meezan tijarah (finished goods). what is meezan tijarahwhat is meezan tijarah salient features of...

Meezan Tijarah(Finished Goods)

• What is Meezan TijarahWhat is Meezan Tijarah

• Salient Features of Meezan TijarahSalient Features of Meezan Tijarah

• Finished Goods as a Mode of Finance Finished Goods as a Mode of Finance

• Financing to Local CustomersFinancing to Local Customers

• Process FlowProcess Flow

• Graphical Process FlowGraphical Process Flow

• Risk Mitigation in Finished Goods FinancingRisk Mitigation in Finished Goods Financing

• Legal Documentation Legal Documentation

Presentation Outline

““Meezan Tijarah is a Meezan Tijarah is a Sale & AgencySale & Agency based financing based financing

facility for Customers who sell Finished Goods on facility for Customers who sell Finished Goods on

Credit basisCredit basis”. ”.

• The facility will enable the Customers to sell their The facility will enable the Customers to sell their

Finished Goods stock, meet their working capital Finished Goods stock, meet their working capital

requirements and enjoy the benefits of Cash sales.requirements and enjoy the benefits of Cash sales.

What is Meezan TijarahWhat is Meezan Tijarah

What is Meezan TijarahWhat is Meezan Tijarah

• Under this concept the Bank will purchase the Under this concept the Bank will purchase the finished goods of the Customers and will appoint the finished goods of the Customers and will appoint the Customer as its agent to sell the same goods in the Customer as its agent to sell the same goods in the market generally on Credit basis. market generally on Credit basis.

• It is necessary for the validity of Finished Goods It is necessary for the validity of Finished Goods transaction that the price is fixed with the consent of transaction that the price is fixed with the consent of the parties and that the necessary specification of the parties and that the necessary specification of the required items is fully settled between them. The the required items is fully settled between them. The Finished Goods price is ideally paid on Spot with Finished Goods price is ideally paid on Spot with immediate delivery of Goods.immediate delivery of Goods.

Salient Features of Meezan Tijarah under the Salient Features of Meezan Tijarah under the

Finished Goods Financing Agreement Finished Goods Financing Agreement

• A Finished Goods contract is permitted for Completed/ A Finished Goods contract is permitted for Completed/

Finished Goods that have been transformed from their Finished Goods that have been transformed from their

natural state by a manufacturing or construction natural state by a manufacturing or construction

process involving labor. process involving labor.

• The price of a Finished Goods contract is ideally paid on The price of a Finished Goods contract is ideally paid on

the spot with immediate delivery of goods.the spot with immediate delivery of goods.

Salient Features of Meezan TijarahSalient Features of Meezan Tijarah

• The delivery of the subject matter may take place The delivery of the subject matter may take place

through constructive possession. At this point, the through constructive possession. At this point, the

liability of the Customer in respect of the subject matter liability of the Customer in respect of the subject matter

comes to an end and the liability of the Bank begins comes to an end and the liability of the Bank begins

until its sale to the ultimate purchaser. until its sale to the ultimate purchaser. ,,

• The parties may agree on a period during which the The parties may agree on a period during which the

Customer will be liable for any defects.Customer will be liable for any defects.

Salient Features of Meezan TijarahSalient Features of Meezan Tijarah

Finished Goods Agreement can be used for providing Finished Goods Agreement can be used for providing

financing facility in transactions where final / financing facility in transactions where final /

transformed goods are available for sale. transformed goods are available for sale.

It is just like a normal sale purchase transaction where a It is just like a normal sale purchase transaction where a

seller (the Customer) sells a good to a buyer (the Bank) seller (the Customer) sells a good to a buyer (the Bank)

on cash basis. on cash basis.

The Bank then appoints the Customer as its Agent to sell The Bank then appoints the Customer as its Agent to sell

the same goods to a third party. the same goods to a third party.

Finished Goods as a Mode of FinanceFinished Goods as a Mode of Finance

The Goods through Finished Goods Agreement can be The Goods through Finished Goods Agreement can be

sold by the Bank in one of the following manners:sold by the Bank in one of the following manners:

1.1. Outright sale by the Bank to some 3rd party after Outright sale by the Bank to some 3rd party after

receipt of delivery of goods.receipt of delivery of goods.

2.2. Appoint the Customer as an Agent to sell the goods in Appoint the Customer as an Agent to sell the goods in

the market.the market.

3.3. The Bank can also have a promise to buy Finished The Bank can also have a promise to buy Finished

Goods from some 3rd party for the goods having same Goods from some 3rd party for the goods having same

specifications as the ones available with the Bank. specifications as the ones available with the Bank.

Finished Goods as a Mode of FinanceFinished Goods as a Mode of Finance

Option 2 - Appoint the Customer as an Agent to Option 2 - Appoint the Customer as an Agent to

sell the goods in the market.sell the goods in the market.

A Customer (Manufacturer/ trader) has a stock of A Customer (Manufacturer/ trader) has a stock of

specified goods that are generally sold on credit. Since specified goods that are generally sold on credit. Since

the Customer will be short of funds during the credit the Customer will be short of funds during the credit

period and this will affect his working capital. The period and this will affect his working capital. The

Customer has approached MBL for financing facility Customer has approached MBL for financing facility

based on Sale & Agency.based on Sale & Agency.

Financing to Local CustomersFinancing to Local Customers

Meezan Tijarah - Process flowMeezan Tijarah - Process flow

A.A. Credit Approval StageCredit Approval Stage

1.1. After proper Credit and Shariah approvals; MBL and the After proper Credit and Shariah approvals; MBL and the

Customer will enter into a Customer will enter into a Master Finished Goods Master Finished Goods

AgreementAgreement – a MOU where the customer agrees on the – a MOU where the customer agrees on the

general terms & condition related to sale of the Finished general terms & condition related to sale of the Finished

Goods stock to MBL from time to time via proper Sale. Goods stock to MBL from time to time via proper Sale.

2. The Customer and MBL will also enter into an 2. The Customer and MBL will also enter into an Agency Agency

AgreementAgreement through which the Customer, acting as through which the Customer, acting as

Bank’s Agent, will sell the Finished Goods to Bank’s Agent, will sell the Finished Goods to

creditworthy buyers on credit basis.creditworthy buyers on credit basis.

B.B. Transaction StageTransaction Stage

3.3. Upon requirement of funds, the Customer (usually a Upon requirement of funds, the Customer (usually a

manufacturing/ trading concern) will offer to sell a manufacturing/ trading concern) will offer to sell a

specific stock of Finished Goods to MBL. The Customer specific stock of Finished Goods to MBL. The Customer

will give will give Written Offer (Appendix A)Written Offer (Appendix A) to sell the to sell the

finished good and specify the quantity, price, finished good and specify the quantity, price,

specification and place of delivery and the delivery specification and place of delivery and the delivery

date. date.

4. Upon acceptance of the offer, MBL will pay the Finished 4. Upon acceptance of the offer, MBL will pay the Finished

Goods price (X% less than the selling price) to the Goods price (X% less than the selling price) to the

Customer. Customer.


5.5. MBL will take the delivery either by MBL will take the delivery either by physical or physical or

constructive possessionconstructive possession of the Goods purchased. In of the Goods purchased. In

case of constructive possession the storage facility or case of constructive possession the storage facility or

warehouse of the customer would be used. warehouse of the customer would be used.

MBL representative will MBL representative will inspect the goodsinspect the goods to ensure to ensure

that existence of goods, its proper identification & that existence of goods, its proper identification &

separation from the customer’s owned stocks (i.e. goods separation from the customer’s owned stocks (i.e. goods

not sold). not sold).

(Note: This step is very important to ensure proper (Note: This step is very important to ensure proper

Shariah Compliance of the transaction).Shariah Compliance of the transaction).


6.6. A A Goods Receiving Note (Appendix B)Goods Receiving Note (Appendix B) will be will be

executed at this moment by the Bank representative & executed at this moment by the Bank representative &

Customer to evidence the delivery of the Finished Customer to evidence the delivery of the Finished

Goods to MBL. Goods to MBL.

The risks and rewards associated with the Goods will The risks and rewards associated with the Goods will

be transferred to MBL at this stage. be transferred to MBL at this stage.

C.C. Agency StageAgency Stage

7.7. After delivery of Goods MBL, through the After delivery of Goods MBL, through the ‘Notice’,‘Notice’, as as

mentioned in the Schedule I of the Agency Agreement, mentioned in the Schedule I of the Agency Agreement,

shall authorize the customer to sell the Finished Goods shall authorize the customer to sell the Finished Goods

at the price declared in the Notice. at the price declared in the Notice.

The Agent will arrange Takaful/permissible Insurance The Agent will arrange Takaful/permissible Insurance

of the Goods. of the Goods.

The Agent will now be responsible for recovery of Sale The Agent will now be responsible for recovery of Sale

price and its payment to MBL with a certain number of price and its payment to MBL with a certain number of

days. days.


8.8. As per the Agency Agreement, the Agent will be As per the Agency Agreement, the Agent will be

required to sell the goods on required to sell the goods on CREDITCREDIT[1] basis basis

according to the terms agreed between the Bank and according to the terms agreed between the Bank and

the Agent (i.e. Schedule 2 of the Agency Agreement). the Agent (i.e. Schedule 2 of the Agency Agreement).

The Agent will sell the Goods in --------- The Agent will sell the Goods in --------- daysdays[2] upon upon

receiving the ‘Notice’ and collect the payment with in receiving the ‘Notice’ and collect the payment with in

the specified time frame. the specified time frame.

[1] As agreed upon in the specific process flow of the As agreed upon in the specific process flow of the

Customer.Customer.

[2] As agreed upon in the specific process flow of the As agreed upon in the specific process flow of the

Customer.Customer.


9.9. The Agent will be entitled to a The Agent will be entitled to a fixed Agency Feefixed Agency Fee for for

providing the services as per Agency Agreement providing the services as per Agency Agreement

(including Takaful cost, transportation costs, storage (including Takaful cost, transportation costs, storage

etc). etc).

In addition to the Agency Fee, the Agent will also be In addition to the Agency Fee, the Agent will also be

entitled to an entitled to an Incentive FeeIncentive Fee for arranging the proceeds for arranging the proceeds

earlier than the agreed schedule. This increase or earlier than the agreed schedule. This increase or

decrease in the fee may be on a daily basis. The incentive decrease in the fee may be on a daily basis. The incentive

will be reduced if the Agent fails to arrange the proceeds will be reduced if the Agent fails to arrange the proceeds

on the due date. on the due date.

D.D. Independent Guarantee Independent Guarantee

10.10.The Customer in an The Customer in an independentindependent capacity will also capacity will also

provide an independent provide an independent Corporate GuaranteeCorporate Guarantee to MBL to MBL

for guaranteeing the credit worthiness of the Buyer and for guaranteeing the credit worthiness of the Buyer and

will undertake to compensate the bank in case of failure will undertake to compensate the bank in case of failure

the Buyer to pay the sale price to the Bank. the Buyer to pay the sale price to the Bank.

Note:Note: As per Shariah Supervisory Board’s ruling, this As per Shariah Supervisory Board’s ruling, this

independent Corporate Guarantee will be given independent Corporate Guarantee will be given after after

identification of the Creditworthy Buyeridentification of the Creditworthy Buyer and not and not

before that. (i.e. The Guarantee cannot be given for an before that. (i.e. The Guarantee cannot be given for an

unknown buyer.)unknown buyer.)

E.E. Sale of Goods & Collection of SalesSale of Goods & Collection of Sales

11. The Agent will sell the goods on MBL’s behalf and will 11. The Agent will sell the goods on MBL’s behalf and will

confirm the Bank that it has sold the goods on behalf of confirm the Bank that it has sold the goods on behalf of

the Bank via the “Confirmation of Sale of Finished the Bank via the “Confirmation of Sale of Finished

Goods” (Schedule 3 of the Agency Agreement). As per Goods” (Schedule 3 of the Agency Agreement). As per

the payment terms, the buyer will pay the selling price the payment terms, the buyer will pay the selling price

to the Agent. After receiving the payment, the Agent will to the Agent. After receiving the payment, the Agent will

pass on the proceeds (net of applicable Agency & pass on the proceeds (net of applicable Agency &

Incentive fee) to MBL.Incentive fee) to MBL.

Graphical Process FlowGraphical Process Flow

Customer Customer

1. Finished Goods 1. Finished Goods AgreementAgreement

MBLMBL2. Delivery of 2. Delivery of GoodsGoods

3. Agency 3. Agency AgreementAgreement

Local Local BuyerBuyer

4. Sale of Goods4. Sale of Goods

5. Sale Proceeds5. Sale Proceeds

6. Agency / 6. Agency / Incentive FeeIncentive Fee

Risk Mitigation in Finished Goods Risk Mitigation in Finished Goods FinancingFinancing

RISKSRISKS MITIGANTSMITIGANTS

11 Delivery Delivery Risk Risk

Delay in delivery of goods Delay in delivery of goods from the Customer to MBLfrom the Customer to MBL

Customer is liable to pay Customer is liable to pay back the full amount to MBL back the full amount to MBL

22 Quality RiskQuality Risk

The Customer delivers The Customer delivers defected/inferior goods, defected/inferior goods, which is realized by MBL which is realized by MBL only when the ultimate only when the ultimate purchaser points it out.purchaser points it out.

MBL has recourse on the MBL has recourse on the Customer for an agreed Customer for an agreed time period OR Khiyar-e-Aib time period OR Khiyar-e-Aib may be exercised by MBL may be exercised by MBL by asking Customer to by asking Customer to rectify the defect.rectify the defect.

33 Price RiskPrice RiskMarket price of the subject Market price of the subject matter decreases after MBL matter decreases after MBL enters into Finished Goods enters into Finished Goods agreement.agreement.

Parallel Finished Goods or Parallel Finished Goods or promise to purchase from a promise to purchase from a 3rd party will mitigate the 3rd party will mitigate the risk.risk.

44 Order Order CancellatioCancellatio

nn

The ultimate purchaser The ultimate purchaser cancels the order based on cancels the order based on which MBL entered into which MBL entered into Finished Goods Agreement Finished Goods Agreement with the Customer.with the Customer.

The subject matter of The subject matter of Finished Goods may be sold Finished Goods may be sold in the market to a 3rd party.in the market to a 3rd party.

Risk Mitigation in Finished Goods Risk Mitigation in Finished Goods FinancingFinancing

RISKSRISKS MITIGANTSMITIGANTS

55 Storage RiskStorage Risk

The goods once The goods once delivered by Customer delivered by Customer will be at MBL's risk will be at MBL's risk before the same are before the same are sold to the ultimate sold to the ultimate purchaserpurchaser

This may be covered through This may be covered through Takaful of the goods and by Takaful of the goods and by minimizing the time duration minimizing the time duration between acceptance of delivery between acceptance of delivery under Finished Goods and delivery under Finished Goods and delivery to the ultimate purchaser.to the ultimate purchaser.

66Non - Non -

performance performance of Agentof Agent

Agent is unable to Agent is unable to arrange sale proceeds arrange sale proceeds within a specified time within a specified time period or delays in period or delays in passing on to the passing on to the proceeds to MBL.proceeds to MBL.

The Incentive Fee will be reduced The Incentive Fee will be reduced on daily basis. on daily basis.

77Default by Default by ultimate ultimate

PurchaserPurchaser

The ultimate The ultimate purchaser refuses to purchaser refuses to make payment on time make payment on time or goes bankrupt.or goes bankrupt.

The Customer (in its independent The Customer (in its independent capacity as MBL’s Agent) may be capacity as MBL’s Agent) may be asked to provide Corporate asked to provide Corporate Guarantee to guarantee payment Guarantee to guarantee payment obligations of ultimate buyers.obligations of ultimate buyers.

Legal Documentation for Legal Documentation for

Finished Goods Financing Finished Goods Financing

Legal Documents in Finished Goods Financing Legal Documents in Finished Goods Financing comprises of:comprises of:

• Master Finished Goods AgreementMaster Finished Goods Agreement

• Finished Goods Agency AgreementFinished Goods Agency Agreement

• Finished Goods Corporate GuaranteeFinished Goods Corporate Guarantee

Legal Documentation for Finished GoodsLegal Documentation for Finished Goods

• Master Finished Goods AgreementMaster Finished Goods Agreement

Purpose :Purpose : This is the main Agreement through which This is the main Agreement through which the Customer sells the Customer sells the Finished Goods to the the Finished Goods to the Bank. Bank.

Components Components :: A. Written Offer:A. Written Offer: Description of Goods including quantity, quality, Description of Goods including quantity, quality,

delivery date, cost delivery date, cost price, place of delivery etcprice, place of delivery etc

B. Goods Receiving Note:B. Goods Receiving Note: Date, time, address, description of goods Date, time, address, description of goods

received.received.


• Finished GoodsFinished Goods Agency Agreement:Agency Agreement: Purpose :Purpose : The Bank appoints the Customer The Bank appoints the Customer

(manufacturer/ trader) its Agent to sell the ready-to-sell (manufacturer/ trader) its Agent to sell the ready-to-sell goods.goods.

Components Components : :

A. NoticeA. Notice

The Bank authorizes the Agent to sell the Assets The Bank authorizes the Agent to sell the Assets

as its as its undisclosed Agent undisclosed Agent

and details of the Assets are mentioned.and details of the Assets are mentioned.

B. Agency FeeB. Agency Fee

Comprises of Agency fee and Incentive FeeComprises of Agency fee and Incentive Fee

C. Confirmation of Sale of Finished GoodsC. Confirmation of Sale of Finished Goods

It is the confirmation of Sale of MBL goods.It is the confirmation of Sale of MBL goods.


• Finished Goods Corporate GuaranteeFinished Goods Corporate Guarantee

Purpose :Purpose : An independent Corporate Guarantee An independent Corporate Guarantee

from the Agent regarding the credit worthiness of from the Agent regarding the credit worthiness of

the end buyer(s)the end buyer(s)


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meezan tijarah (finished goods). what is meezan tijarahwhat is meezan tijarah salient features of...

Documents

finished goods price

finished goods agreement

finished goods stock

finished goods contract

immediate delivery of

stock of specified goods

mode of financefinished

final transformed goods