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RM-2.2.19

Islamic bank licensees must clearly define their credit risk-mitigating techniques including, but not limited to, having in place:

(a) A methodology for setting mark-up rates according to the risk rating of the counterparties, where expected risks should have been taken into account in the pricing decisions;
(b) Permissible and enforceable collateral4 and guarantees;
(c) Clear documentation as to whether or not purchase orders are cancellable;5 and
(d) Clear procedures for taking account of governing laws for contracts relating to financing transactions.

4 Islamic bank licensees are expected to include in their processes, an ongoing monitoring of quality and valuation of any collateral.

5 In some jurisdictions, a purchase order backed by a promise to purchase would constitute a binding contract according to contract law and would be legally enforceable if adequately evidenced.

January 2013