• IBANK Division 6.7.B IBANK Division 6.7.B Sale-Based Contracts

    • IBANK 6.7.3 Treatment of Murabahah and Related Contracts

      (1) An Islamic banking business firm is exposed to market risk under a murabahah contract when the asset is available for sale and on firm's balance sheet.
      (2) The capital charge for a murabahah contract is 15% on the position. There is no capital charge for a binding MPO contract or a CMT.

      Note In the case of a CMT where the firm holds on to the commodity for a longer period than normal (for example, following the customer's refusal to honour its commitment to buy) the commodity is subject to a capital charge of 15%.
      (3) Bai bithaman ajil and musawamah contracts are treated in the same way as murabahah contracts.
      Derived from QFCRA RM/2015-2 (as from 1st January 2016).

    • IBANK 6.7.4 Treatment of Salam and Related Contracts

      Under a salam contract, an Islamic banking business firm is exposed to market risk after the firm has paid the purchase price to the seller and before the purchased commodity is sold and delivered to a buyer.

      Table 6.7.4A Market risk capital charge for salam without parallel salam

      stage of contract capital charge
      firm has paid purchase price to salam customer (seller) 15% on the long position of salam exposures
      firm has received purchased commodity but has not sold and delivered the commodity to a buyer

      Table 6.7.4B Market risk capital charge for salam with parallel salam

      stage of contract capital charge
      firm has paid purchase price to salam customer (seller) 15% on the net position (that is, after netting of salam exposures against parallel salam exposures)

      plus

      3% on the gross position (that is, the sum of the salam exposures and parallel salam exposures)
      firm has received purchased commodity but has not sold and delivered the commodity to a buyer
      Note The parallel salam does not extinguish the requirement for capital from the first salam contract.

      Derived from QFCRA RM/2015-2 (as from 1st January 2016).

    • IBANK 6.7.5 Treatment of Istisna without Parallel Istisna

      (1) If an Islamic banking business firm is the seller under an istisna without parallel istisna contract, the firm is exposed to market risk when there is unbilled work-in-process inventory. The capital charge for the contract is 1.6% of the firm's unbilled work-in-process inventory.
      (2) If an Islamic banking business firm is the buyer under an istisna without parallel istisna contract, the firm is exposed to market risk as it makes progress payments to the supplier. The capital charge for the contract is 15% of the work-in-process inventory.
      Derived from QFCRA RM/2015-2 (as from 1st January 2016).

    • IBANK 6.7.6 Treatment of Istisna with Parallel Istisna

      (1) There is no capital charge for an istisna with parallel istisna contract if there is no provision in the parallel istisna contract that allows the seller to increase or vary the selling price. Also, there is no capital charge if there is a written undertaking given to the firm that the contractor's performance (including work-in-process) is the responsibility of the ultimate counterparty.
      (2) However, there is a capital charge of 1.6% of the firm's unbilled work-in-process inventory if:
      (a) there is a provision in the parallel istisna contract that allows the seller to increase or vary the selling price; or
      (b) there is no written undertaking that the contractor's performance is the responsibility of the ultimate counterparty.
      Derived from QFCRA RM/2015-2 (as from 1st January 2016).