After disbursement of funds, Client may fail / refuse to manufacture the goods, as per the contract.

(a) Product Structure

1.IBI can terminate Istisna Agreement and recover the outstanding Istisna contract price from the Client.

2.Charity amount to be recovered for the number of days IBI remained out of funds in case the Client refuses to fulfill its commitments.

3.IBI may agree with the Client to disburse the funds i.e. pay the Istisna contract price in tranches. Contd.

Istisna – Risks and Mitigants

RISKS MITIGANTS

1. Performance Failure Risk (Contd.) (b) Security Coverage

An approved security / charge against the financing will further cover us for any untoward client behavior (willingness) or ability.


RISKS MITIGANTS

2. Delivery Risk

Client may delay the delivery of manufactured goods.

Legal Coverage

IBI can reduce the Istisna Contract Price by a certain amount on daily basis (for the number of days delayed). The reduction amount needs to be agreed at the time of Master Istisna Agreement sign-off. Security Coverage



RISKS MITIGANTS

3. Increase in manufacturing cost

During the Istisna tenure, cost of manufacturing may be higher than anticipated earlier.

Legal Coverage

It would be agreed by IBI and the Client in the Master Istisna Agreement that the increased manufacturing cost would be borne by Manufacturer (Client) unless the increase in cost is due to force majeur. In case of force majeur, Istisna contract price may be varied by mutual consent.


RISKS MITIGANTS

4. Quality Risk

The manufacturer (Client) may deliver defective goods or inferior goods i.e. not as per agreed specification.

Legal Coverage

IBI can exercise its option of Khiyar-e-Aib (option of canceling contract if defect is found) and refuse to accept the goods. Available Options:1.IBI may opt to recover the Istisna contract price, if already paid to the client. In such a case, IBI would not be able to recover profit amount; or

2.IBI may claim for new lot of goods as per specification provided. Contd.


RISKS MITIGANTS

4. Quality Risk (Contd.) Commercial Decision

Corporate / Credit Department would analyze the situation on case to case basis to decide which option is commercially viable for IBI. Security Coverage



RISKS MITIGANTS

5. Storage Risk After delivery of the goods from the Client to IBI, the goods would remain under risk of IBI until they are sold to third party through Agent. There is a risk that the goods may be stolen or destroyed during this time. In such case, IBI's principle amount would be at risk, let alone the profit amount.

Process Expedition

Immediately upon receipt of goods, CRM/CAD should execute Letter of Agency with the Client/Agent; whereby, Agent would be responsible to sell the goods and also keep the goods with care until they are sold. If the goods are stolen or destroyed due to the negligence of the Agent, then the Agent would be responsible to compensate the loss and return the Istisna contract price of the goods i.e. the principle amount. Contd.


RISKS MITIGANTS

5. Storage Risk (Contd.)

Exception to the Risk Coverage

However, if the theft / destruction is without the negligence of the Agent, then IBI would have to bear the loss in such case. Takaful Coverage

To avoid such losses, CRM/CAD should ensure that the Agent shall procure Takaful /insurance coverage of the Istisna goods from the day goods are received till the day goods are sold to third party/market. Contd.


RISKS MITIGANTS

5. Storage Risk (Contd.)

Legal Coverage

Obtaining Takaful /insurance coverage for finished goods delivered to IBI is IBI's responsibility. However, IBI may appoint Client its agent to procure Takaful /insurance coverage.


RISKS MITIGANTS

6. Commodity Price Risk The Agent may show its inability to sell the goods at a minimum sale price since the market price of the goods have reduced. In such case, IBI may lose out on its profit amount or even portion of principal amount. IBI can hold back the Agency Fee since the Agent has failed to sell the Goods. However, Agent cannot be held responsible for loss incurred in this transaction. IBI cannot sell the Istisna goods back to the manufacturer under a separate contract. This would construe to be a sale and buy-back transaction.

Commercial Decision

Selective commodities where CRM/Credit has done sufficient due diligence (specially in relations to the price outlook of the commodity) on the commodity to be financed.

Contd.


RISKS MITIGANTS6. Commodity Price Risk (Contd.)

Other Options

The Istisna contract price should be kept on a lower side i.e. the price per unit of the goods should be kept lower, as compared to the market value, while calculating the Istisna contract price. In this way, even if the market value of the goods falls down, IBI may be able to earn the desired profit since it had also bought the goods at a lower price. However, irrational excessive discounting in price should be avoided.

Contd.


RISKS MITIGANTS

6. Commodity Price Risk (Contd.)

Legal Coverage

Instead of Agency arrangement and facing commodity price risk during the Istisna tenure, IBI may fix the minimum sale price by either (a) entering into Parallel Istisna or (b) receiving an Undertaking to Purchase from a 3rd party, whereby, the third party would purchase the Istisna goods from IBI at minimum sale price once they are manufactured.


RISKS MITIGANTS

7. Refusal of Client to act as Agent

The Client may handover the goods to IBI and refuse to act as Agent to sell the Goods in the market. In such situation, IBI will only be able to hold back the Agency Fee.

Commercial Decision

IBI should avoid entering into Istisna contract for goods which are difficult to sell in the market e.g. goods only for export, specialized goods such as garments manufactured as per specific order etc.

Contd.


RISKS MITIGANTS

7. Refusal of Client to act as Agent (Contd.)

Minimizing chances of Client’s refusal

Since the Client had sold the goods at discount to IBI, therefore, this also encourages the Client, in normal circumstances, to act as Agent in sale of goods and receive incentive fee (i.e. if the goods are sold at a price above the minimum sale price).


RISKS MITIGANTS

8. Default/Delay By Third Party The Agent sells the Istisna goods to a third party on credit terms and the third party delays/defaults in payment of the minimum sale price. If the Agent has made its best efforts to recover the minimum sale price, then in such case the Agent cannot be held responsible for loss incurred. Even charity amount cannot be received from the Agent.

Best Possible Option

CRM/Credit should select such goods for Istisna transactions that are sold against cash payment. If the goods are sold on credit, then all efforts should be made that the goods are sold against LCs so that the risk of delay/default by the third party is minimized.

Contd.


RISKS MITIGANTS

8. Default/Delay By Third Party (Contd.)

In case it is proved that :

(a) the delay by third party is caused due to negligence or misconduct of Agent, then IBI can receive charity for the number of days IBI's funds were delayed. (b) the default by third party is caused due to negligence or misconduct of Agent, then IBI can recover the loss (i.e. the minimum sale price) from the Agent.


RISKS MITIGANTS

9. Shariah Non-compliance Risk While executing Istisna transaction, all relevant Shariah rules need to be followed. Any violation may lead to profit being given in charity fund.

Clear Understanding of Istisna Process Flow CRM/CRO should have clear understanding regarding the Istisna. In this regard, different training sessions are carried out to ensure that the understanding of Istisna product is clear. CRM/CRO should also educate the Client to ensure Shariah compliance at all steps.


Karobar Financing Product

RISKS MITIGANTS

1. Quality Risk

The Seller (Client) may sell defective assets or inferior assets i.e. not as per agreed specification.

Legal Coverage

IBI can exercise its option of Khiyar-e-Aib (option of canceling contract if defect is found) and refuse to accept or return the assets within six months of the sale between IBI and Client.

Contd.

Karobar Financing – Risks and Mitigants

RISKS MITIGANTS

1. Quality Risk (Contd.) Available Options:

1.IBI may opt to recover the Purchase Price (disbursement amount), if already paid to the client. In such case, IBI would not be able to recover profit amount; or

2.IBI may claim for new lot of assets as per specification provided.

Contd.


RISKS MITIGANTS

1. Quality Risk (Contd.) Commercial Decision

Corporate / Credit Department would analyze the situation on case to case basis to decide which option is commercially viable. Security Coverage



RISKS MITIGANTS

2. Storage Risk After the assets are purchased by IBI through signing of Declaration, the assets remain with Client in the capacity of Agent i.e. the Agent is required to sell the assets in market on behalf of IBI. The goods remain under the risk of IBI from Declaration signing (and receipt of goods) till the assets are sold in market through Agent. There is a risk that the goods may be stolen or destroyed during this time (from Declaration signing to onwards sale in market). In such case, IBI will have to suffer any loss incurred since IBI is the owner of the assets.

Process Expedition

Immediately upon signing of Declaration and possession / receipt of goods, CRM/CAD should execute Letter of Agency with the Client/Agent, whereby, Agent would be responsible to sell the assets and keep assets with care until they are sold. If the assets are stolen or destroyed due to the negligence of the Agent, then he would be responsible to compensate loss and return the Purchase Price of assets i.e. the principle amount. Contd.


RISKS MITIGANTS

2. Storage Risk (Contd.) Exception to the Risk Coverage

However, if the theft / destruction is without the negligence of the Agent, then IBI would have to bear the loss in such case. Takaful Coverage

To avoid such losses, CRM/CAD should ensure that the Agent shall procure Takaful /insurance coverage of the assets from the time of Declaration signing till the day assets are sold to third party/market. Contd.


RISKS MITIGANTS

2. Storage Risk (Contd.) Legal Coverage

Obtaining Takaful /insurance coverage for assets is IBI's responsibility. However, IBI may appoint Client its agent to procure Takaful /insurance coverage.


RISKS MITIGANTS

3. Asset/Commodity Price Risk The Agent may show its inability to sell the assets at a minimum sale price since the market price of the assets have reduced. In such case, IBI may lose out on its profit amount or even portion of principal amount. IBI can hold back the Agency Fee since the Agent has failed to sell the assets. However, Agent cannot be held responsible for loss incurred in this transaction.

Commercial Decision Selective assets/commodities where CRM/Credit has done sufficient due diligence (specially in relations to the price outlook of the assets) on the assets to be purchased.

Contd.


RISKS MITIGANTS

3. Asset/Commodity Price Risk (Contd.)

Purchasing Assets at Discount The Purchase Price should be kept on a lower side i.e. the price per unit of the assets should be kept lower, as compared to the market value, while calculating the Purchase Price. In this way, even if the market value of the assets falls down, IBI may be able to recover the principal amount and earn the desired profit since it had also bought the assets at a lower price. However, irrational excessive discounting in price should be avoided.


RISKS MITIGANTS

4. Failure of the Agent to sell Assets The Agent may fail to sell or show its inability to sell the assets in the market. In such case IBI will have to sell the assets itself and there is a risk that IBI may not be able to sell the assets to a third party to recover its principal and desired profit. Any such loss will have to be borne by IBI. In such situation, IBI will only be able to hold back the Agency Fee.

Commercial Decision IBI should avoid purchasing assets from Client which are difficult to sell in the market e.g. assets only for export purposes, specialized assets such as garments manufactured as per specific order, assets for which there are very few buyers in the market etc.

Contd.


RISKS MITIGANTS

4. Failure of the Agent to sell Assets (Contd.)

Minimizing chances of Client’s refusal Since the Client had sold the assets at discount to IBI, this also encourages the Client, in normal circumstances, to act as Agent in sale of assets and receive incentive fee (i.e. the additional amount it would receive if the assets are sold at a price above the minimum sale price).


RISKS MITIGANTS

5. Default/Delay By Third Party The Agent sells the assets to market/ third party on behalf of IBI. If the goods are sold on credit payment basis, there is a risk that the third party delays/defaults in payment of the minimum sale price. If the Agent has made its best efforts to recover the minimum sale price and there is no negligence on its behalf, then in such case the Agent cannot be held responsible for loss incurred. Even charity amount cannot be received from the Agent for the delay.

Best Option Available All efforts should be made by CRM/Credit that the assets are sold against LCs so that the risk of delay/default by the third party is minimized.

Contd.


RISKS MITIGANTS

5. Default/Delay By Third Party (Contd.)

Other Options: The Agent can be instructed to sell the IBI's assets to its top-tier buyers (who do not have a history of delay or default of payment). In case it is proved that the delay/default by third party is caused due to negligence or misconduct of Agent, then IBI can recover the minimum sale price from the Agent


RISKS MITIGANTS

6. Shariah Non-compliance Risk To ensure that the transaction is Shariah-compliant, the steps and documentation of the transaction need to be executed in a particular sequence. Violation may lead to transaction being void and profit given in charity fund.

Clear Understanding of the Transaction: CRM/CRO should have clear understanding regarding the Transaction Process Flow. In this regard, different training sessions can be carried out to ensure that the understanding of Karobar Financing product is clear. CRM/CRO should also educate the Client to ensure Shariah compliance at all steps.


Documents

Product Risks