02 January, 2015

Murabaha Post Import (MPI) Investment

I have discussed about different Islamic banking systems in my previous articles. Now, I shall discuss about MPI. MPI stands for Murabaha Post Import, i.e. Murabaha trade on procurement of goods by importation. In other words, Bai Murabaha by import. It is also a form of investment of Islamic banking.

These are the steps of Murabaha Post Import investment:

1.  Check-up Credit Restriction Schedule of Central Bank and Head Office Current Investment Policy Guidelines. Reject proposal if it conflicts with the existing Credit Restrictions of Central Bank and Head Office Policy Guidelines.

2.  Visit the Business establishment of the Client. Tally the Particulars, information and figures in the application form with the original documents/papers and be sanguine about genuineness and correctness. Obtain additional information, particulars, facts and figures if required.

3.  Talk to the business and important personalities of the locality to ascertain the honesty, integrity and business dealings of the client.

4.  Request for confidential report of the client from local Bank Branches. Do not finalize the proposal until the confidential reports from all Bank Branches are received.

5. Confidential Reports should also be obtained from local financial, credit and leasing institutions, if felt necessary.

6. Obtain report from Credit Information Bureau (CIB) of Central Bank through Head Office Investment Division as per Instruction Circular of Head Office in this regard.

7. Obtain declaration of the client about his liability (both contingent & real) with other Banks/financial Instructions/Leasing Companies including any other Branches of Al-Arafa Islami Bank Limited.

8. Obtain Financial statement/Balance Sheet of the client for the last three consecutive years for investment proposals as per Head Office instruction. This is to be furnished by all clients irrespective of their status, i.e. individual, proprietorship, partnership, private/public limited company, Trust Body etc, engaged in business.

9. Inspect Land, Building(s), other Assets and Properties proposed to be Mortgaged or Hypothecated. Ascertain Prima-facie genuineness and correctness of those in cross-references to documents, title deeds and other relevant papers. Ascertain primarily the market value and the forced sale value of the proposed collaterals.

10. Forward Documents, Title Deeds and other relevant papers to the approved lawyer of the Bank for examination and furnishing his opinion. (Lawyer’s opinion should be clean and without ambiguity.)

11. Obtain Lawyer’s opinion.

12. Please study the following carefully and note down the actual findings in the Appraisal form against each item:
a) Whether the proposed MPI goods are readily saleable and have constant and effective demand in the market.
b) Whether the Price of the goods is subject to frequent and violent changes.
c) Whether the goods are perishable on short or in long-term duration.
d) Whether the quality and other specifications of the goods are in conformity with PI/Indent.

Please note that market price and cost price should be carefully studied by the investment committee of     the Branch and properly recorded, verified and signed.

Please also give special attention to the following:
- Composition of Assets of the Client, viz. (Cash, Goods, Investments, Building, Landed Property, Stock in trade, Work-in-process, Marketable securities etc.)
- Extent and nature of liabilities of the client, i.e. whether the volume is within the manageable capacity of the Client. Opinion in this regard and justification thereof must be clearly mentioned.
- The value of Liquid Assets, viz. Cash and Book Debts of the Client.
- Respectability and Business Reputation of the Client in the Market.
- Experience of the Client in the Business.
- Where the goods will be stored and how the same will be sold. Whether the arrangement is satisfactory and Bank’s interest will be protected properly.

13. Guideline for working out the Cost and Sale Price of MPI goods:

Work out the sale price of goods and other expenses to be incurred as per following guidelines:
Cost and Sale Price of the Goods:
A)    Landed cost of the goods
B)    Other expenditures incurred by the bank in connection with the importation, Transportation and storage before sale of the Goods to the client.

i. Conveyance- TA/DA of Bank Officials or the Agent, if any.
ii. Commission Paid to the Agent, if any
iii. Cost of Remittance of Fund
iv. Transportation Cost up to Bank’s Godown
v.  Transit Insurance and Incidental Charges
vi. Other Expenses, except interest incurred (if any). Interest element, if any, is to be paid by the Client himself.
vii. Godown Rent and Godown Staff Salary (if the goods are kept in the bank’s godown before sale to the Client).

C)    Total Cost Price (A+B)         Tk. ……………………………
D)    Estimated Profit of the bank     Tk. ……………………………
E)    Sale Price (C+D)         Tk. ……………………………
After completion of prior formalities issue a sanction Advice.

14.    Before effecting the MPI obtain sufficient collaterals/securities along-with the following Charge Documents properly executed, i.e. duly filled in, signed, stamped, verified and witnessed, where necessary:

-  MPI Sanction Advice deal-wise duly accepted by the client.

-  MPI Agreement (Deal-wise).

-  Agreement for Pledge of Goods (Deal-wise).

-  Taking Delivery of Goods by the Bank:

-  Bank must arrange clearance and storage of goods by its enlisted clearing agent and properly enter into register.

-  Maintenance and Storage of the MPI Goods:

15. Store the entire MPI goods including prescribed goods securities in godown (Bank’s own/hired/client’s own/hired) ensuring Bank’s effective control.

16. Goods in bulk, i.e., Coal, Pig iron, Bricks, fertilizer, Cement etc. may be stored in yeards under strict supervision and ensuring effective control of the Bank.

17. Store the goods systematically stacked and in a countable manner to facilitate easy verification. Stack the goods Client-wise/Deal-wise/Size-wise and keep proper entry in the Stock Card.

18. Godowns must be damp proof and safe from rainwater and other common hazards.

19. Store the hazardous and inflammable goods in a separate godown.

20. Store the Edible Items, Chemicals and Toxic Items separately to avoid contamination and quality deterioration.

21. Keep record in Stock and Delivery Register of the pledged stock including prescribed goods securities making entry Deal-wise, Item-wise (commodity-wise), size-wise for the physical stocks, stocks-in-transit and stocks delivered against TR.

22. Godowns be always kept under seal gala under the joint signatures of the Godown Supervisor/In charge and Authorized Official of the Bank.

23. Bank’s Sign Board in the Godown mentioning the Godown number, location be displayed in a prominent manner in front size of the godown as per specimen below:

XYZ Bank Ltd.
ABC Branch
Godown No:....
Holding No. (if any) …………….
Road/Area Name ………………..
Thana …………………………….
District ……………………………

I shall show you the process of vouching for MPI investment.
For opening L/C posting of voucher will be as under :
Dr.     Asset as per contra on L/C General (Customer liability)
Cr.     Liability as per contra on L/C General (Bankers liability)

Dr.     Party’s account (for margin and other charges)
Cr.     Deposit A/c (Security deposit on Cash L/C)
Cr.     Income and others

For lodgement posting of voucher will be as under :

Dr.     Liability as per contra on L/C General (Bankers liability)
Cr.     Asset as per contra on L/C General (Customer liability)

Dr.    PAD (Paid against Document) A/c
Cr.    ID (International Division)

For MPI posting of voucher will be as under :

Dr.    MPI A/c M/s XYZ
Cr.    PAD

I hope this article will help bankers to understand Murabaha Post Import Investment. 

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