Bai-Salam - User Guide

Release R15.000
June 2015

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Table of Contents
Introduction 3
Preface 3
Intended Audience 3
Overview 3
Work Flow 5
Configuration 6
Setup 6
Deal Processing 8
Asset Definition 9
Asset Purchase 11
Asset Sale 14
Enquiries 18
Limits 19
Delivery 20
Services 21
Accounting Process 22

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Introduction

Preface
The scope of this user guide is to explain the functionalities and workflows in Bai-Salam. It is assumed that the reader of this guide has know-
ledge of the following.

l Fair knowledge in TEMENOS T24 TM

l Basic knowledge in LD.LOANS.AND.DEPOSITS Module

Intended Audience
The intended audience for this user guide are Islamic finance users and others who are using T24 Islamic banking module.

Overview
Bai Salam refers to contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific
goods to the buyer at a future date in exchange of an advance price fully paid at the time of contract. It is necessary that the quality and quant-
ity of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. The objects of this sale are goods and
cannot be gold, silver, or currencies. This contract is regularly used for financing agricultural production.

Salam is beneficial to the seller because he receives the price of the asset or product in advance. It is also beneficial to the buyer because the
price in salam is lower than the price in spot sale.

Salam cannot be effected on a particular commodity or on a product of a particular field or farm. For example, if the seller undertakes to supply
the wheat of a particular field, or the fruit of a particular tree, the Salam will not be valid, because there is a possibility that the crop of that par-
ticular field or the fruit of that tree is destroyed before delivery. The exact date and place of delivery must be specified in the contract

l Client will apply to get Bai Salam Finance from the bank against selling and delivering the pre agreed commodity & quantity on a
differed date i.e.
l Customer receive money at Deal Date
l Customer will deliver the harvest (commodity) at a delivery date (differed date). Option is available for the customer to deliver
these goods either fully or partially.
l Bank, after receiving the commodity (partially/fully), can resell the received commodity to another client(s) for a differed payment with
different price (original price + agreed profit). The customer can repay in one bullet payment or instalments.

The operations of the BAI SALAM in T24 is managed through the following activities:

l Input new BAI SALAM contract

l Definition of Asset(Commodity)
l Purchase of Commodity
l Delivery of Commodity
l Sale of Commodity
l Amendments
l Change Profit Percentage
l Reschedule Contract
l Amendment of repayment a/c
l Early Maturity
l Enquiries and reports
l Basic Accounting Entries
l Asset Details

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 l View Delivery advices
l O/S Salam Finance contracts by finance type
l Schedule balances full
l Schedule Balances Summary
l Accruals
l View Summary

For more information on Bai-Salam, refer the below links:

l Work Flow
l Configuration
l Deal Processing
l Accounting Process
l Enquiries
l Limits
l Services

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Work Flow

The below flow chart depicts the work flow of Bai-Salam contract.

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Configuration

Setup
This is a basic parameter set up table. The following parameters have been setup for Bai Salam as BAI as the Product Types.

IS.H.PRODUCT.TYPES, ISB
l Define the product type for Bai-Salam in IS.H.PRODUCT.TYPES, ISB.

IS.H.PRODUCTS, ISB
This is a basic set up parameter. The IS.H.PARAMATER is set up as 16 in the Model bank.

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IS.H.PARAMETER, TQ

IS.H.PARAMETER is set up for the category codes , Transaction ID and Transaction codes. User can set up these details as per requirement.

In addition to the above, User can define other Basic parameters tables like - IS.H.COST.TYPES,ISB for defining Additional costs ;
IS.H.COMMODITY,ISB for defining different commodities ; IS.H.CONTRACTS.ACTION.TEXT,ISB for defining various check lists and so on.

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Deal Processing

Below is the Bai-Salam menu structure available under Islamic Retail Menu.

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Asset Definition
Bank will capture the commodity1 details provided by the Bai-Salam customer. This stage will be handled in ISB.ASSET.REGISTER applic-
ation.

The Asset definition is selected from the below menu :

l Customer will apply for Bai Salam Finance with the bank. Supplier customer ID is captured under Bai Salam Customer field.
l Following details will be captured:
l Commodity Code – selected from the drop down list
l Commodity Details – manually entered by the user
l Bai Salam Customer (Supplier) ID
l Purchase Quantity
l Purchase Unit Price
l Purchase Date
l Total Purchase price – will be calculated by the system

1A commodity is a marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services.

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l Customer (supplier) A/c will be defaulted to Customer A/c or Bai-Salam internal A/c depending upon set up in the IS.H.PARAMETER
table. (VENDOR.PAY as Internal or External”).

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Asset Purchase
This stage will be handled in IS.H.CONTRACTS application.

l When the bank agrees to buy the commodity from the BAI-SALAM customer, new IS.H.CONTRACT will be opened.
l Input the Bai-Salam customer.
l Select the Bai-Salam Asset defined in the Asset Request Stage. System will list the Bai Salam Assets linked to the above Bai Salam Cus-
tomer.

Input Transaction

Accounting Entries
On authorisation, system generates the following accounting entries:

l DR – Bai Salam Purchase Account

l CR – Supplier Account (Customer Account or internal Account)

l DR – Bai salam Goods in Transit

l CR – Bai Salam Customer Liability

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Asset Delivery

Input Transaction
The Delivery of Asset stage captures either partial or full delivery of Goods made by the Bai Salam Customer.

In T24 this is handled in IS.H.CONTRACTS application.

Once the user enters value in the enquiry screen above , below screen with asset details is opened for the user and the user clicks on the
Update Delivery of Asset option

The user can input the Delivery Quantity and the date of the delivery. 

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Accounting Entries
On authorisation of the Asset Delivery transaction, the following accounting entries are generated:

Entries within the marked area are raised on authorisation of the asset delivery. The Liability entries raised during the purchase stage is
reversed by the amount of delivered quantity.

l DR – Customer Liability Internal Account

l CR – Bai Salam Goods in Transit Account

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Asset Sale
The commodities delivered can be sold to another client with standard T24 Finance model.

Features
l Can execute the sale even though the commodity is not fully delivered by the Bai Salam Customer.
l Any amount of the delivered quantity can be bought, either fully / partially.
l Any customer can buy the commodity
l Payment can be scheduled or bullet payment1.

Input of a Sale/Finance Contract

l Open a new finance contract
l Input customer number of the buyer.
l Select the commodity to buy from the list of delivered commodity/asset. System will list/allow only those commodities which are
delivered and not yet sold.
l System will display the available quantities that can be sold. Enter the quantity of commodity to sell.
l System will default the principal & profit repayment account to the customer’s current account of the contract. User can modify this
any time during the life of the contract.
l Drawdown account will default Bai Salam purchase account and it is no input field.
l Input the PMS pool ID in the pool input tab.
l Define a payment schedule or it can be bullet payment.

The following screen shows the finance contract:

1A lump sum payment for the entire loan amount paid at maturity. A bullet repayment is often linked to ballon loans or similar products. Bullet repay-
ments are usually built in to the terms of the loans.

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After authorisation, fields SOLD.QTY and SOLD.LD.ID in IS.H.CONTRACTS file will be updated with sold quantity and finance reference id.
This is a set of multi-value field, which will be updated for every sale. In case of multiple partial sales this contains the quantity and finance ref-
erence number, which was sold earlier. Total of the Sold quantity will be updated in the TOT.SOLD.QTY field in IS.H.CONTRACTS.

The following entries are raised after authorizing the above sale contract:

l DR: LIVEDB
l CR: Bai Salam Purchase A/c

The following Accrual entries are raised after COB:

l DR: ACCRUAL OF INTEREST (Profit)

l CR: Profit and Loss

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Amend Sale
Amendments to the finance contract can be

l Changing the maturity date – will allow the user to schedule the contract.
l Early closure of the finance contract – Will mature the contract
l Modify Profit rate type , Profit rate – will reschedule the contract
l Principal and Profit liquidation1 account change – Settlement account change
l Schedule – Auto / manual – For scheduling the contract automated or manual scheduling

The following screen shows the open fields in a Bai Salam finance contract for amendment:

11. When a business or firm is terminated or bankrupt, its assets are sold and the proceeds pay creditors. Any leftovers are distributed to share-
holders. 2. Any transaction that offsets or closes out a long or short position. "

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At maturity , Customer A/c is debited and the contract is closed.

l DR. Customer account (Principal Component)

l CR. LIVE DB

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Enquiries

Bai-Salam Asset Details

This Enquiry displays the details of the asset along with the Purchased / Delivered / Sold details with an option to drill down and view each of
the asset.

Delivery Messages / Advices

Displays the list of Messages and advises with view and authorize options.

There are also general Enquiries for viewing the schedules summary and full , Accounting entries , Accruals and so on .

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Limits

For more information on setting up a Limit, refer T24 Limits user guide.

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Delivery

Refer to DELIVERY user guide for more information about delivery setup.

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Services

Set BNK/ OFS.MESSAGE.SERVICE to 'AUTO' mode for generating the accounting entries after Asset pre-approval/ Asset purchase.

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Accounting Process

On Purchase Date With Commodity Purchase Amount ONLINE

(Purchase Stage) DR Bai Salam Purchase A/c

CR Bai Salam Customer(Seller) A/c or Bai Salam Internal A/c (depending

upon vendor pay Internal / External in Parameter table setup)

DR Bai Salam Goods in Transit A/c (Internal A/c)

CR Bai Salam Customer liability A/c (Internal A/c)

On Delivery Date With Amount of Commodity Delivered (Either full or Partial) ONLINE

(Delivery Stage) DR Bai Salam Customer liability A/c (Internal A/c)

CR Bai Salam Goods in Transit A/c (Internal A/c)

On Reversal of Goods Delivered. With Amount of Commodity Reversed ONLINE

DR Bai Salam Goods in Transit A/c (Internal A/c)

CR Bai Salam Customer liability A/c (Internal A/c)

On Value Date With Amount of Commodity Sold ONLINE

( Sale Stage) DR LD Receivable (LIVEDB)

CR Bai Salam Purchase A/c

Daily Profit Amortization DR LD Accrual COB

(During life of contract) CR PL Profit Category

On Maturity Date / With Financed / payment schedule Amount COB

Payment Schedule Date DR Customer(Buyer) A/c

(Maturity / Schedule Stage) CR LIVEDB

On Maturity Date / With Profit Amount COB

Payment Schedule Date DR Customer(Buyer) A/c

(Maturity / Schedule Stage) CR LD Accruals

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