INTERNAL MEMO

TO: GENERAL MANAGER,

FROM: STRATEGY DEPARTMENT

DATE; 06/10/2022

SUBJECT: THE SITUATION OF HALAL SAVE AND THE WAY FORWARD WITH
ISLAMIC BANKING IN NFCB.

Sir,

From a review carried out on the Islamic banking product of the bank to see if this
product meets the minimum requirement for their sales. It was realized that it does not
respect the process and laws stated for the implementation of Islamic products. Based
on my studies on this domain I think that for the bank to succeed in this domain which is
not well known and practiced in Cameroon there is a lot that the bank needs to do. The
population of Cameroon stands at about 26,550,000 with the Muslim population having
a percentage of 17.9% or 4,752,450 of the population.

The Present Situation of the Products in Our Books

The present situation of the only Islamic product we have in the market has several
weaknesses and this I think has made this product not to sell as expected. The Islamic
product we have in our portfolio of products is the halal save which was launched as
one of the bank's products in 2014. In 2020 a review was carried out to measure the
productivity of the product and we realized it was not selling as expected and the
Muslim communities were not interested in it because of some lapses. Later within the
same year, the bank thought the portfolio could be improved by subdividing it into three
sub-accounts still yet the situation has not changed. The accounts were;

 THE HALAL Normal

 THE HALAL Students
 THE HALAL MICROSAVE

HALAL NORMAL;

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This product was launched in 2014 and since then the bank has been able to open only
84 accounts as of date. It has account code 387.

HALAL STUDENT and HALAL MICROSAVE

These products were launched in 2020 and as of date have only 11 and 20 accounts
opened respectively. They also have account codes 389 and 390 in that order.

The representation of this information can be seen on the table and bar chart below for
your appreciation.

Acct Acct Acct

BRANCH code code code Grand
CODE 387 389 390 Total
020 2 1 3
021 12 12
022 7 1 8
023 11 11
024 3 3
030 8 9 3 20
031 20 2 2 24
032 1 4 5
043 1 1 2
050 16 3 19
051 1 1
052 2 2
060 2 3 5
Grand
Total 84 11 20 115

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Taking a look at the evolution within the period the first product was launched till date,
we see that the product has not been taken seriously or even sold in some business
offices. Out of 16 business units the bank has as of today, 13 business units have at
least an account in their business unit meanwhile the other 3 have zero accounts. Of
the 13 business offices, 8 have below 10 accounts opened and from the look of it, some
have not been able to even open an account for a year as can be seen in the table
below. This can be seen as indicated by the red color.

Acct Acct Acct Acct Acct Acct

Open Open Open Open Open Open
BRANCH ed in ed in ed in ed in ed in ed in Grand
CODE 2014 2015 2016 2017 2018 2019 Acct Opened in 2020 Acct Opened in 2021 Acct Opened in 2022 Total
387 387 387 387 387 387 387 389 390 387 389 390 387 389 390
020 1 1 1 3
021 6 1 1 1 2 1 12
022 3 2 2 1 2 10
023 5 1 3 9
024 3 3
030 2 1 2 1 2 1 2 8 1 20
031 1 1 5 2 1 5 2 1 5 1 24
032 1 1 3 5
043 1 1 2
050 1 5 3 2 3 1 2 1 1 19
051 1 1
052 2 2
060 2 3 5
Grand
Total 3 6 10 13 10 9 9 0 1 13 3 7 11 8 12 115

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The business offices with zero accounts are KUMBA, MUYUKA, and MAMFE. The
situation of MUYUKA can be better understood at the moment but that of KUMBA and
MAMFE need to inform the bank of the situation of these products in their area of
business so that if there is anything or way the bank can help them in the selling of the
products. This is because though they are in the crisis zone, we can see that Nkwen
and Commercial Avenue are toping on the sale of these products so the crisis should
not be an issue.

There is a call for concern in the business offices of Yaoundé and Douala which are not
in the crisis zone and are unable to meet up with their target meanwhile the studies for
the products was done mainly in these towns.

The graph below shows the data as per the different business offices within the period
from 2014 till date.

The above represent the situation of the Halal save accounts as of date for the bank
and we think there is a lot that needs to be done for this sector of the business to pick
up sales position in the Country and domain of the business.

This is because from our findings and studies,we realized the following weaknesses
which are the mean reason for this product not to be selling as expected.

 The products do not respect the shariah law or kuran which is the base on which
its sales depend.
 The bank and the country of Cameroon do not have a sharia board that certifies
these products.

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  There is no respect for the zakat by the bank which also is a very important
aspect as far as the development and sale of this product are concerned.
 The bank focuses its attention mostly on the interest rate aspect which is not the
only thing to be looked at when developing an Islamic product.
 Communication on the products was not met as planned due to the none respect
of the product development process as it should be done.
 There is no business unit or offices assigned to manage these products and
services as is the case with some few banks already in this market.
 The bank is not respecting the financial inclusion message as is indicated in its
mission statement because this segment of the population seems not to be taken
care of by the bank as is the case with the other sectors.
 No Islamic auditing board for the bank.
 The present product report has been carried out to ensure the situation is
addressed early enough.
 The financial reporting framework of the bank does not specify what is coming
from these products as it is supposed to be done.

THE WAY FORWARD FOR THIS SECTOR.

The way forward for better optimization of these products and revenue generation can
be done by carrying out the following steps,

 The creation of an Islamic finance window for these products and services as it is
done in other banks
 The development of new products which are globally recognized and accepted
so that any Muslim in the country or visiting should be able to carry out their
financial transactions without any problem in the bank.
 The development of products like Musharaka, Mudaraba, Mubaraha, Istina,
etc.
 The development of the Sukuk project which will take into consideration the
vision and mission statement of the bank.
 The reporting system or platform should be improved upon to include the Islamic
banking process and reporting.
 The creation of reliable contact with the Muslim scholars through the Muslim
community in Cameroon to build a solid network with this group of the population
to gain confidence and loyalty.
 Work with Muslim scholars like the Imams to come up with a Sharia board in
Cameroon and for the CEMAC zone which is going to benefit the bank should in
case any other bank wants to validate the products or carry out an audit report of
their Islamic finance window.

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  The involvement of the risk management process in Islamic banking and finance
in other to enhance value and performance.

THE DIFFERENT PRODUCTS OF THE ISLAMIC FINANCE.

MUSHARAKA

It is a partnership agreement between two or more partners in a given business. In

Islamic banking and finance partnership, the profit distribution is always done on an
agreed ratio while the loss is also according to the investment ratio. There are two types
of Musharaka in Islamic banking;

 Shirtkat-ul-Milk
 Shirtkat-ul-Aquad

It is a business of two or more partners and it is further sub-divided into three types;

 Shortcut-ul-Amwaal is a contract between two or more people who invest

in a business and distribute the profit and loss.
 Shirtkat-ul-amaal is a contract between two or more partners to provide
services and distribute the profit and loss
 Shirtkat-ul-wajood is for someone who give goods to a person as goodwill
and trust. He sells those goods and then gives the amount to the owner
and keeps his profit

IJARAH; It is leasing which can be short-term or long term

Operating leasing; is short-term leasing such as renting a car

Capital or Finance leasing is long-term leasing such as the purchase of a car on

installment.

MUDARABAH

There are two types and parties involved in a mudarabah contract which are the
mudarib and rab-ul-Maal.

The mudaraib is the person who has the skills and expertise to run the business.

Rab-ul-Maal is the person who has the money to invest in the business in the business
by buying a mudarabah certificate. There are two types of Rab-ul-Maal

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  Mudaraba AI-MUQUAIDA

This restricts the mudarib from doing a specific business not doing any other business
than this and if he wants to invest in more he will get permission from the RAB-UL-
MAAL which is also called the specific mudaraba.

 Mudaraba AL-MUTALIQA

This gives the right to the mudarib to do any business of his choice. He does not impose
any conditions on the mudarib. It is also called Multi-purpose mudaraba.

THE SUKUK MARKET

It has been noted that the Sukuk market has been growing in recent years and it is a
promising avenue for the bank if the bank could engage in it to gain from it. The most
important thing with this type of financing is the fact that it is a long-term financing
project which is what most businesses and policy makers are looking out for at the
moment. I know the bank has been looking out for ways to carry out long-term financing
but has encountered challenges in terms of deposits which are the main source of long-
term financing.

The development of the Sukuk market entails the standardization of structures and
practices and investor protection which is highly linked to insolvency and governance
and market liquidity. The development of the domestic Sukuk market is done through
the policymakers who use a method that is similar to that of the conventional bond
market which can be through;

 A well–functioning money markets

 An efficient primary markets security offering administration or governance
 A robust and diversified investors base
 Have a market infrastructure that facilities trading, price transparency, and
efficient clearing and settlement of transactions
 Derivatives markets and hedging tools to support risk management by issuers
and investors
 They should be a credible legal and regulatory framework.

The assessment of a Sukuk in the international market by the policy makers or the
potential Sukuk issuers takes into consideration the level of knowledge of Sukuk, the
legal foundation, taxation, governance, obligors, and credit ratings.

The types of Sukuk

According to the AAOIFI which is the accounting and auditing board of Islamic finance
and governance they are fourteen types of Sukuk which depends on the method Islamic

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finance and trade use during the time of structuring. The most common and important of
these products are IJARAH, SHIRKAH, SALAM, and Istisna. The most common ones
are seven of them in number such as

 Mudaraba sukuk,
 Musharaka sukuk,
 Ijara sukuk,
 Murabaha sukuk,
 Istisna sukuk
 Hybrid sukuk.

They all have their structures which are specific to their development and how they are
been put in to practice even though only the mudaraba sukuk characteristics are been
taken in to consideration.

THE MUDARABA SUKUK

It is a Sukuk that represents equal ownership value in the mudaraba contract and it is
registered in the names of the holders depending on their common ownership of shares.
The returns of such a contract are shared according to the ownership shares
percentage. The owners of such are the Rabbul-mal and the sukuk is used to enhance
the public participation in big investment projects.

Characteristics of Mudaraba Sukuk Contracts.

It shows a common ownership and rights to their shares in specific projects in which the
mudaraba sukkuk contract is issued.

It is found on the official communication list of products usually publish by the shariah
board and it provides information required by the shariah for the Ojrad contract with
details on the nature of capital, the profit ratio distribution and the other issues related to
the contracts must be compatible with the sharia.

The mudaraba sukuk owners have the right to transfer ownership by selling the deed in
the security market at his discretion but must respect the following rules;

The exchange of Mudaraba sukuk in the form of money for money, which is usually
realized in the muquarba capital market before the cash operation and it is known as
the rule of Bay al-scarf.

When the Muquarda capital is in the form of debt, then the principle of dent trading in
Islam must be respected.

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In a situation where the capital is in the form of both cash, receivables, goods, real
assets, and benefits,the trade should be based on the market price agreed on through
mutual consent.

The Mudaraba Sukuk, Musharaka Sukuk, Ijara Sukuk and Murabaha Sukuk have their
different specific structure of development. The Istisna Sukuk and the Hybrid Sukuk also
have their own process which is very specific to them.

The structural development process and characteristics will be presented during the
products development process for approval. This is because it is going to carry the
different steps involved in their development and sale.

We here by present this for your approval so that the products could be developed and
implementation of the recommendations carried out for the success of Islamic banking
and finance in the bank which will make the banks mission and vision statement to be
achieved.

Prepared by Reviewed by