Configurations

Shari'ah-based deposits differ from conventional deposits in their profit calculation methodology. Instead of relying on a predefined interest rate, Shari'ah-based deposits calculate returns based on specified criteria which are defined under pool, product/account, cash flow configurations. The profit is determined and distributed based on Product / Account Shari'ah attributes at the end of this period.

Shari'ah attributes can currently be configured at the product level, but not at the account level.

Add Shari'ah attributes to Shari'ah-based deposit products

Once a Shari'ah-based deposit product with the profit sharing calculation method is created from the Administration section, users can configure the product's Shari'ah attributes under the Profit Sharing tab.

The Products section of the Profit Sharing tab lists the Shari'ah-based products.

You can:

• Select Actions > View settings to view or configure the product settings. See below for more information. You can create multiple settings for Shari'ah-based product by clicking Create product settings.
  

• Select the product settings Actions > Edit to change the product settings. Currently all changes will be applicable for the next profit calculation cycle defined under the Pool settings. For product settings with the same pool association and different effective dates, the profit calculation will take the setting with the latest effective date.

• Select the product settings Actions > View to view the product settings.

• Select the product settings Actions > Copy to make a copy of the product settings.

• Select Actions > View accounts to see all the accounts that are linked to that product.

The product settings screen shows all the settings for that specific product. Click the Create product settings button to add settings to the product. You can configure the following parameters:

Configure pools

Pools contain the income and expense categories, profit calculation period that are used to define the profit calculation period and additional parameters for profit calculation.

1. In the Configuration > Pools section of the Profit Sharing tab, click Create pool.
2. Add a Name and a Description, and indicate if the pool is active.
3. Click Save to create the pool.
4. To configure the additional parameters, next to the pool name click Actions > View settings.
5. Click Create pool settings. You can configure the following parameters:

In addition to creating pools, you can:

• Edit the existing pool and pool settings with the same effective date by selecting Actions > Edit. The profit calculation process will take the setting with the latest effective date.
• View the existing pool settings by selecting Actions > View.
• Copy the existing pool settings by selecting Actions > Copy.
• Deactivate the existing pool by selecting Actions > Edit > Inactive.

Configure incomes

Income covers the different income categories from the investments. For example, within a real estate investment pool you may have income categories for rental property income and another for business property income. Income categories are linked to specific deposit accounts, and associated with a defined number of pools.

• In the Configuration > Incomes section of the Profit Sharing tab, click Create income category.
  You can configure the following parameters:

Once an income category is created, it can have multiple different kinds of settings. For example, it can be derived from different sources, or be linked to different pools. To manage income settings for an income category:

1. Select Actions > View settings. This will show a list of the settings associated with the income.
2. In the income settings screen, click Create income settings.
   You can configure the following parameters:

In addition to creating income categories, you can:

• Edit an income category by selecting Actions > Edit.
• Deactivate an income category by selecting Actions > Edit > Inactive.

Configure expenses

Expenses cover the different expense categories for the Pool. For example, within a real estate investment pool you may have income categories for rental property expenses and another for business property expenses. Expense categories are linked to specific deposit accounts, and associated with a defined number of pools.

Expense categories are not required for all forms of profit sharing configuration. For example, some Islamic banks will prefer to use revenue sharing instead of profit, and will not need to use expenses for their calculation.

• In the Configuration > Expenses section of the Profit Sharing tab, click Create expense category.
  You can configure the following parameters:

Once an expense category is created, it can have multiple different kinds of settings. To manage settings for an expense category:

1. Select Actions > View settings. This will show a list of the settings associated with the income.
2. In the expense settings screen, click Create expense settings.
   You can configure the following parameters:

In addition to creating expense categories, you can:

• Edit an expense category by selecting Actions > Edit.
• Deactivate an expense category by selecting Actions > Edit > Inactive.

Income and expense allocation methods

This section describes how the available income and expense allocation methods are calculated.

• Average Balance (default): This method calculates profit allocation based on the average balance of accounts over a specified period (controlled through Pool settings); typically a month.
  • Example:
    • Income amount: 200.000
    • Pool 1 average balance: 30.000
    • Pool 2 average percentage: 70.000
      Pool 1 will receive 30% of the income (60.000), and Pool 2 will receive 70% of the income (140.000).
• Number of accounts: With this method, profit allocation is determined by the total number of active accounts participating in the profit calculation period.
  • Example:
    • Income amount: 200.000
    • Pool 1 has 1M accounts
    • Pool 2 has 9M accounts
      Pool 1 will receive 10% of the income (20.000), and Pool 2 will receive 90% of the income (180.000).
• Percentage: This method allocates profit based on the percentage of each pool’s defined share relative to the total income. Pools with higher defined percentages receive a proportionately higher share of the profit.
  • Example:
    • Income amount: 200.000
    • Pool 1 is allocated 20% of the income
    • Pool 2 is allocated 80% of the income
      Pool 1 will receive 20% of the income (40.000), and Pool 2 will receive 80% of the income (160.000).

Data input

Profit calculation and distribution are carried out using profit sharing products, designated pools, income and expense configurations, and data recorded in the Income and Expense GL accounts. This process also incorporates transactions from the clients' accounts.

1. Utilisation of income from GL accounts: Income recorded in specific GL accounts will be taken into consideration during each investment period. This will ensure that all relevant income is accurately captured for profit allocation.
2. Inclusion of expenses: Any expenses tracked in the associated GL accounts will also be factored into the overall profit calculation, ensuring a comprehensive understanding of net profit.
3. Average balances of accounts: Average account balances will be calculated over the investment period and will be used to distribute income proportionately. This will take into account different balance measures such as Average Daily Balance, Minimum Daily Balance, and End of Day Balance.
4. Backdating deposits and withdrawals: The general rules of backdating transactions are explained here: Backdating deposits and withdrawals.
   In Shari'ah-based Deposits:
   • Any backdated deposits or withdrawals will cause the system to rerun profit calculations for the pool, product, and account according to the new account balances in open Proposals.
   • Updated balances will be included in the average balance calculation in profit calculation for two purposes: profit calculation for pool, product, and accounts; and income allocation within the investment cycle.

Configuration validation process

The system automatically validates the configuration. It is necessary to follow this sequence:

• Configure Pool with status of "Inactive"
• Configure Pool settings
• Configure Income & Income settings
• Configure Expense & Expense settings
• In Product Settings, add the Shari'ah attributes and link them to the Pool.
• Go to the Pool and change its status to "Active"

After the Pool is made "Active," the system automatically runs validations. If these validations pass, the action is completed.