DA AFGHANISTAN BANK

(CENTRAL BANK OF AFGHANISTAN)

Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

Product Outline: Murabaha Tawarruq (Cash Financing /

Working Capital Financing)

Accountable
Executive & Islamic Banking Division
Custodian

Policy Owner Head of Islamic Banking

Division

Approved by Date DAB Board Secretary

DAB Governor: ................................... ...............................

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

Contents
PART A: PREAMBLE .................................................................................................................................... 3
1 Background ................................................................................................................................... 3
2 Legal Provision .............................................................................................................................. 4
PART B: PRODUCT OUTLINE – MURABAHA TAWARRUQ (CASH FINANCING / WORKING
CAPITAL FINANCING).............................................................................................................................. 5
3 Product Outline Structure .......................................................................................................... 5
4 Concept and Basic Conditions ............................................................................................... 6
5 Process Flow ................................................................................................................................ 10
6 Suggested Documentation .................................................................................................... 13
7 Suggested Accounting Entries ............................................................................................... 14
8 Risks associated with the Product ......................................................................................... 16
9 Common mistakes ..................................................................................................................... 22
10 Custodian of the Product Outline ......................................................................................... 24
11 Effective Date of the Document ........................................................................................... 24

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

ISLAMIC REPUBLIC OF AFGHANISTAN

DA AFGHANISTAN BANK, PRODUCT OUTLINE – MURABAHA

TAWARRUQ (CASH FINANCING / WORKING CAPITAL FINANCING)

PART A: PREAMBLE

1 Background

1.1. This product outline for a Murabaha Financing (Cash Financing/ Working
Capital Financing) (hereinafter referred to as “the Product Outline”) is issued
by the Da Afghanistan Bank (hereinafter referred to as “DAB”) which shall be
adopted and become the guiding principles for Islamic Financial Institutions,
Financial Institutions operating with an Islamic Window and Financial
Institutions operating with an Islamic Unit (collectively referred to as “the
Bank”) in the Islamic Republic of Afghanistan offering Islamic financial
products.

1.2. This Product Outline is intended to:

i) Enable Banks to develop their own Murabaha Tawarruq (Cash

Financing / Working Capital Financing) products using this Product
outline as a baseline for the product development process; and
ii) Illustrate to the Bank global best practices in adopting the Product
Outline.

1.3. The objectives of this Product Outline are to:

1.3.1. Facilitate the development of Murabaha Tawarruq (Cash Financing /

Working Capital Financing) products in Banks in the Islamic Republic of
Afghanistan; and
1.3.2. Establish a precedent Product Outline that the Banks shall use when
developing and operationalising their own Murabaha Tawarruq (Cash
Financing / Working Capital Financing) products.

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

1.4. In drafting the Product Outline, references have been made to the
Accounting and Auditing Organization for Islamic Financial Institutions
(“AAOIFI”) Shari’a Standard No. 30 on Monetization (Tawarruq) and Shari’a
Standards No. 8 on Murabaha in bringing the internationally accepted best
practises of both standards to the Product Outline.

1.5. Any particular exemption to any of the provisions as provided herein shall only
be permitted via a formal application being submitted by the Bank after prior
consultation with its Shariah Board (hereinafter referred to as “the Shariah
Board”), to the Shariah Supervisory Board of DAB (hereinafter referred to as
“the SSB”) outlining the reasons and justifications for such requests.

1.6. If any new or additional guidelines on the Product Outline are to be adopted,
the Shariah Board of the Banks shall always be consulted first before the
adoption of same.

2 Legal Provision
2.1. This Product Outline is issued pursuant to Article 2.2 of the Afghanistan Bank
Law gazetted on 12/17/2003 (corresponding to 30/10/1382) in relation to the
powers of DAB to regulate and supervise Banks in the Islamic Republic of
Afghanistan and any amendments thereto.

2.2. This Product Outline shall be read together with the following
manuals/guidelines:

2.2.1. National Shariah Governance Framework;

2.2.2. Shariah Parameter on Murabaha;
2.2.3. Shariah Review Manual;
2.2.4. Shariah Compliance Manual;
2.2.5. Guidelines on Ibra;
2.2.6. Guidelines on Late Payment Charges
2.2.7. Other relevant regulations guidelines, Product Outlines or circulars that
Da Afghanistan Bank (“DAB”) may issue from time to time.

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

PART B: PRODUCT OUTLINE – MURABAHA TAWARRUQ (CASH

FINANCING / WORKING CAPITAL FINANCING)

3 Product Outline Structure

3.1. This financing product shall be based on the Murabaha Tawarruq contract. A
Murabaha Tawarruq contract refers to a disclosed cost plus mark-up
transaction involving Shariah compliant commodities between parties on a
deferred basis. Murabaha Tawarruq financing is the prevalent mode of cash
financing undertaken by a large number of Islamic financial institutions. It
represents a significant portion of Islamic bank financing of either short term or
medium term cash financing.

3.2. Murabaha Tawarruq is a particular kind of sale where the seller (“Bank”)
clearly mentions the actual cost incurred to purchase the commodities and
sells it to another person (customer) by adding a disclosed profit to the cost of
commodities. Thus, Murabaha Tawarruq finance is not a loan given on
interest, it is a sale of commodities for cash/deferred payment basis.

3.3. A Murabaha Tawarruq transaction is a credit sale (deferred payment

Murabaha) and payment may be in the form of a lump- sum amount or in
instalments or a combination of both.

3.4. A Murabaha Tawarruq transaction is also commonly known as a Commodity

Murabaha transaction in the market. Technically tawarruq involves a series of
sale contract whereby a buyer buys an asset from the seller for deferred
payment and subsequently sells the asset to a third party for cash at price
less than the deferred price with the aim to receive cash. Commodity
Murabaha is a product designed to facilitate cash advances to a customer
who need cash to pay for various needs. In this transaction banks sell the
customer commodities on deferred payment basis. Subsequently the
customer sells these commodities on spot basis to receive cash.

3.5. The most essential element of Murabaha Tawarruq transaction that

distinguishes it from the conventional interest-bearing loan is that the asset
ownership risk is borne by the Bank during that period from the time of
purchase of asset(s) by the agent and its physical /constructive possession by
the Bank and before its sale to the customer.

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

4 Concept and Basic Conditions

4.1. Following are the key conditions that have to be complied with for a
Murabaha sale transaction to be in line with the prevailing Shariah principles:

4.1.1. The subject matter of sale must exist at the time of sale. Thus, anything
that may not exist at the time of sale cannot be sold. Sale of non-
existing asset makes the Murabaha Tawarruq contract void.

4.1.2. The subject matter should be in the ownership of seller at the time of
sale. If the seller sells something that is not owned by him, the sale
becomes void.

4.1.3. The subject of sale must be in the physical or constructive possession of

seller when he sells to the buyer. Constructive possession means a
situation where the owner has not taken the physical delivery of the
commodities, yet it has come into his control and all rights and liabilities
of the commodities are passed on to him, including the risk of the
destruction of the asset(s).

4.1.4. The sale must be instant and absolute. Thus, a sale attributed to a
future date or a sale contingent on a future event is void.

4.1.5. The subject matter should have some value. Thus, commodities having
no value cannot be sold or purchased.

4.1.6. The subject matter of sale could be delivered to any purchaser in the
whole arrangement. The non-deliverability of the asset reflects that the
asset and the transaction are just fictitious, thus void.

4.1.7. The subject matter of sale must exclude gold and silver because the
sale of these two assets must be on spot basis.

4.2. The Murabaha Tawarruq seeks to provide cash financing / working capital
financing whereby the customer only seeks to obtain the required cash now
in return for a payment in the future. Through this arrangement, the customer
can gain use of the cash now for his own personal use or Shariah-compliant
business purposes and he will have a deferred payment schedule to pay the

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

deferred sale price to the Bank. This is a cash management product for both
individuals and companies.

4.3 A Commodity Murabaha is a transaction between three or more parties

allowing one of them to obtain cash through a sale mechanism (in this case
the Customer). The subject matter of the sale cannot revert to anyone of
them in the whole value chain of the transaction. In other words, the asset
cannot be recycled for the purpose of Commodity Murabahah.

4.4 Working Capital Financing

4.4.1 Working Capital Financing is for corporates looking to better manage their
cash flow. Essentially the corporate is granted a facility by the Bank and the
corporate may utilise the facility and draw down same using Commodity
Murabahas until it reaches its limit.

4.4.2 The corporate may utilise as much or as little of the facility as it requires.

4.4.3 Commitment Fee: Commitment Fee is not allowable as it is penalising it for not
availing of financing offered. Profit should only accrue on the amount of the
facility utilised. However, the Bank may claim any of its costs under
“administrative fee” instead, to be approved by the Bank’s Shariah Board.

4.4.4 Arrangement fee: An arrangement fee for a working capital financing facility
may be charged by a Bank so long as it is a one off fee and not linked to the
size of the facility or recurring in any way.

4.5 Commodity Trading via Commodity Brokers

4.5.1 Commodity brokers are commonly used in Murabaha

Tawarruq/Commodity Murabaha transactions to facilitate easy sourcing of
commodities and to enable the sale and purchase of commodities to flow
through the required four distinct parties in the transaction to satisfy Shariah
requirements.

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

4.5.2 The commodity broker will supply/sell the required commodities to the Bank
in order for the Bank to sell the same to the client at cost plus mark up on a
deferred basis. Another commodity broker (which shall be a legally
separate entity from the original commodity supplier to avoid the
transaction being considered as Bai’ al Inah) will then purchase these
commodities from the client directly or through the Bank as an agent to the
client. This commodity purchaser will then pay the client/Bank as agent,
cash for the said purchase. This cash proceeds will be equivalent to the
cash financing the client applied for under this facility.

4.5.31 As this transaction involves the purchase and sale of commodities from
commodity brokers (supplier/purchaser), the Bank needs to establish firm
arrangements with the following:

i) Commodity broker (supplier) from whom the Bank purchases the

commodity, and
ii) Commodity broker (purchaser) to whom the Bank sells the commodity,
as an agent of the Customer when disposing the asset owned by the
customer.

4.6 Commodity Trading via Commodity Platform

4.6.1 In the market, there are various Commodity Platform Providers for banks to
purchase these commodities from in order to facilitate their Islamic financial
transactions. These platform providers may vary in their operational
processes, however, the Shariah requirements and principles shall be met
regardless of the type of platform adopted. These Shariah requirements and
principles are as stated in this manual and the Shariah Parameter for
Murabaha.

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

4.6.2 The consideration in choosing which platform provider that suits the bank
may depend on the following criteria:

No. Criteria
1 The platform provider shall comply with the principles of Shariah at all times
in its operational processes for Murabaha Tawarruq/ Commodity
Murabaha. A platform provider with a retained Shariah Advisor is preferred.

2 The cost, per transaction or per volume basis. Banks may negotiate for
lower cost depending on volume to be transacted.

3 Is there any hidden cost involved? Banks shall ensure that there is clarity in
terms of costs involved.

4 The security feature and simplicity of the system provided by the Provider in
facilitating the buying and selling of the commodity.

5 The flexibility offered in terms of volume and denominator (what is the limit
of the quantity per transaction),

6 Must be Shariah compliant commodities (excluding gold and silver) and

able to transact large volume of assets/commodities.

7 Delivery of the commodities - should the purchaser opts to take delivery,

the commodities may be delivered to the purchaser.

8 The settlement risk or counter party risk of the platform provider.

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

5 Process Flow
5.1 Step by Step Process

Step 1 (Application & Approval Stage)

a) Eligible customer (who has an Account with the Bank) may apply for the
product (USD500,000 facility) by filling out the personal finance/working
capital financing application form to the Bank. Bank shall assess the customer
and decide to approve or reject the application.

b) Once the application is approved, the Bank will obtain the promise to
purchase document from the Customer (Wa’d) (Purchase of USD500,000
worth of Commodity with a deferred sale price of USD600,000 payable in one
year).

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

Step 2 (Purchase of Commodity from Broker)

a) Upon receipt of the Wa’d the Bank will buy a Shariah-compliant

commodityfrom a Commodity Supplier (Broker A) for USD500,000. The
Commodity Supplier (Broker A) will deliver the Commodity to the Bank.

Step 3 (Murabaha Tawarruq Execution Stage)

a) The Bank will then enter to the Murabaha Tawarruq agreement with the
customer for the sale of the Commodity to the Customer (worth USD500,000)
for the Deferred Sale Price of 600,000 USD payable on an agreed instalment
basis i.e. one year.

b) The instalments can be profit only with principal payable in bullet at the
determination of the financing term or principal and profit payable on fully
amortizing basis.

Step 4 (Agency/On-Sale Stage)

a) The Customer and the Bank will also enter into a sale agency agreement
(Wakalah Agreement) whereby the Customer will appoint the Bank to be
his/its/their agent for the on sale of the Underlying Commodity to third party
as the Bank may deem fit.

b) The Bank will then enter into an on sale agreement with a Buyer of
Commodities (Broker B). The Bank will deliver the Commodity to the Buyer of
Commodities (Broker B) and be paid on a spot basis.

Step 5 (Receipt of Cash Proceeds Stage)

a) The Bank as agent of the Customer, will receive the proceeds of sale from the
Buyer of the Commodity (Broker B) pursuant to step 4 above.

b) The proceeds from the sale of the underlying commodity (USD500,000 in the
above example) to the buyer (Broker B) will be disbursed by the Bank into an
escrow account opened by the Customer with Bank for the purpose of the
Facility.

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

Step 6 (Payment Stage)

a) The Deferred Sale Price shall be settled via monthly instalments or other
agreed settlement method throughout the financing period.

Target Market

The target market of Murabahah Tawarruq may be composed of following

segments for the following suggested purposes:

Corporate Clients
a) Raw Material
b) Overhead expenses
c) Bridging financing
d) Working capital
e) Refinancing

Retail Clients
a) Personal financing
b) Education
c) Expenses
d) Settlement of credit card

Self-employed/proprietary business
a) Overhead expenses
b) Bridging financing

5.2 The above steps constitute a single Commodity Murabaha transaction by the
customer that is concluded with the sale by the bank and payment from the
customer. Several similar transactions could be executed according to the
needs of the customer.

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

5.3 For Working Capital Financing the customer may execute any number of
Commodity Murabaha transactions per its business needs subject to the
proviso that it does not exceed its facility limit.

5.4 The customer documents can be obtained at the initial stage. However the
recording of actual transactions should be executed in the proper sequence.

6 Suggested Documentation

6.1 The legal documentation for the Product will depend on the actual structure
to be adopted by the Bank and the Bank’s internal policies and procedures
as advised by the respective Bank’s legal counsel:-

Document Step Parties

Application Form & Promise to (1) Customer to Bank
Purchase

Commodity Purchase Agreement (2) Bank and Commodity

Seller

Murabaha Tawarruq Financing (3) Bank and Customer

Agreement (together with relevant
Transaction Notices)

Security Documents such as (3) Bank and Customer

guarantee, charge, assignment of
future income, promissory notes etc.

Sale Agency Agreement (Wakalah (4) Customer and Bank

Agreement)

Commodity Sale Agreement (4) Bank as Customer’s

agent and Commodity
Buyer

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

6.2 In Working Capital Financing once the master documents are executed the
Customer need only execute schedules in the proper sequence to avail of
multiple Murabaha Tawarruq transactions.

7 Suggested Accounting Entries

a) Upon approval of the facility, the Bank buys inventory of commodity from
Broker A

DR Inventory of Commodity
CR Bank

b (i) Customer buys commodity from the Bank (Murabaha Sale)

DR Customer’s account (Principal + Profit)

CR Deferred profit
CR Inventory of Commodity

b (ii) Establishment of Murabaha Tawarruq financing facility

DR Murabaha receivable
CR Murabaha Account

c) Profit Accrual and Recognition

DR Deferred Profit
CR Murabaha Income (P/L)

* this entry will be repeated each month for the amount of profit accrued
for the month

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

d) Receipt of Installment at each due date, with the amount of principal and
profit due as of date

DR Bank DR Murabaha Account

CR Customer’s account CR Murabaha Receivable

e) Early settlement of Murabaha Sale Price

(A) To record earning the portion of unearned profit waived by the Bank
DR Deferred Profit
CR Murabaha Income (P/L)

(B) To record receipt of the settlement price from the customer, including
the outstanding principal amount plus profit earned
DR Bank DR Murabaha Account
CR Customer’s account CR Murabaha receivable

(C) To record reversal of unearned income not waived by the Bank

DR Murabaha Discount (P/L)
CR Customer’s account

f) Penalty Receivable (Charity) – to record accrual of penalty for delay in

payment by Customer

DR Charity (penalty) receivable from customer

CR Charity fund payable

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

g) Collection of Penalty from Customer

DR Cash in Hand / Customer’s account

CR Charity (penalty) receivable from Customer

h) Charity paid as per approval of the Bank’s Shariah Board

DR Charity fund payable (B/S – Liability)

CR Cash in Hand / Bank Account (B/S – Asset)

Note: All banking accounts opened for any Murabaha and/or Commodity
Murabaha products shall be Shariah compliant.

8 Risks associated with the Product

General Risks

8.1. Credit Risk: Credit Risk of the customer. Bank to use prudent risk management
tools to ensure that only good credits are approved for the Cash Financing
product and Working Capital Financing product. Bank may require additional
security from Customer as collateral for the financing.

8.2. Market Risk: No significant market risk as appropriate international Brokers to

be used for the Commodity trades who will provide a same day trading
platform based on yesterday’s Commodity prices.

8.3. Operational Risk:

8.3.1. Process risk: Strong Know Your Customer (“KYC”) controls, complete
Management Information System of the transactions and daily logs will
reduce the processing risk.

8.3.2. Documentation risk: Relationship Manager to ensure that complete

documents are obtained from the customer. Corporate desk must

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

ensure that correct schedules are executed in the proper sequence in

the case of working capital financing.

8.3.3. Loss of security documents: Central Operations will ensure safe

keeping of the documents under dual custody in a fire proof cabinet.
The complete details will be entered in the lodgement register.

8.3.4. KYC and Money laundering risk: Business unit to ensure compliance
with all requirements in the money laundering prevention, local
regulations concerning KYC and account opening procedures.

8.3.5. During the trading process the concerned users need to ensure that
correct amount is communicated to the trading desk for purchase and
sale of commodity.

8.4. Compliance Risk: Compliance department to ensure that necessary Central

Bank regulations are communicated to appropriate divisions for
implementation.

8.5. Commodity Risk: Commodity risk refers to the uncertainties of future market
values and of the size of the future income, caused by the fluctuation in the
prices in commodities. The trading platform as provided by the broker ensures
that the price risk is mitigated by using previous end of day rate.

8.6. Shariah Risk: The implications of Shariah non-compliance and risks associated
with the Bank’s fiduciary responsibilities towards different fund providers would
expose the Bank to fund providers’ withdrawals, loss of income or voiding of
contracts. This in turn could lead to a diminished reputation and / or the
limitation of further business opportunities for Bank in this sector. Shariah
compliance is critical to the Bank’s Islamic operations and such compliance
must permeate throughout the organisation.

8.7. Shariah compliance is the highest priority in relation to all other identified risks
concerning this product.

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

Specific Risk Matrix

RISK RISK ELEMENTS MITIGATING FACTORS

ASSOCIATED
i Market risk x Price fluctuation x Bank must sell the commodity
(price risk) when holding to a purchaser within
commodities. appropriate/specified period.
This would incur costs (broker’s
commission) to the banks.

x Different types of x Bank should highlight the

commodities and specific market risk factors
markets contribute corresponding to each
to volatility in the commodity and market,
prices of these likewise bank may develop a
commodities. reliable way to identify primary
risk factors pertinent to market
risk (e.g. price factors) and put
in place structure analysis to
identify the relationship
between the different risk
factors associated with
different Tawarruq transaction
contract terms.

x Competitive threats x Bank must offer competitive

from other financial profit rate, enhancing quality
institutions who service and pricing capability.
market the similar Thus, this would attract
products customer to engage in
product or service offered by
the bank.

ii Credit risk x Credit risk in the case x Bank may manage the credit

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

of Over The Counter risk by putting in place

(OTC) transactions appropriate credit policies,
applying Takaful coverage (if
available), and authorizing the
limits prior to entering into
Tawarruq transaction.

iii Liquidity risk x Customer defaults in x To reduce defaults in payment,

payment. banks impose a late payment
penalty (this must comply with
the DAB Guidelines on Late
Payment Charges).

x Cancellation of x To reduce the risks to the bank

promise by customer when customer cancels the
promise/ undertaking. The
customer is required to issue an
undertaking to the bank that
the customer will purchase the
commodity from the bank
upon purchase of the
commodity by the bank. A
breach of undertaking by the
customer will entitle the bank
to legal remedies against the
customer provided under the
law.

iv Rate of return x Rate of return risk x The bank’s risk is managed

risk associated with the within approved market risk
product limits

x The funding through Tawarruq

transaction has a contractually
fixed rate of return in the form
of cost plus profit (Sale Price)
which is stated and agreed by
both parties (bank and
customer) in the beginning of

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

contract.
x Measuring rate of x The estimation of cash flows is
return risk one of the key features of
measuring rate of return risk.
Hence, the bank should review
regularly the behavioural
maturity, underlying
assumptions and parameters
of the Tawarruq transactions
contracts. Therefore, the
strategy is to match the
sources of funds to the uses of
funds.

v Operational x Liquidity and delivery x Bank needs to monitor the

risk of commodities commodities inventory often in
different markets and different
commodities. Meanwhile,
bank’s main consideration is to
find local commodities and the
receptiveness in local market
via commodity platform.

x Settlement risk / x Since the bank puts a high

Counter-party risk degree of reliance on the
commodity supplier with
Exit strategies regards to the delivery of the
associated with the commodities, this may expose
commodities in the the bank to settlement risk.
event of default, Nevertheless, there might be
which responsibility several events that could lead
parties involved for to failure to deliver the
the delivery of the commodities. As only certain
commodity or for the events can be protected
payment of price. through obtaining Takaful
coverage, adequate
assessment of the supplier’s
ability to honour its obligation
(i.e. track record) is crucial to

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

avoid settlement and inventory

risk. In view of this, adequate
due process on the screening
and selection of a commodity
supplier/broker is highly
recommended.

x Shariah non- x To avoid any potential risk

compliance risk arising from the transaction (i.e.
non-compliance with Shariah
The limitation from requirements), the bank should
the Commodity have adequate controls to
Platform Provider’s ensure validity of the contract
system which apply in Tawarruq transaction, which
a random may include, inter alia:
“Commodity
Supplier Participant’s (a) a proper process for
sale of commodity. screening commodity
The possibility that suppliers, and for
the commodity admitting particular
purchased will be commodities under
sold to the original Tawarruq transactions
purchaser is there. and checking on
The Tawarruq transaction flows which
platform relatively is are endorsed by the
small in size. So, the respective Shariah
same issue may also supervisory board of the
arise when only bank; and
limited number of
supplier participating (b) an adequate Shariah
with the Commodity audit to ensure the
Platform. validity of Tawarruq
transactions.

x Bank should always be alert on

any new initiatives on the
Commodity Platform players in
the market. A due diligence on
the shortlisted Providers will be
useful to ensure the trading

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

activities are efficiently

managed in terms of
commercial and Shariah
aspects.

x Limited commodities
/ pricing fluctuation :

A commodity The bank is recommended to do

platform has limited some physical inspection of the
number of volume of commodity to ensure quality,
commodities that damage, defect, etc. Bank must
can be traded in a also identify the commodities to
day. If the chosen be sufficient when the demands
platform cannot fulfill need to be performed. Hence, this
the demand for the would standardise price of
commodity in that commodities.
particular day, the
trading delayed to
the next day may be
exposed to price
fluctuation.

9 Common mistakes

9.1. Failure to ensure that Fatwa issued by the Bank’s Shariah Board for the
Product before offering to clients. Shariah secretariat to confirm with Business
Units that the product may be offered to customers.

9.2. Inadequate or non-existent documentation – this may render the transaction

void ab initio.

9.3. Incorrect document process flow – this may render the transaction void ab
initio.

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

9.4. Selling the Commodity to the same broker that the Bank bought the
Commodity from in the transaction.

9.5. Restructuring a Commodity Murabaha payment schedule and increasing the

amount payable by the customer. The Bank may, in its absolute discretion,
increase the tenor of the financing facility but the Bank may not increase the
Deferred Sale Price. If a customer is in difficulty with their payments the Bank
may offer another Commodity Murabaha facility with a longer tenor and use
the proceeds from the creation of this second Murabaha financing facility to
pay the balance outstanding on the customer’s distressed facility.

9.6. Adding Late payment fees to the Bank’s profit account. The Bank’s actual
costs due to the customer’s late payment only may be taken by the bank,
the balance (if any) must be channelled to charity.

9.7. Incomplete records of the sources of payments to charities.

9.8. Agreeing a rebate with a Customer in advance of providing the facility or in

advance of a request for early settlement by the customer.

9.9. In the Working Capital Financing facility, not entering into separate discrete
Murabaha transactions when same is drawn down.

9.10. Failure to disclose the cost price of the commodity.

9.11. Failure to disclose the mark up on the cost price of the commodity.

9.12. Failure to ensure that the commodity broker (Broker A) has issued a holding
certificate identifying the Commodities purchased by the Bank “as principal”
before the on sale of the Commodity to Broker B by the Bank as agent for the
Customer.

9.13. Failure to ensure that the Bank is noted “as agent” in the sale advice for the
commodity when same is on-sold by the Bank (as agent for the customer) to
Commodity Broker B.

9.14. Failure to distribute 100% of the cash realised by the sale of the Commodity to
Broker B to the Customer.

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DA AFGHANISTAN BANK
(CENTRAL BANK OF AFGHANISTAN)
Product Outline: Murabaha Tawarruq (Cash Financing /
Working Capital Financing)

9.15. In Working Capital Finance, failure to execute the schedules of the various
master documents.

9.16. In Working Capital Finance, failure to date (time stamp) the schedules
of the various master documents to facilitate a Shariah audit of same.

10 Custodian of the Product Outline

10.1. This Product Outline shall be under the safe custody of the Islamic Banking
Division (“IBD”) of DAB. Any changes to this Product Outline shall be made by
the IBD with prior consultation with the SSB, as reviewed by the DAB Executive
Board and upon approval by DAB Supreme Council. A copy of the amended
Product Outline shall be made available to all stakeholders and SSB members
for reference and implementation.

10.2. Banks may further refine the Product Outline to suit their particular structure
and policies. Such amendments shall be approved by the Bank’s Shariah
Board. The Bank’s Shariah Department/Islamic Banking Department/Unit will
have custody over the Bank’s Product Outline for savings accounts.

11 Effective Date of the Document

The Effective date of this Product Outline is the ______ day of ______________ 20___

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