Fractional Sukuk Process Compliant

with Islamic Banking Principles

1. Initial Purchase
**Step 1: Identify Sukuk Investment**
Select a Shariah-compliant Sukuk with a total value of $100 million.

**Step 2: Due Diligence**

Conduct thorough legal, financial, and Shariah compliance assessments.

**Step 3: Purchase Approval**

Obtain necessary internal and Shariah board approvals.

**Step 4: Execute Purchase**

Execute the purchase of the Sukuk for $100 million.

2. Fractional Sales to Customers

**Step 1: Marketing and Customer Outreach**
Develop marketing materials emphasizing Shariah compliance and benefits.

**Step 2: Customer Subscription**

Allow customers to subscribe to fractions of the Sukuk.

**Step 3: Fraction Allocation**

Allocate fractional shares to customers based on their subscription amounts.

**Step 4: Record Keeping**

Maintain detailed records of each customer’s fractional ownership.

3. Managing Early Withdrawals

**Step 1: Early Withdrawal Request**
Customers may request early withdrawal at any time.

**Step 2: Withdrawal Terms**

**Notice Period**: Customers must provide a 30-day notice for early withdrawal.
**Administrative Fee**: A nominal fee (e.g., 0.5%) to cover administrative costs.
**Profit Adjustment**: Customers receive profit based on the actual holding period, with
unearned profit forfeited.
**Step 3: Repurchase Fraction**
The bank repurchases the fractional Sukuk share at the original purchase price minus the
administrative fee.

**Step 4: Resell to Other Customers**

Attempt to resell the repurchased fraction to other customers.

**Step 5: Maintain Liquidity**

Ensure sufficient liquidity to manage early withdrawal requests.

4. Handling Unsold Portions

**Step 1: Initial Sales Period**
Define an initial sales period of 90 days to sell the entire $100 million Sukuk.

**Step 2: Unsold Fraction Management**

Retain ownership of any unsold portion (e.g., $50 million if only half is sold).

**Step 3: Ongoing Sales Efforts**

Continue marketing and selling the remaining unsold portion.

**Step 4: Portfolio Management**

Manage the retained portion as part of the bank’s investment portfolio.

**Step 5: Risk Management**

Monitor and manage the risk associated with the unsold portion.

5. Maturity and Payout

**Step 1: Sukuk Maturity**
Upon maturity, receive the principal and profit as per the Sukuk terms.

**Step 2: Company and Customer Profit Share**

**Total Profit**: Total profit earned from the Sukuk investment.
**Company Profit Share**: The company retains a management fee or profit share (e.g.,
10% of the total profit).
**Customer Profit Share**: Distribute the remaining profit to customers based on their
fractional ownership.
**Example**: If the total profit is $5 million:
- Company Profit Share = $500,000 (10% of $5 million).
- Customer Profit Share = $4.5 million (90% of $5 million).
- A customer holding a $10,000 fraction would receive their proportionate share of the
$4.5 million profit.

**Step 3: Customer Payout**

Distribute the principal and profit to customers based on their fractional ownership.
**Step 4: Record Closure**
Close the records for the matured Sukuk and ensure all transactions are settled.

Process Flowchart (High-Level)

1. Identify Sukuk Investment → → 2. Due Diligence → → 3. Purchase Approval → → 4.
Execute Purchase → → 5. Marketing and Customer Outreach → → 6. Customer Subscription
→ → 7. Fraction Allocation → → 8. Record Keeping → → 9. Early Withdrawal Request → →
10. Withdrawal Terms → → 11. Repurchase Fraction → → 12. Resell to Other Customers →
→ 13. Maintain Liquidity → → 14. Initial Sales Period → → 15. Unsold Fraction Management
→ → 16. Ongoing Sales Efforts → → 17. Portfolio Management → → 18. Risk Management
→ → 19. Sukuk Maturity → → 20. Company and Customer Profit Share → → 21. Customer
Payout → → 22. Record Closure

Commercial Terms and Conditions Summary

Early Withdrawal
**Notice Period**: 30 days.

**Administrative Fee**: 0.5% of the withdrawal amount.

**Profit Adjustment**: Profit adjusted to reflect the holding period; unearned profit
forfeited.

**Repurchase Price**: Original purchase price minus the administrative fee.

Subscription
**Minimum Subscription Amount**: $1,000.

Maturity
**Payout**: Full payout of principal and profit at maturity.

**Profit Share**:

- **Company**: 10% of the total profit.

- **Customers**: 90% of the total profit.

Liquidity
**Management**: Sufficient liquidity maintained for early withdrawals.

Financial Projections
**Example Calculation**
- **Initial Purchase**: $100 million.

- **Fractional Sales**: Sell $50 million to customers.

- **Administrative Fee**: 0.5% on early withdrawals.

- **Company Profit Share**: 10% of the total profit.

**Profit Distribution**

- Assume a profit rate of 5% annually.

- Total profit on $100 million Sukuk = $5 million.

- **Company Share**: $500,000.

- **Customer Share**: $4.5 million.

- For a customer holding a $10,000 fraction:

- Annual profit share = ($10,000 / $100 million) * $4.5 million = $450.

3. Managing Early Withdrawals with Profit Distribution

**Step 1: Early Withdrawal Request**
Customers may request early withdrawal at any time.
Customers must provide a 30-day notice for early withdrawal.

**Step 2: Withdrawal Terms and Conditions**

**Administrative Fee**: A nominal fee (e.g., 0.5%) to cover administrative costs.
**Profit Estimation for Early Withdrawal**:
- Estimate the profit for the period the Sukuk has been held using a predefined
methodology.
- Use a conservative estimate based on historical performance and current market
conditions to determine an interim profit rate.

**Step 3: Repurchase Fraction**

The bank repurchases the fractional Sukuk share at the original purchase price plus the
estimated profit, minus the administrative fee.
The estimated profit should be lower than the expected full-term profit to account for
market uncertainties and risk management.

**Step 4: Profit Adjustment upon Maturity**

At Sukuk maturity, reconcile the estimated profit given to early withdrawal customers with
the actual profit earned.
Adjust any discrepancies by either:
 - Providing additional profit to early withdrawal customers if the actual profit exceeds the
estimate.
- Retaining excess if the estimated profit was higher than the actual profit (ensuring
transparency and agreement on terms at the outset).

**Step 5: Liquidity Management**

Maintain a liquidity reserve to cover early withdrawal requests and estimated profit
payouts.
Attempt to resell the repurchased fractional shares to other customers.

Example Calculation for Early Withdrawal Profit Estimation

1. **Customer Investment**: $10,000.

2. **Holding Period**: 6 months.

3. **Estimated Annual Profit Rate**: 5%.

4. **Estimated Interim Profit**: 2.5% for 6 months (half of the annual rate).

5. **Estimated Profit**: $10,000 * 2.5% = $250.

6. **Administrative Fee**: 0.5% of $10,000 = $50.

7. **Repurchase Amount**: $10,000 (principal) + $250 (estimated profit) - $50

(administrative fee) = $10,200.