Assignment Day no: 6 Dated 09/06/2007 Day no. 6 Question no. 1: I.

If L/C is opened without Agency Agreement then bank has no option to recover cost of funds for 7 days as it will have to extend Qurd to the client and any additional amount recover on Qurd is riba. II. To safeguard its self bank has following options: a. Agency Agreement must always be executed prior to establishing LC. b. If L/C has to be established without Agency Agreement, bank can obtain 100% cash margin to avoid such delays. c. Purchase goods from client and execute Murabaha with a third party. However, caution must be made that third party is not an allied concern where any common sponsor does not more than 33% ownership in both the companies and transaction is a genuine trade transaction. Question no 2: I i. Company Cars: If L/C has been established with XYZ bank been agent of the client, then it will be Sale and Lease back. Follow of documents will be under: Undertaking to Lease Sale Deed (Client sell cars to ABC Bank) Lease Agreement Undertaking to Purchase Sale Deed (ABC Bank sell cars back to client) ii. If L/C has been established with client been agent of the XYZ bank, then it will be Direct Lease. Follow of documents will be under: Letter of Agency Undertaking to Lease Lease Agreement Undertaking to Purchase

Sale Deed (ABC Bank sell cars back to client) iii. under: Letter of Agency Undertaking to Lease Lease Agreement Undertaking to Purchase Sale Deed (ABC Bank sell cars back to client) iv. v. under: Letter of Agency Undertaking to Lease Lease Agreement Undertaking to Purchase Sale Deed (ABC Bank sell cars back to client) vi. Dyeing Plant: It will be Sale and Lease back. documents will be under: Undertaking to Lease Sale Deed (Client sell cars to ABC Bank) Lease Agreement Undertaking to Purchase Sale Deed (ABC Bank sell cars back to client) vii. Fuel: Since it is consumable item it cannot be leased. Follow of Yarn: Since it is consumable item it cannot be leased. Looms: It will be Direct Lease. Follow of documents will be Trucks: It will be Direct Lease. Follow of documents will be

Following factors will be considered while making Sale and Lease Back i. Ownership of the asset is with the client. ii. Sale and lease back is allowed only to finance newly imported machinery or replacement of conventional loan. It should not be allowed to generate liquidity. iii. If sale and lease back is allowed assets should not be sale back to the client before one year. Question no. 3: Since looms broke down due to negligence of the lessee, therefore, any shortfall in insurance claim will be on account of the client and will be adjusted in forthcoming rentals alongwith rentals for the period when the machine was not working as it was due to his fault. Question no. 4: At time of execution of Lease Agreement, buy out price in case of premature adjustment of lease is already decided with the client. If client has offered more or equal to buy out price, we can sell it to client However, if it has offered lower price then buy out price, its at discretion of bank to accept it. In case of O/S insurance, bank can either terminate the insurance policy and claim the refund or transfer the insurance policy to client against payment. Question no. 5: Under Ijarah Agreement if accident is without negligence of lessee, then bank will have to return the security deposit to lessee. In order to accommodate the client any thing in excess of O/S lease amount (principal only) and prepaid expense can be returned to the client. 450,000-(350,000+20,000)=80,000 Question no. 6: Master Murabaha Agreement/Agency Agreement Order Form Purchase Order Possession Offer and Acceptance (execution of Murabaha, fixing Murabaha Price and setting of Maturity Date) Payment of Purchase Price by bank to Nestle on 30th Day from delivery

Payment of Murabaha Price by ABC Distributor to Bank on Maturity