Meezan Tijarah

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Meezan Tijarah (Finished Goods)

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• What is Meezan Tijarah
• Salient Features of Meezan Tijarah
• Finished Goods as a Mode of Finance
• Financing to Local Customers
• Process Flow
• Graphical Process Flow
• Risk Mitigation in Finished Goods Financing
• Legal Documentation

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• Meezan Tijarah is a Sale Agency based
  financing facility for Customers who sell
  Finished Goods on Credit basis.
• The facility will enable the Customers to sell
  their Finished Goods stock, meet their working
  capital requirements and enjoy the benefits of
  Cash sales.

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• Under this concept the Bank will purchase the
  finished goods of the Customers and will appoint
  the Customer as its agent to sell the same goods
  in the market generally on Credit basis.
• It is necessary for the validity of Finished
  Goods transaction that the price is fixed with
  the consent of the parties and that the necessary
  specification of the required items is fully
  settled between them. The Finished Goods price is
  ideally paid on Spot with immediate delivery of
  Goods.

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• Salient Features of Meezan Tijarah under the
  Finished Goods Financing Agreement
• A Finished Goods contract is permitted for
  Completed/ Finished Goods that have been
  transformed from their natural state by a
  manufacturing or construction process involving
  labor.
• The price of a Finished Goods contract is ideally
  paid on the spot with immediate delivery of goods.

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• The delivery of the subject matter may take place
  through constructive possession. At this point,
  the liability of the Customer in respect of the
  subject matter comes to an end and the liability
  of the Bank begins until its sale to the ultimate
  purchaser.
• ,
• The parties may agree on a period during which
  the Customer will be liable for any defects.

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Finished Goods Agreement can be used for
providing financing facility in transactions
where final / transformed goods are available for
sale. It is just like a normal sale purchase
transaction where a seller (the Customer) sells a
good to a buyer (the Bank) on cash basis. The
Bank then appoints the Customer as its Agent to
sell the same goods to a third party.
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• The Goods through Finished Goods Agreement can
  be sold by the Bank in one of the following
  manners
• Outright sale by the Bank to some 3rd party after
  receipt of delivery of goods.
• Appoint the Customer as an Agent to sell the
  goods in the market.
• The Bank can also have a promise to buy Finished
  Goods from some 3rd party for the goods having
  same specifications as the ones available with
  the Bank.

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Option 2 - Appoint the Customer as an Agent to
sell the goods in the market. A Customer
(Manufacturer/ trader) has a stock of specified
goods that are generally sold on credit. Since
the Customer will be short of funds during the
credit period and this will affect his working
capital. The Customer has approached MBL for
financing facility based on Sale Agency.
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Meezan Tijarah - Process flow
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• After proper Credit and Shariah approvals MBL
  and the Customer will enter into a Master
  Finished Goods Agreement a MOU where the
  customer agrees on the general terms condition
  related to sale of the Finished Goods stock to
  MBL from time to time via proper Sale.
• 2. The Customer and MBL will also enter into an
  Agency Agreement through which the Customer,
  acting as Banks Agent, will sell the Finished
  Goods to creditworthy buyers on credit basis.

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• Upon requirement of funds, the Customer (usually
  a manufacturing/ trading concern) will offer to
  sell a specific stock of Finished Goods to MBL.
  The Customer will give Written Offer (Appendix A)
  to sell the finished good and specify the
  quantity, price, specification and place of
  delivery and the delivery date.
• 4. Upon acceptance of the offer, MBL will pay the
  Finished Goods price (X less than the selling
  price) to the Customer.

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• MBL will take the delivery either by physical or
  constructive possession of the Goods purchased.
  In case of constructive possession the storage
  facility or warehouse of the customer would be
  used.
• MBL representative will inspect the goods to
  ensure that existence of goods, its proper
  identification separation from the customers
  owned stocks (i.e. goods not sold).
• (Note This step is very important to ensure
  proper Shariah Compliance of the transaction).

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• A Goods Receiving Note (Appendix B) will be
  executed at this moment by the Bank
  representative Customer to evidence the
  delivery of the Finished Goods to MBL.
• The risks and rewards associated with the Goods
  will be transferred to MBL at this stage.

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• After delivery of Goods MBL, through the
  Notice, as mentioned in the Schedule I of the
  Agency Agreement, shall authorize the customer to
  sell the Finished Goods at the price declared in
  the Notice.
• The Agent will arrange Takaful/permissible
  Insurance of the Goods.
• The Agent will now be responsible for recovery
  of Sale price and its payment to MBL with a
  certain number of days.

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• As per the Agency Agreement, the Agent will be
  required to sell the goods on CREDIT1 basis
  according to the terms agreed between the Bank
  and the Agent (i.e. Schedule 2 of the Agency
  Agreement). The Agent will sell the Goods in
  --------- days2 upon receiving the Notice and
  collect the payment with in the specified time
  frame.
• 1 As agreed upon in the specific process flow
  of the Customer.
• 2 As agreed upon in the specific process flow
  of the Customer.

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• The Agent will be entitled to a fixed Agency Fee
  for providing the services as per Agency
  Agreement (including Takaful cost, transportation
  costs, storage etc).
• In addition to the Agency Fee, the Agent will
  also be entitled to an Incentive Fee for
  arranging the proceeds earlier than the agreed
  schedule. This increase or decrease in the fee
  may be on a daily basis. The incentive will be
  reduced if the Agent fails to arrange the
  proceeds on the due date.

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• The Customer in an independent capacity will also
  provide an independent Corporate Guarantee to MBL
  for guaranteeing the credit worthiness of the
  Buyer and will undertake to compensate the bank
  in case of failure the Buyer to pay the sale
  price to the Bank.
• Note As per Shariah Supervisory Boards ruling,
  this independent Corporate Guarantee will be
  given after identification of the Creditworthy
  Buyer and not before that. (i.e. The Guarantee
  cannot be given for an unknown buyer.)

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• 11. The Agent will sell the goods on MBLs behalf
  and will confirm the Bank that it has sold the
  goods on behalf of the Bank via the Confirmation
  of Sale of Finished Goods (Schedule 3 of the
  Agency Agreement). As per the payment terms, the
  buyer will pay the selling price to the Agent.
  After receiving the payment, the Agent will pass
  on the proceeds (net of applicable Agency
  Incentive fee) to MBL.

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Legal Documentation for Finished Goods
Financing
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• Legal Documents in Finished Goods Financing
  comprises of
• Master Finished Goods Agreement
• Finished Goods Agency Agreement
• Finished Goods Corporate Guarantee

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• Master Finished Goods Agreement
• Purpose This is the main Agreement through
  which the Customer sells the Finished
  Goods to the Bank.
• Components
• A. Written Offer
• Description of Goods including
  quantity, quality, delivery date, cost price,
  place of delivery etc
• B. Goods Receiving Note
• Date, time, address, description of
  goods received.

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• Finished Goods Agency Agreement
• Purpose The Bank appoints the Customer
  (manufacturer/ trader) its Agent to sell the
  ready-to-sell goods.
• Components
• A. Notice
• The Bank authorizes the Agent to sell
  the Assets as its
  undisclosed Agent and details of the
  Assets are mentioned.
• B. Agency Fee
• Comprises of Agency fee and Incentive
  Fee
• C. Confirmation of Sale of Finished
  Goods
• It is the confirmation of
  Sale of MBL goods.

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• Finished Goods Corporate Guarantee
• Purpose An independent Corporate
  Guarantee from the Agent regarding the credit
  worthiness of the end buyer(s)

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