2. Islamic Financial Syndication – Overview

2.1 Introduction

The Financial Syndication module of Oracle FLEXCUBE addresses financial operations of a bank or a financial institution that enters into financial syndication contracts with borrowing customers (borrowers).

2.2 Islamic Financial Syndication

A syndication agreement is reached between a borrower and a bank (or a financial institution), which arranges the syndication. The arranger bank identifies one or more banks or financial institutions that pool funds to meet the borrowing requirements. These banks or institutions are known as contributors.

The arranger bank actually disburses the finance, after receiving the contributions from other contributors. The contributors fund subscription based on the percentage of contribution and cumulative disbursed amount for a day, for transactions associated with the Islamic syndication fund. The profit and other income accruing from the finance are shared in the ratio of their contribution that was agreed upon at the time of drawing up the financial syndication agreement.

This section contains the following topics

• Section 2.2.1, "Defining Syndication Fund"
• Section 2.2.2, "Processing Syndication Funds"
• Section 2.2.3, "Processing Repayments"
• Section 2.2.4, "Processing Charges "
• Section 2.2.5, "Processing Matured Funds"
• Section 2.2.6, "Sharing Transfer among Contributing Parties"

2.2.1 Defining Syndication Fund

In Oracle FLEXCUBE, you can define any service or scheme that you want to make available to your customers, as a product. For instance, your bank may be entering into lending agreements with other lending banks, to disburse finance requests as a syndicate. This facility of disbursing syndicated finances can be defined as a product.

Similarly, in financial syndication module you can create syndication fund with the following functions:

• Specifying start date, end date, fund amount and repayment
• Associating a product type to the fund with the following parameters:
  • Limit amount for the product type
  • Minimum and maximum limit amounts with allowable number of draw downs for a product type
  • Available limit amount for a product type after every draw down

• Associating a customer and product type combination to the fund with the following parameters:
  • Limit amount for the customer in a product type
  • Available limit amount for a customer in a product type after every draw down
  • Number of draw downs allowed for a customer in a product type
  • Utilized draw downs for a customer in a product type

You can define a product with all the specifications listed above. Each time you enter a draw down under the product into Oracle FLEXCUBE, they will be automatically applied to it, and you need not specify them afresh.

In Oracle FLEXCUBE, you can define the main syndication product which establishes a blueprint for capturing details for all syndication contracts.

2.2.2 Processing Syndication Funds

Oracle FLEXCUBE provides a provision to track syndication funds associated to the Islamic financing transactions and allows association of fund subject to availability of sufficient balance in the fund.

The system also pools the necessary funds from the parties involved in syndication based on the percentage of investment as and when the amount is disbursed for a financial transaction associated to the syndication fund.

Computed profit distribution is time value or value date based and is distributed among the contributors based on the share they hold.

2.2.3 Processing Repayments

Oracle FLEXCUBE repays the funds to the parties involved in syndication based on the percentage of investment as and when principal component is repaid for a financial transaction associated to the syndication fund.

2.2.4 Processing Charges

The Bank receives charges for the services rendered to the customers. The system enables you to process the schedule based charges, at the fund level and liquidates the charges against the contributor’s CASA settlement account based on the pre-defined schedule and amount.

2.2.5 Processing Matured Funds

On the maturity date of Islamic financial syndication, the system;

• Closes the Islamic fund and all associated deposit accounts of the contributors, if the financial transactions of the associated fund have been repaid and profit distribution has been completed for the period.
• Extends the maturity date of the fund and the associated deposit accounts, if the pending payments on the underlying financing assets or transactions.

2.2.6 Sharing Transfer among Contributing Parties

Oracle FLEXCUBE supports sharing of transfers with value date, so that eligible contributors get their share of profit for the period they have invested in the fund. If the contributors wish to transfer their holding percentages, then they can transfer it among themselves.