din Ahmed General Manager

Kamer H. Zajdi Group Head WBG

'

MCB

MCB BANK LTD

Is la mi c Banking Division

(Formerly Muslim Commercial Bark Ltd)

Ref IBD/ 02 To: Company Secretary Date: Apr l 18, 2007 Sub: Process for Release of Charity Funds

In Islamic i3anking, delay in payments by the customers beyond the agreed terms, cause loss of profit. In order to make the customers bound for payment of finance timely according to the schedule of payment, Islamic Banks have been allowed by Shariah to incorporate a deterrent clause of recovery of specified penalty for the period of delay in payment. This is taken in Charity Funds. Find enclosed a policy for the release of this Charity to Organizations/Institutions/Causes. Please get it approved by the Board of Directors so that we can release these funds to the needy.

Islamic

B A N K IN G

Policy for Release of Charity Funds

Procedure for Release donation to Charity Organizations from Charity Fund Account of Islamic Banking Operation. Introduction. In Islamic products like Murabaha, the sale price is fixed upfront and as such there is no concept of charging penal rates from the customers. Similarly in other products, the penal mark up is not available. Similar is the case with other financing products such as Salam, Istisna, Ijarah etc However recognizing the fact that this can encourage the customers to make delayed payments thereby resulting in loses to Islamic Banks, all shariah advisors allow Islamic Banks and Islamic Banking window operations to levy penal charges on the customers subject to a condition that they are taken into charity funds. This policy addresses the accrual of these charges on balance sheet (as already being done), its treatment and its subsequent disbursement to the deserving institutions/organizations/causes. Approval is requested for this policy so that it may be implemented at earliest. Process: Management of Account. The amount collected in Charity Fund in different branches shall be transferred to IBD. The frequency of transfer of funds from branches to this account shall be monthly IBD will keep this fund credited to it by different branches All charity will be paid out to the beneficiaries before Dec 3 1 s t .
Accounting Entries: At Branch End:

Charity Fund Dr IBD

At IBD End:

Cr

Respective Branch Dr Charity Fund Cr

MIS Maintenance: A file will be maintained in IBD which will keep a record of Name of the organizations, charity was given to Name of the customer, charity was collected from Branch name List of the approved beneficiaries Policy for selection of Beneficiaries: List of organizations will be circulated for approval which will be approved by IBD Head Shariah Advisor Group Head WBG President This approval will be sought every year Interim approval in case of special events or new organizations will be taken from the above approving authorities. Release of Funds: The funds have to be released before year end. The Group Head WBG and Head IBD can release funds to the beneficiaries from the approved list. Payments shall be released through issuance of PO/DD in favor of the beneficiary duly signed by the Head IBD &Group Head WBG.
Accounting Entries:

At IBD End: Charity Fund Dr POIDD Reporting: Annually a detailed list of customers from which the charity was recovered from and a list of beneficiaries with the donated amount wi11 be circulated to Group Head & President. Maximum Charity Limit: Cr

Charity, during one year, to any organization wi11 not exceed lower limit of 20% of total charity for the year or PKR 1 Mn or if required approval can be taken on case to case basis.

Ref No ..................

Signature

Annexure II.

Charity Release Fund

1.Name

2.Donation amount requested

3.Eligible Since

4.Charity Donated to date this year

5.Total Charity Donated/ to be donated to date this year

Approvals: Head IBD

Signature

Head WBG