Bank Alfalah’s Istisna Financing
Customized Process Flow of A/c M/s. [Name Hidden]
CUSTOMER: M/s. [Name Hidden]
BRANCH: IBG – BOSAN ROAD, MULTAN
FACILITY: LOCAL ISTISNA
EXPIRY: MARCH 31, 2024
Company Background:
M/s. [Name Hidden] Ltd. is engaged in extraction of seed oil, selling of oil, meal, and liquid soap. As per sanction, Local Istisna facility for manufacturing of edible oil & oil cake has been approved in this regard. Conventional murabaha allocation till August 31, 2022.
Facility Documentation:
Step 1: CAC/BU will prepare the following documents and get them executed from the customer:
- Master Istisna Agreement
- Master Istisna Agency Agreement
- Guarantee of agent in an independent capacity
Process Flow for Istisna Transactions with the Customer
Disbursement:
Step 2:
Customer (Manufacturer) – after receiving a local purchase order from purchaser(s) as per sanction advice – or upon requirement of funds, will request the Bank to provide Istisna Financing by giving a Written Offer (Appendix A) for amount, goods, price, place of delivery, and delivery dates.
Step 3:
CAC/BU will calculate the price of Goods (amount of Istisna Finance) by marking down the amount as per sanction terms or as allowed by the Credit Approving Authority in case of manufacturing of different seeds, by using the amount of a local confirmed Purchase Order or contract as per sanction terms.
Note:
- If the Net Marked-down amount is more than the financing requested by the Manufacturer (against confirmed Purchase Orders or contracts in the case of different seed manufacturing), CAC/BU shall disburse the requested financing amount.
- If the Net Marked-down amount is less than the financing requested by the Manufacturer (against confirmed Purchase Orders or contracts in the case of different seed manufacturing), CAC/BU shall disburse the amount after obtaining approval from the Approving Authority – Credit.
CAC/BU will keep a copy of the working for determination of Istisna price along with other records of the transaction.
Step 4:
CAC/BU will accept the Manufacturer’s written Offer (Appendix A). In this way, CAC/BU will enter into a separate Istisna transaction under Master Istisna Agreement (MIA) with the Manufacturer for manufacturing of goods (Oil/Meal) by the manufacturer according to the specifications (inclusion of other terms and conditions for accordance to the specifications laid out under the terms and conditions of the local Purchase Order as per sanction advice or mentioned in “Written Offer”).
Step 5:
CAC/BU will disburse wholly or partially the amount of Istisna as agreed in the Istisna contract (Master Istisna Agreement), subject to Note under Step 3 by giving acceptance to “written offer”.
Delivery of Istisna Goods:
Step 1:
On the delivery date of the contract, the Customer will inform the CAC/BU through “Notice of Delivery” that the Goods are ready for delivery at the agreed place/site of delivery.
Step 2:
CAC/BU will inspect the goods itself or arrange inspection of goods by a stock verification firm from Bank’s approved panel. The visit report shall contain documentary evidence of inspection. Physical verification shall be conducted for 100% transactions. BU shall ensure that Finished Goods i.e., Edible Oil to be delivered to BAFL-IBG should be in separate storage tank(s) having Stock Position delivered to BAFL-IBG should be in separate storage tank(s) having “Stock Position BAFL-IBG’s Edible Oil including dead level duly supported with a site time of report” (Annexure A) (which shall also be obtained by BU at the time of Report) and oil cake to be delivered in 50/80 Kgs acknowledged “Notice of Delivery”; and oil cake to be delivered in 50/80 Kgs Bags should be separately stored and be distinguished from Customer’s own Finished Goods prior to acknowledgment of “Notice of Delivery” by the bank.
Step 3:
CAC/BU will acknowledge “Notice of Delivery” having received the goods as contracted to be delivered by customer as per the details mentioned in “Written Contract.” Consequently, risk of ownership will be transferred to the bank.
CAC/BU shall secure evidences confirming physical verification of Goods as per instructions of IOM IBG/PDSC/12/076 dated June 27, 2012.
Step 4:
CAC/BU will also arrange Takaful arrangements for sale/delivery of Goods either directly or through the Manufacturer. In case the Takaful is arranged through the Manufacturer, the Manufacturer can claim, in the event of such expense from the Bank. However, the aforementioned condition can be relaxed by Credit Approving Authority. Conventional insurance is allowed till Aug 31, 2022.
Agency Arrangements:
Step 1:
After taking delivery of Goods, CAC/BU shall authorize the customer through “Notice of Agency Agreement (Schedule 1 of Agency Agreement)” to sell the manufactured goods at the price declared in the Notice on behalf of BAFL-IBG as its agent.
Step 2:
At the time of issuance of Notice to the Agent, CAC/BU will sanction a fixed agency fee (Schedule 2 of Agency Agreement) to the Agent and a Schedule for Incentive Fee.
Step 3:
Customer, acting as an Agent of the bank, will sell the goods on behalf of bank and will confirm final sale of the goods on behalf of the Bank through a “Confirmation of of Sale of Goods (Schedule 3 of the Agency Agreement) which shall be supported by 'Sales Tax Invoice' (Annexure B).
Step 4
After receiving the payment, the Agent will pass on the proceeds to Bank Alfalah Islamic net off incentive fee and agency fee.
Step 5
On receipt of Agency Sale Price, CAC/BU will settle its outstanding Istisna finance, including its profit, and may pay the differential amount to the public/government Agent (manufacturer) as an Incentive/Gift after adjustment of applicable government taxes and any other dues specific to the particular Istisna transaction/contract.
Note:
- In case realized proceeds are less than the price mentioned in Agency Agreement, including the fee of the Agent, the loss will be borne by the Bank. CAC/BU shall determine and record the loss and shall communicate the reason for incurring such loss to Approving Authority: Credit.
- Agent will provide copies of Sales Tax Invoice(s) (Annexure B), for 100% transaction as a proof of Sale, confirming sale of Istisna Goods to an Agent of the Bank. Sales shall ensure same is filed in between date of ‘Sales Agreement’ and ‘Notice of Delivery’ by the Bank and the date of realization of Sale proceeds.
- BU shall ensure compliance of IBG's instructions of Related Party Transactions circulated vide IOM BGF/ISAF09/71 dated February 25, 2009 while executing transactions.
- Responsibilities of CAC and BU shall be defined as per Service Level Agreement executed between the units.
“THIS PROCESS FLOW HAS BEEN PREPARED WITH REFERENCE TO SHARIAH ASPECTS OF THE TRANSACTION WITHOUT TAKING INTO CONSIDERATION THE SECURITY AND CREDIT RISK ISSUES”