Islamic Banking Products - Risks and Mitigants

Islamic Banking Products –
Risks and Mitigants

Murabahah Product
Murabahah – Risks and Mitigants
RISKS MITIGANTS
1. Failure of Supplier to deliver goods Agent/Client's responsibility

In advance payment cases, the supplier, Since the Supplier was chosen by
upon funds receipt, may refuse to deliver the the Agent, therefore, Agent
goods due to any reason: would be asked to arrange the
receipt of funds from Supplier.
a- The supplier may also refuse to return the
amount paid In such case, IBI will be IBI should ask the Agent to
dependent upon the Client to recover funds. purchase IBI's goods only from
IBI's entire principal amount can be at stake. prominent suppliers who have a
history devoid of any such
b- The supplier may return the payment after fraud/deceit.
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.
RISKS MITIGANTS
2. Transportation risk Takaful Coverage

Client, as IBI's Agent, purchases goods and Takaful coverage of goods in
takes delivery from Supplier. During the transit can be obtained by IBI.
transfer of goods from Supplier's site to the However, if the Takaful claim is
Client's factory, there is a risk that the less than the disbursed funds,
Murabahah goods may be stolen/theft or then IBI will have to bear the loss.
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.
RISKS MITIGANTS
3. Client's Refusal to buy the goods from IBI Legal Coverage / Security
Coverage
Once the goods come into IBI's constructive
possession, Client may refuse to purchase The Client undertakes in Purchase
the goods from IBI on Murabahah basis. Requisition that if he fails to
purchase the Goods from IBI,
In such case, IBI has the option to sell the then any loss (excluding
goods in the market. However, there is an opportunity cost) incurred by IBI,
added risk that IBI may face difficulty in during the sale of goods to third
selling the goods in the market in case the party, would be borne by the
goods are rarely traded. 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 (a) Timely Signing of Declaration

The Client, after purchase of goods as IBI's IBI shall sell the goods to the
Agent, stores the goods at its Client i.e. execute the
factory/premises. There is a risk that the Declaration, immediately
goods may be stolen/damaged or subject to upon the receipt of goods by
theft/destruction before IBI sells the goods to Client/Agent. Any delay would
the Client via signing of Murabahah expose IBI to this risk.
Declaration.
(b) Takaful Coverage
Any loss/damage to goods, unless negligence Takaful coverage for the stored
of Client is proved, will have to be borne by goods can be obtained by IBI.
IBI, since IBI is the owner of the goods. 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 (a) Security Coverage

The Client may delay/default in the payment IBI can liquidate the security to
of Murabahah Contract Price. 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 Clear Understanding of
Murabahah Procurement
Murabahah is a sensitive transaction and all Process Flow
the steps and documentation need to be
executed in a particular sequence. Any CRM/CRO should have clear
violation e.g. signing of Declaration without understanding regarding the
possession of the goods, delay in signing of Procurement Process Flow and
Declaration etc. may lead to transaction should follow-up with Client. In
being void and profit being given in charity this regard, different training
fund. 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
Ijarah – Risks and Mitigants
RISKS MITIGANTS
1. Failure of Supplier to deliver Assets Agent/Client's responsibility
In case of new assets Ijarah, Client purchases
the asset as agent of IBI. The supplier, upon Since the Supplier was chosen by
receipt of funds, may refuse to deliver the the Agent, therefore, Agent
assets due to any reason: would be asked to arrange the
amount paid. In such case, IBI will be The Bank should ask the Agent to
dependent upon the Client to recover the purchase IBI's assets only from
funds from Supplier. IBI's entire principal prominent suppliers who have a
amount can be at stake in such case. history devoid of any such
fraud/deceit.
b- The supplier may return the payment after

RISKS MITIGANTS

In cases of new asset Ijarah, Client, as IBI's Takaful coverage of assets in
Agent, purchases fixed assets and takes transit can be obtained by IBI.
delivery from Supplier. During the transfer of However, if the Takaful claim is
assets from Supplier's site to the Client's less than the disbursed funds,
factory, there is a risk that the Ijarah assets then IBI will have to bear the loss.
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.
RISKS MITIGANTS
3. Total/Partial Loss Risk Takaful Coverage

Total/Partial Loss means the destruction Takaful coverage of assets should
(total loss) of, or partial damage (partial loss)
be obtained by IBI. However, if
to the Ijarah Asset. the Takaful claim is less than the
outstanding Ijarah financing, then
IBI, being the owner of the asset, will have to IBI will have to bear the loss.
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.
RISKS MITIGANTS
4. Failure in Timely Revision of Rentals Rental Revision Mechanism

In variable rental Ijarah cases, the rentals A control mechanism should be in
have to be revised on a periodical basis. place whereby it is ensured that
Rental revision cannot happen automatically rentals for the new period are
upon end of a period. Mutual consensus of revised immediately upon end of
the Client and IBI such as signing of revised the previous period.
Rental Schedule/written correspondence
with Client, is required for rentals to be Secondly, it shall be ensured that
revised. Similarly, rentals cannot be revised the revised rentals have been
retrospectively. communicated to the Client.
IBI will only be able to receive revised rentals

if the Rental Schedules have been revised.
RISKS MITIGANTS
5. Payment Default/Delay Risk Security Coverage / Legal
Coverage
The Client may delay/default in the payment
of rentals. 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
5. Payment Default/Delay Risk (Contd.) 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 Clear Understanding of Ijarah
Process Flow
While executing Ijarah transaction, all
relevant Shariah rules need to be followed. CRM/CRO should have clear
Any violation e.g. receipt of rentals before understanding regarding the
delivery, may lead to profit being given in Ijarah Process Flow. In this
charity fund. regard, different training sessions
are carried out to ensure that the
understanding of Ijarah product is
clear.

Diminishing Musharakah Product
DM – Risks and Mitigants
RISKS MITIGANTS
1. Failure of Supplier to deliver Assets Agent/Client's responsibility
In cases of new asset DM, Client purchases
the asset as agent of IBI. The supplier of the Since the Supplier was chosen by
Client, upon receipt of funds, may refuse to the Agent, therefore, Agent
deliver the assets due to any reason: would be asked to arrange the
amount paid to it. In such case, IBI will be The Bank should ask the Agent to
dependent upon the Client to recover the purchase IBI's assets only from
funds from Supplier. IBI's entire principal prominent suppliers who have a
amount can be at stake in such case. history devoid of any such
fraud/deceit.
b- The supplier may return the payment after

D.M. – Risks and Mitigants
RISKS MITIGANTS

In cases of new assets DM, Client, as IBI's Takaful coverage of assets in
Agent, purchases fixed assets and takes transit can be obtained by IBI.
delivery from Supplier. During the transfer of Any Takaful proceeds would,
assets from Supplier's site to the Client's however, be shared as per
factory, there is a risk that the DM assets proportionate ownership ratio.
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.
RISKS MITIGANTS
3. Total/Partial Loss Risk Takaful Coverage

Total/Partial Loss means the destruction Takaful coverage of assets should
(total loss) of, or partial damage (partial loss) be obtained by IBI. Any Takaful
to the DM Asset. IBI, being the co-owner of proceeds would, however, be
the asset, will have to bear any loss shared as per proportionate
(proportionately) incurred in such case up to ownership ratio.
its ownership share, provided the loss is not
due to negligence or misconduct of Client.
RISKS MITIGANTS
4. Failure in Timely Revision of Rentals Rental Revision Mechanism

In variable rental DM cases, the rentals have A control mechanism should be in
to be revised on a periodical basis. Rental place whereby it is ensured that
revision cannot happen automatically upon rentals for the new period are
end of a period. Mutual consensus of the revised immediately upon end of
Client and IBI such as signing of revised the previous period.
Rental Schedule/written correspondence
with Client, is required for rentals to be Secondly, it shall be ensured that
revised. Similarly, rentals cannot be revised the revised rentals have been
retrospectively. communicated to the Client.
IBI will only be able to receive revised rentals

if the Rental Schedules have been revised.
RISKS MITIGANTS
5. DM Assets Replacement Risk Asset Selection:

IBI may enter into Sale and Lease Back based Best efforts should be made to
DM transaction in certain assets which need select those assets which would
replacement before the tenure of DM ends. survive the DM financing tenure.
In such case, if the DM asset is sold in the CRM should coordinate with the
market at a lower value i.e. at loss, then IBI Client to ensure this.
will have to share the loss as per its
proportionate ownership in the DM asset.
RISKS MITIGANTS
6. DM Assets already financed by other CRM/Client's Responsibility
Islamic Banks
CRM should educate the Client
In Sale and Lease back cases, IBI may enter that DM can be executed only in
into DM in certain Client's assets which are those assets which have not been
already under DM/Ijarah transaction with already financed by any other
any other Islamic Bank. In such case, the DM Islamic Bank under Ijarah or
assets are completely (in Ijarah) or partially Diminishing Musharakah.
(in DM) owned by the other Islamic Bank.
Therefore, any profit earned in such
transaction may be given to charity.
RISKS MITIGANTS
7. Payment Default/Delay Risk Security Coverage / Legal
Coverage
The Client may delay/default in the payment
of rentals/purchase of Musharakah units. 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
7. Payment Default/Delay Risk (Contd.) 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 Clear Understanding of DM
Process Flow
While executing DM transaction, all relevant
Shariah rules need to be followed. Any CRM/CRO should have clear
violation e.g. receipt of rentals before understanding regarding the DM
delivery, may lead to profit being given in Process Flow. In this regard,
charity fund. different training sessions are
carried out to ensure that the
understanding of DM product is
clear.

Istisna Product
Istisna – Risks and Mitigants
RISKS MITIGANTS
1. Performance Failure Risk (a) Product Structure
After disbursement of funds, Client may fail / 1.IBI can terminate Istisna
refuse to manufacture the goods, as per the Agreement and recover the
contract. 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.
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 Legal Coverage
Client may delay the delivery of IBI can reduce the Istisna
manufactured goods. 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 Legal Coverage
During the Istisna tenure, cost of It would be agreed by IBI and the
manufacturing may be higher than Client in the Master Istisna
anticipated earlier. 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 Legal Coverage
The manufacturer (Client) may deliver IBI can exercise its option of
defective goods or inferior goods i.e. not as Khiyar-e-Aib (option of canceling
per agreed specification. 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 Process Expedition

After delivery of the goods from the Client to Immediately upon receipt of
IBI, the goods would remain under risk of IBI goods, CRM/CAD should execute
until they are sold to third party through Letter of Agency with the
Agent. Client/Agent; whereby, Agent
would be responsible to sell the
There is a risk that the goods may be stolen goods and also keep the goods
or destroyed during this time. In such case, with care until they are sold.
IBI's principle amount would be at risk, let
alone the profit amount. 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 Commercial Decision

The Agent may show its inability to sell the Selective commodities where
goods at a minimum sale price since the CRM/Credit has done sufficient
market price of the goods have reduced. In due diligence (specially in
such case, IBI may lose out on its profit relations to the price outlook of
amount or even portion of principal amount. the commodity) on the
commodity to be financed.
IBI can hold back the Agency Fee since the
Agent has failed to sell the Goods. However,
Agent cannot be held responsible for loss Contd.
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.
RISKS MITIGANTS
6. 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 Commercial Decision
The Client may handover the goods to IBI and IBI should avoid entering into
refuse to act as Agent to sell the Goods in the Istisna contract for goods which
market. are difficult to sell in the market
e.g. goods only for export,
In such situation, IBI will only be able to hold specialized goods such as
back the Agency Fee. 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 Best Possible Option

The Agent sells the Istisna goods to a third CRM/Credit should select such
party on credit terms and the third party goods for Istisna transactions that
delays/defaults in payment of the minimum are sold against cash payment. If
sale price. the goods are sold on credit, then
all efforts should be made that
If the Agent has made its best efforts to the goods are sold against LCs so
recover the minimum sale price, then in such that the risk of delay/default by
case the Agent cannot be held responsible the third party is minimized.
for loss incurred. Even charity amount cannot
be received from the Agent.
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
recover the loss (i.e. the
minimum sale price) from the
Agent.
RISKS MITIGANTS
9. Shariah Non-compliance Risk Clear Understanding of Istisna
Process Flow
While executing Istisna transaction, all
relevant Shariah rules need to be followed. CRM/CRO should have clear
Any violation may lead to profit being given understanding regarding the
in charity fund. Istisna. In this regard, different
training sessions are carried out
to ensure that the understanding
of Istisna product is clear.

Karobar Financing Product
Karobar Financing – Risks and Mitigants
RISKS MITIGANTS
1. Quality Risk Legal Coverage
The Seller (Client) may sell defective assets or IBI can exercise its option of
inferior assets i.e. not as per agreed Khiyar-e-Aib (option of canceling
specification. contract if defect is found) and
refuse to accept or return the
assets within six months of the
sale between IBI and Client.

Contd.
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 Process Expedition

After the assets are purchased by IBI through Immediately upon signing of
signing of Declaration, the assets remain with Declaration and possession /
Client in the capacity of Agent i.e. the Agent receipt of goods, CRM/CAD
is required to sell the assets in market on should execute Letter of Agency
behalf of IBI. The goods remain under the with the Client/Agent, whereby,
risk of IBI from Declaration signing (and Agent would be responsible to
receipt of goods) till the assets are sold in sell the assets and keep assets
market through Agent. with care until they are sold.

There is a risk that the goods may be stolen If the assets are stolen or
or destroyed during this time (from destroyed due to the negligence
Declaration signing to onwards sale in of the Agent, then he would be
market). In such case, IBI will have to suffer responsible to compensate loss
any loss incurred since IBI is the owner of the and return the Purchase Price of
assets. 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 Commercial Decision

The Agent may show its inability to sell the Selective assets/commodities
assets at a minimum sale price since the where CRM/Credit has done
market price of the assets have reduced. sufficient due diligence (specially
in relations to the price outlook of
In such case, IBI may lose out on its profit the assets) on the assets to be
amount or even portion of principal amount. purchased.

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. 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 Commercial Decision

The Agent may fail to sell or show its inability IBI should avoid purchasing assets
to sell the assets in the market. In such case from Client which are difficult to
IBI will have to sell the assets itself and there sell in the market e.g. assets only
is a risk that IBI may not be able to sell the for export purposes, specialized
assets to a third party to recover its principal assets such as garments
and desired profit. Any such loss will have to manufactured as per specific
be borne by IBI. order, assets for which there are
very few buyers in the market
In such situation, IBI will only be able to hold etc.
back the Agency Fee.
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 Best Option Available

The Agent sells the assets to market/ third All efforts should be made by
party on behalf of IBI. If the goods are sold CRM/Credit that the assets are
on credit payment basis, there is a risk that sold against LCs so that the risk of
the third party delays/defaults in payment of delay/default by the third party is
the minimum sale price. minimized.

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 Contd.
incurred. Even charity amount cannot be
received from the Agent for the delay.
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
recover the minimum sale price
from the Agent
RISKS MITIGANTS
6. Shariah Non-compliance Risk Clear Understanding of the
Transaction:
To ensure that the transaction is Shariah-
compliant, the steps and documentation of CRM/CRO should have clear
the transaction need to be executed in a understanding regarding the
particular sequence. Violation may lead to Transaction Process Flow. In this
transaction being void and profit given in regard, different training sessions
charity fund. can be carried out to ensure that
the understanding of Karobar
Financing product is clear.


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Islamic Banking Products –

Risks and Mitigants

5. Payment Default/Delay Risk (Contd.) (c) Structuring of Payments

IBI will only be able to receive revised rentals

3. Total/Partial Loss Risk Takaful Coverage

4. Failure in Timely Revision of Rentals Rental Revision Mechanism

IBI will only be able to receive revised rentals

2.Charity amount to be recovered

3.IBI may agree with the Client to

An approved security / charge

An approved security / charge

2.IBI may claim for new lot of

Corporate / Credit Department

An approved security / charge

To avoid such losses, CRM/CAD

Since the Client had sold the

1. Quality Risk Legal Coverage

1.IBI may opt to recover the

2.IBI may claim for new lot of

Corporate / Credit Department

An approved security / charge

However, if the theft /

To avoid such losses, CRM/CAD

Obtaining Takaful /insurance

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