Tawarruq is the new Shariah concepts introduced in Malaysia for the use in personal financing. The Syariah Advisory Council of Bank Negara Malaysia  in its 58th meeting held on 27th April 2006 / 28th Rabiul Awal 1427 resolved that the use of ijarah sukuk and Shariah-compliant securities as underlying asset in tawarruq or murabahah to manage liquidity in Islamic financial system is permissible.

Syariah concept personal financing works in different way compare to conventional personal loan. As Islam prohibit taking interest, customer which require financing from bank will buy goods or commodity on credit from the bank on a installment payment basis and then immediately resells it to third party for cash. In this way, the customer can obtain cash without taking an interest-based loan.

The flow chart below illustrate the detailed flow of personal financing, including the bank profit calculation. The information provided below was referenced to Bank Islam site.

1. The customer applies financing product based on Tawarruq concept from the Bank. Bank obtains Tawarruq transaction documents from the customer.
2. Bank will buy the commodity at London Metal Exchange (LME) through Broker 1.
3. Under the Murabahah contract, Bank then sells the commodity to the customer at Bank’s Selling Price (Principle + Profit) on deferred payment term.
4. Under the Wakalah contract, customer requests Bank to sell the commodity in the market.
5. Acting as the appointed sale agent for the customer, Bank sells the commodity to Broker 2.
6. Bank then credits the Wariq (proceed) from the sale of commodity to the customer’s account.
7. Finally, customer pays amount due to the Bank (Principal + Profit) by way of agreed instalment method.

Key note of the Shariah based personal financing:

• The montly installment is fixed and calculated based on the bank profit rate and the financing tenure. Early settle of the personal financing will no have any rebate or with minimal rebate, which vary from bank to bank.
• No interest will be charged for late payment. Bank will take legal action if failed to make three consecutive installment payment.

Today, I purposely took one hour off in the early morning before went to work to go to banks. I was thinking one hour should be long enough for me to go to two banks within the same area, to perform these two tasks:

1. Open a new basic saving account in Maybank
2. Linked my property loan into Public bank online banking.

At 9.10am, I arrived at Maybank branch and waiting for the branch open at 9.15am.  I took more than 5 minutes to fill in the lenghty account opening form, which contained 4 pages back and front, to fill in those less important information such as interest, company information, income, etc. Then wait for the officer the proccess the document, create account, prepare the ATM card, collect money and activate the online banking. At 10.00am, I finally settle everything for opening the new account, including changing ATM pin number and activated online banking.

Then I drive to Public bank to linked my property loan to online banking. Everything going fast but at the end the officer told me that my wife need to sign the document as the the loan was joint between our name. I have to come back with my wife again to settle it.

The time I left the bank was 10.20am, longer than expected and I have to rush back to office.

Image credit to moonjazz

The conclusion of my unpleasant banking experiences:

• The process to open new account in Maybank is time consuming. There’s room to improve in my opinion.
• The online banking of Public Bank is incovenience as you have to visit branch and manually linked the account. Please enlighten me if you have others bank which required to manual linking as well. I have few accounts(saving and current), personal loan and credit cards with SC and all linked automatically with single online banking.

More information about Maybank basic saving account:

• You can choose one of the two options: Unlimited ATM withdrawals and over the counter transactions at an annual fee of RM8 or 8 times ATM cash withdrawal transactions with no annual fee.
• You have to create new login for the Maybank2u online banking. If you already have Maybank2u login previously, you new account will not appear in your existing Maybank2u account.  Both online banking account works independently but you can enjoy unlimited transfer between both accounts.

Hurray!! I can start saving RM3 per months for the GIRO.

Image credit to libraryman

Visit the link below to know more benefit of basic saving account and list of the bank offering this type of account.

http://moneysospecial.com/deposits/you-must-know-it-basic-saving-account/

KLIBOR based housing loan has been introduced to Malaysia property market since mid of last year. Until today, only Standard Chartered bank offering this type of product and named it as MortgageKLIBOR.

Image credit to Susan & her 5d

The only question comes into my mind is why only one bank offering this?

From my reading in few forums, most of the conclusion given is KLIBOR more fluctuating and react fastest to sentiment of economy. Undeniable KLIBOR is more fluctuating because the interest rates pegged to the 3-month Kuala Lumpur Inter-Bank Offered Rate (KLIBOR), which mean the KLIBOR rate changed every three months.

People tend to feel insecure if the rates changed frequently and this maybe one of the reason this types of loan is not popular in property market.  In this article, we will perform case study to compare interest rates offered by BLR & KLIBOR based home loan.

The graph below shown the historical rate of BLR and KLIBOR  from year 2005 to year 2009. The table below listed the historical rates in montly basis in detail and the different between both rates. In conclusion, even though KLIBOR is more fluctuating, but it does reflect to the BLR change and the changes is small if the BLR maintained in same rate.

The average KLIBOR for BLR maintained at 6.75 (31 months) is: 3.69%

The average KLIBOR for BLR maintained at 5.55 (8 months till now) is: 2.127%

The average KLIBOR for past 4 years is: 3.34%

The average BLR for past 4 years is: 6.47%

Case Study 1:

• Loan Amount: 300k
• ZEC(Zero Entry cos) or ACA t (All Cost Absorbed in MortgageKLIBOR)
• With MRTA
• Term Loan
• Loan tenure 30 years

Case Study 2:

• Loan Amount: 200k
• ZEC(Zero Entry cos) or ACA t (All Cost Absorbed in MortgageKLIBOR)
• With MRTA
• Term Loan
• Loan tenure 30 years

Conclusion:

• For ideal case, if the rates remain unchange for the entire tenure, KLIBOR package offer lower interest rates thus lower interest to pay. The different between KLIBOR package and BLR package is less than 0.1% only.
• When BLR rate increase to 6.75, average KLIBOR is higher, thus MortgageKLIBOR package is charging more interest. The different between KLIBOR package and BLR package is less than 0.3%.
• For average 4 years times, MortgageKLIBOR is more expensive. The different between KLIBOR package and BLR package is  about 0.2%.
• In ideal case, which unlikely happen, MortgageKLIBOR is offering lower rates, but only 0.1% different. So for long term consideration, BLR package definitely is lower interest rates.

As we always heard, figures tell the truth. I believe my readers are smart enough to read the figure above. This comparison purely compare the rates given and to know which types of loan actually allow us to pay less interest. This is not recommendation to any loan, but served as guides only.  The other factor such as withdraw flexibility, margin finance, bank and etc  should take into consideration when taking a property loan.

You might be interested to read more about MLR(Mortgage Lending Rate) offer by OCBC bank.

http://moneysospecial.com/mortgage-loan/ocbc-ideal-mortgage/

If you you need a no frills account, with just the basics to meet your banking needs, for example checking your credit card transaction online, you should consider opening a basic saving account which offer these benefits:

• Initial deposit of RM20
• No service or maintenance charge with minimum balance of RM20 is maintained
• Six free OTC (over the counter) visits
• Eight free ATM cash withdrawal transactions.
• Two interbank-GIRO transactions for which a maximum fee of RM0.50 per transaction
• Free Bankcard/ATM card

Please to inform that according to Bank Negara rules, all commercial banks and finance companies will offer a basic savings account (BSA) and a basic current account (BCA). Staff in bank normally will offer you to open other saving account instead of basic saving account when you request to open saving account without telling them the exact type of saving account to open. The basic saving account is not profitable to them and some of the staff even don’t know have this type of account, so please insist to open the basic saving account or even talk to their superior when they told you don’t have this account.

For more details and the basic current account, please visit here

http://www.bnm.gov.my/index.php?ch=8&pg=14&ac=964

List of Basic Saving Account for Commercial Banks in Malaysia: