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    Islamic Banking User Manual-Tawaruq

    Uploaded by

    Pranay Sahu
    The document describes the process of Tawarruq finance in T24, which allows a customer to purchase a commodity from the bank and immediately sell it to a third party to obtain cash. It outlines the commodity stock management, Tawarruq finance request, and finance contract functions in T24 to manage the Tawarruq workflow and accounting entries. Tawarruq involves the bank purchasing commodities and selling them to customers who then sell to third parties to receive financing without interest.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Islamic Banking User Manual-Tawaruq

    Uploaded by

    Pranay Sahu
    154 views15 pages
    The document describes the process of Tawarruq finance in T24, which allows a customer to purchase a commodity from the bank and immediately sell it to a third party to obtain cash. It outlines the commodity stock management, Tawarruq finance request, and finance contract functions in T24 to manage the Tawarruq workflow and accounting entries. Tawarruq involves the bank purchasing commodities and selling them to customers who then sell to third parties to receive financing without interest.

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    The document describes the process of Tawarruq finance in T24, which allows a customer to purchase a commodity from the bank and immediately sell it to a third party to obtain cash. It outlines the commodity stock management, Tawarruq finance request, and finance contract functions in T24 to manage the Tawarruq workflow and accounting entries. Tawarruq involves the bank purchasing commodities and selling them to customers who then sell to third parties to receive financing without interest.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    154 views15 pages

    Islamic Banking User Manual-Tawaruq

    Uploaded by

    Pranay Sahu
    The document describes the process of Tawarruq finance in T24, which allows a customer to purchase a commodity from the bank and immediately sell it to a third party to obtain cash. It outlines the commodity stock management, Tawarruq finance request, and finance contract functions in T24 to manage the Tawarruq workflow and accounting entries. Tawarruq involves the bank purchasing commodities and selling them to customers who then sell to third parties to receive financing without interest.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 15

    ISLAMIC BANKING

    TAWARUQ

    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.


    Tawaruq Finance

    Sign Off

    The following business representatives shall sign off on the functional


    requirements document proposed as below.

    Sign Off Date Signature

    Note: Any changes subsequent to the signoff of this document will be subject to
    the standard change control procedures.

    Islamic Banking Page 2


    Tawaruq Finance

    TABLE OF CONTENTS

    INTRODUCTION ............................................................................................................ 4
    T24 OVERVIEW ............................................................................................................. 5
    Functional Overview........................................................................................................ 6
    Tawaruq Workflow .......................................................................................................... 6
    Tawaruq Functions descriptions in T24 ........................................................................... 8
    Commodity Stock Management (CSM) Functions .................................................... 9
    Tawaruq Finance Request ...................................................................................... 11
    Tawaruq Finance Contract ..................................................................................... 11
    Accounting Entries Summary ........................................................................................ 14
    CSM Enquiries .............................................................................................................. 15

    Islamic Banking Page 3


    Tawaruq Finance

    INTRODUCTION
    This document covers the T24 TAWARUQ Finance.

    Important notes:

    Any functionality missing or changed in the final version of this document will be
    subject to standard change control procedures.

    Islamic Banking Page 4


    Tawaruq Finance

    T24 OVERVIEW

    The function for managing commercial and retail financing is within the T24
    “Loans and deposits” module. These modules allow the user to generate,
    maintain and track a wide range of loans, with different repayment characteristics
    and a large number of regular repayments. There are also facilities for special
    payments and early repayment.

    For Islamic financing products, T24’s “Loans and Deposits” module will be used
    in conjunction with other applications developed specifically to cater to the
    requirements of Islamic mode of financing.

    Islamic Banking Page 5


    Tawaruq Finance

    Functional Overview
    What is Tawaruq finance?

    A customer with a genuine need buys something on credit from the bank on a
    deferred payment basis and then immediately resells it for cash to a third party, in
    this way, the customer can obtain cash without taking an interest based loan.

    The main objective of this document is to describe the functional requirements of


    Tawaruq and how they will be handled in T24.

    The Term Tawaruq is based on selling precious metal commodities to the client
    that was initially owned by Bank, against a finance contract signed by the client.
    The client can either
    a. Liquidate / sell his commodity position through an arrangement with bank
    on the spot and thereby the customer gets his cash immediately on sale.
    Or
    b. Keep his commodity position for later trading.

    Tawaruq Workflow

    • Bank purchases commodity regularly based on the sales targets for


    Islamic finance products
    • Client approaches bank with a request to purchase commodity
    • Bank sells the commodity it owns to the client at a price which will include
    profit against signing a finance contract for the total price (Including
    commodity cost and bank profit). The customer will pay the whole cost
    amount at pre-defined instalments.
    • After having the commodity owned by the customer, and being at his
    possession, he sells it at the market price to a third party, that party
    should be different from which the Bank had originally purchased the
    commodity from. This Sale should be arranged by the bank.
    • Sale amount resulting from the above step is then credited to the
    customer's accounts.

    Islamic Banking Page 6


    Tawaruq Finance

    CUSTOMER

    1-Tawarruq Finance 2- Bank books a commodity


    request from position to customer
    customer.

    3- Customer signs 4- Bank transfers the commodity


    the finance contract position to customer

    BANK
    5- Customer
    Sells his
    Commodity Bank buys / sells
    commodity from market
    Position for TQ finance (CSM
    and Functions)
    Gets Cash

    BROKER 1….N

    TAWARUQ - WORK FLOW DIAGRAM

    Islamic Banking Page 7


    Tawaruq Finance

    Tawaruq Functions descriptions in T24


    The operations of Tawaruq will be managed through the following activities

    • Commodity Stock management (CSM)


    • Tawaruq Finance Request
    • Tawaruq Finance Contract

    Islamic Banking Page 8


    Tawaruq Finance

    Commodity Stock Management (CSM) Functions

    The following activities will be managed through this development

    • Bank buying commodities from broker.


    - Commodity Buy Quantity and Purchase price, counterparty account
    will be captured.
    - Option to input brokerage fees payable to the Counterparty.

    Islamic Banking Page 9


    Tawaruq Finance

    • Bank Selling commodities to broker to square-up its positions daily.

    • Selling customer's positions to brokers after the customer signs a sale


    request to the counterparty / broker defined by Bank.

    Islamic Banking Page 10


    Tawaruq Finance

    Tawaruq Finance Request


    Customer Tawaruq finance request will be recorded in this application.

    • Tawaruq Finance request by customer.


    - Any customer will request the bank to provide finance for a
    particular Tawaruq Commodity.
    - Amount of finance will be captured and system will calculate the
    equivalent Number of units of Tawaruq Commodity.

    Islamic Banking Page 11


    Tawaruq Finance

    Tawaruq Finance Contract


    Customer Sale Contract will be captured using the Retail Murabaha Finance
    Model.
    • After the finance request T24 allows to make the Sale contract for the
    customer.
    - T24 Murabaha and Ijara Model of financing.
    - Options to input Repayment Schedules, Profit Rate.

    Tawaruq finance – Ijara Model:

    Islamic Banking Page 12


    Tawaruq Finance

    Tawaruq finance – Murabaha Model:

    Islamic Banking Page 13


    Tawaruq Finance

    Accounting Entries Summary


    Accounts categories and types will be defined in the IS.H.PARAMETER, for each TAWARUQ
    product type and sub-type, the following accounting entries will be generated at the authorization
    of the below activities in T24.

    Action Accounting entries


    Bank Buy Commodity DR : TQ Asset Account (Purchase)
    CR : Broker Account
    Bank Sell Commodity DR : TQ.CPTY.SELL.ACCT
    DR : TQ.SELL.PL ( Loss from sale
    operations)
    CR: TQ.ASSET.BUY(Purchase)
    CR :TQ.SELL.PL ( profit from sale
    operations)

    Tawaruq Finance Request From DR WIP Account ( Total Cost )


    customer CR TQ Asset Account ( Total Cost)

    CR WIP Account
    Customer Commodities Sale
    DR LIVEDB

    Islamic Banking Page 14


    Tawaruq Finance

    CSM Enquiries
    - Daily stock purchase / Sale Commodities by the Bank
    - Bank commodity positions enquiry

    - Customer stock log sheet covers all customer transaction in CSM ( Request /
    Transfer / Sale)

    Islamic Banking Page 15

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