Musharaka

User Guide

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.

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The Programs (which include both the software and documentation) contain
proprietary information of Temenos Holdings NV and they are provided under a
license agreement containing restrictions on use and disclosure and are also
protected by copyright and other intellectual and industrial property laws.

Reverse engineering, disassembly or de-compilation of the Programs, except to the

extent required to obtain interoperability with other independently created software or
as specified by law, is prohibited.

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If you find any problems in the documentation, please report them to us in writing.
Temenos does not warrant that this document is error-free.

Except as may be expressly permitted in your license agreement for these Programs,
no part of these Programs may be reproduced or transmitted in any form or by any
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permission of Temenos Holdings NV.

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may be trademarks of their respective owners.

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Item Detail

DEVELOPMENT NAME Musharaka

DOCUMENT TYPE User Guide
SPECIAL COMMENTS (1) If a Field Information is Crossed Out,
it implies that the field is Not used under
the current version of the Development.

( Document Specific )
SPECIAL COMMENTS (2)

(Development / Support) Specific

SPECIAL COMMENTS (3)

(Client Specific)

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Serial No Last Updated Doc Version Author Comments

1 11 Nov 2007 1.0 J.Jude Roy Jaideep

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Table of Contents
Musharaka ............................................................................................................................................... 1
User Guide .............................................................................................................................................. 1
Overview of this guide ............................................................................................................................. 6
Assumptions ........................................................................................................................................ 6
Scope of this guide .............................................................................................................................. 6
Introduction .............................................................................................................................................. 7
Document Purpose .............................................................................................................................. 7
This document will explain the steps and calculations involved in issuing a musharaka contract. ..... 7
TEMENOS T24 TM Modules Supported ............................................................................................... 7
Multi Threading Supported .................................................................................................................. 7
Abbreviations used in this Guide ......................................................................................................... 7
Product Work Flow .................................................................................................................................. 8
Product Overview................................................................................................................................. 8
Issuing a Musharaka Contract: ............................................................................................................ 9
Asset Definition ................................................................................................................................ 9
Asset purchase (Pre-approval and Approval) ................................................................................ 10
Pre-Approval: ............................................................................................................................ 10
Purchase: .................................................................................................................................. 11
Finance Contract ............................................................................................................................ 11
Batch Processing: .............................................................................................................................. 12
Upfront Profit for Musharaka Customers........................................................................................ 12
Repayment of the Finance contract ............................................................................................... 12
Accounting Entries ............................................................................................................................. 13

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Overview of this guide

The purpose of this guide is to explain the set up, process and calculations involved in issuing a
Musharaka contract.

Assumptions
It is assumed that the reader of this guide has knowledge of the following.

 Fair knowledge in T24 Islamic Module, Murabaha

Scope of this guide

User Reference information of this particular development is the only scope of this guide.

Installation, Customization Procedures, Release Information, Guidelines for testing,

Operation and Migration procedures are NOT under the scope of this Document

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Introduction
Under Musharaka Contracts, bank and the customer share the finance amount. T24 Musharaka
module provides facilities to define Upfront profit percent, Musharaka percent, Profit percent for each
of the customers.
Profit will be returned to the Musharaka customers on each repayment of the finance contract.

Document Purpose
This document will explain the steps and calculations involved in issuing a musharaka contract.

TEMENOS T24 TM Modules Supported

The following Files in the following modules are supported or used by this module.

LD – Loans and Deposits

Multi Threading Supported

Applicable

Abbreviations used in this Guide

S – Single Value Field
M – Multi Value Field
AMS – Associated Multi Value Starts Here
AM – Member of Associated Multi Value
AMC – Associated Multi Value Closes Here

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Product Work Flow

Product Overview

Bank will decide to finance a project. Customers who want to share this finance amount will enter in to
the Musharaka contract with the bank.

This development allows the bank to specify the following details in the Purchase contract. (Purchase
contract is done through IS.H.CONTRACTS application)

1. Musharaka Customer Number

2. Musharaka Customer account
3. Musharaka Percentage (Percentage of the total finance amount that will be shared by the
Customer in the finance)
4. Upfront profit percentage
5. Musharaka Profit Percentage
6. Upfront profit pay date

Up on authorisation of the Purchase Contract, funds will be taken from the Musharaka customers.
Upfront profit will be paid to the customers on the Upfront profit pay date defined in the purchase
contract.

On each repayment of the Finance contract, percentage of profit amount for that corresponding
repayment will be given to the Musharaka customers.

On the maturity of the finance contract, amount shared by the musharaka customer will be returned
back to his account.

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Issuing a Musharaka Contract:

Asset Definition
The bank will define the asset, using the application ISB.ASSET.REGISTER.
Following details will be specified in this application:
- Customer Id (who is going to be financed)
- Supplier details
- Purchase Price and Quantity
- Asset details

The Islamic Musharaka module comes with options to define assets belonging to one of the following
categories:
- Vehicle
- Real Estate
- Equipment
- Movable Equipment
- Miscellaneous Asset

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Asset purchase (Pre-approval and Approval)

The are two steps involved in the purchase of asset.

1. Pre Approval
2. Approval

Pre-Approval:
In Pre-Approval, the bank will define the Musharaka customers and other related details.

Following details are captured in the Pre-Approval transaction:

- The Musharaka Customer ID
- Customer account
- role of the musharaka customer in the contract
- Musharka percent
- Profit percent
- Upfront profit percent
- Upfront profit pay date (Date on which upfront profit will be paid to the musharaka customer)

If the total of the MUSH.PERCENT exceed the limit defined in the IS.H.PARAMETER for this product
an error will stop the transaction.

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Purchase:

Payment to the supplier will happen during the purchase stage. The bank can collect additional
charges. These charges could be added to the total finance cost or it can be paid directly to the cost
counterparty account.
On authorisation of the Purchase approval, the musharaka customer will be debited based on his
sharing percentage in the contract.
Musharaka Customer Debit = Total finance amount * Musharaka percentage / 100

Note: Total Finance amount is picked from the NET.COST field from the IS.H.CONTRACTS.

Finance Contract
All the Musharaka customer IDs will be captured in the finance contract and the following fields in the
SALE contract will be updated :
- JOINT.HOLDER (Musharaka customer ID)
- JOINT.NOTES (Musharaka Percentage)

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Batch Processing:

Upfront Profit for Musharaka Customers

Batch Routine : EOD.SYND.UPFRNT.PROFIT.DIST

- All the IS.H.CONTRACTs with Musharaka Upfront profit pay date as TODAY will be selected.
- Musharaka customer account will be debited based on the upfront profit percent agreed in
the musharaka contract.
Upfront Profit Amount = Musharaka share amount * Upfront profit Percent / 100

Repayment of the Finance contract

Batch Routine : EOD.SYND.PROFIT.DISTRIBUTION

- All the IS.H.CONTRACTs with Musharaka Percent will be selected.

- SALE contract linked to this Purchase contract is checked to see if there are repayments
available between TODAY and NEXT Working day.
- Accrual for the current repayment period is calculated from the LMM.ACCOUNT.BALANCES.
- Musharaka customer will be credit with the profit percent of the accrual amount.
- If Profit percent is not defined then we take the Musharka percent for this calculation.
- Management fees will be calculated on the Profit amount, using the Management fee percent
defined in the IS.H.PARAMETER.

Musharaka Customer Profit Amount = Accrual for current Repayment period * profit percent/100
Management fees = Musharaka Customer profit amount * Management fee percent/100

The Profit amount given to the customer is stored in the IS.H.CONTRACT. (Field :
MUSH.PFT.PAID)

On the Maturity date of the SALE contract (If TODAY or LESS THAN Next working day), then the
principal amount that is shared by the Musharaka customer is given back to him.

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Accounting Entries

Action Accounting Entries Entry

Type

Request and Pre- DR MURABAHA.TRANSIT.ACCT Online

approval CR MURABAHA.PURCHASE.ORDER

Purchase Order  Reverse Approval Entries Online

Authorization DR MURABAHA.PURCHASE.ORDER
(Approval) CR MURABAHA.TRANSIT.ACCT
 Asset Purchase Value
DR ASSET.PURCHASE.ACCT
CR SUPPLIER.ACCT
 Additional Cost(s) added to Asset Value
DR CUST.PURCHASE.ACCT
CR SUPPLIER.COST.ACCT
 Additional Cost(s) Not Added to Asset Value
DR EXPENSE.PL.CATEG
CR SUPPLIER.COST.ACCT
 Reduce Down payment from Asset purchase
DR CUSTOMER.ARBUN.ACCT
CR CUST.PURCHASE.ACCT

 MUSHARAKA Accounting Entries

DR : Musharaka Customer Account

CR : MUSHARAKA.INT.ACCT

 MUSHARAKA UP-FRONT PROFIT

DR : MUSHARKA.PL.CATEG
CR : Musharaka Customer Account

Monthly (Periodic) DR : Customer Liquidate Acct COB

Instalments CR : LD Live DB

DR : Musharaka PL Category
CR : Musharaka Customer Account

DR : Musharaka Customer Account

CR : Management Fee Musharaka Category

Finance Maturity Date DR : MUSHARAKA.INT.ACCT COB

CR : Musharaka Customer Account

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