Sample Personal Finance Concept Analysis

Product Design Form

_______________________________________________________

                       

Product / Brand Name:	XYZ Personal Finance
Date:	10.02.20##
Version :	2

 

Nature of the Request:

 

1 New Product Program

þRevision of Existing Product Program (Permanent Changes)

    (Please provide brief summary of proposed changes)

1 Special Campaign (Temporary Changes)

    (Please provide brief summary of proposed changes)

 

Purpose, Conceptual Design and Structure:

 

XYZ Personal Finance product has been revised to cater for consumer personal financing needs and also for making the public to be aware of our activities in this business. This product will be re-launched through a XYZ Personal Finance Advertisement Campaign.

 

Effective Date / Launching Date:

 

·       From 24^th of February 20## to 01^st of May 20##.

·       Special pricing will be valid until 01^st of May 20##. After the campaign, existing pricing which is shown in Appendix-1 will be automatically applied.

·       This Product Program shall be reviewed on annual basis by Retail Banking Department and Risk Management.

 

Financing Modes:

 

Commodity Morabaha and Morabaha.

 

Target Market:

 

The following customer segments will be targeted:

·       Salaried individuals both Bahrainis and Non-Bahrainis

·       Self employed individuals^[1].

·       Small Business owners.

·       Retired People.

 

Eligibility Criteria:

 

Applicant under this Product Program provided must meet the following minimum criteria:

 

1)     Is of a legal age as defined by the Laws of the Kingdom of Bahrain provided the Applicant’s age plus the repayment period does not exceed his/her retirement age.  Retirement age is defined as follows:

           

Sector	Male	Female
Government Ministries	60	55
Public Sector	60	55
Private Sector	60	55
Self Employed/ CR Owners	60	60

 

2)     Applicant age will be minimum 21 years and maximum 60 years provided that the repayment period will not be incompatible with the above table. The repayment period for the retired people will not exceed the age of 65.

 

3)     Is working and residing in the Kingdom of Bahrain.

           

4)     Employment:

·       Salaried Individuals should be employed by an approved employer in accordance with the “Approved Employers” guidelines / matrix.

·       Self Employed and Small Business owners should be true owners of their business not less than 3 years with business track record.

 

5)     Employment period:

·       Salaried individuals: Has been in the employment of the present employer for a period of not less than 3 months (provided the Applicant has completed the required probation period).

·       Self employed: Must be active in their business not less than 3 years with business track record.

·       Small Business owners: Must be active in their business not less than 3 years with business track record.

 

6)     Minimum income which is defined in Appendix-2 for different types of customers will be as follows.

·       Salaried individuals: Receives a minimum income not less than BD 200 per month. DSR will not exceed the percentages depicted in Appendix-2.

·       Self employed people: Receives a monthly average net credit turnover of at least BD 800 in the past 6 months and the monthly installment per average net credit turnover of the last 6 months will not exceed the percentages depicted in Apendix-2.

·       Small Business owners: Receives a monthly average net credit turnover of at least BD 1,000 in the past 6 months and the monthly installment per average net credit turnover of the last 6 months will not exceed the percentages depicted in Apendix-2.

·       Retired individuals: Receives a minimum income of BD 350. DSR will not exceed the percentages depicted in Appendix-2.

 

7)     Is not adversely mentioned on Central Bank of Bahrain’s “Credit Risk Unit System” or any other referral lists (internally or externally).

 

8)     Has the legal capacity to enter into contracts and execute documents / agreements.

 

Applicants who do not meet the above minimum Eligibility Criteria may apply for the facilities against full tangible security which is a real estate property or cash collateral. These collaterals have to be pledged to our bank until the end of the finance. The type of security and the coverage (Value of security / principal) ratios are depicted in the following table.

 

Type of security	Coverage ratio
Real estate	120%
Cash Collateral	110%

  

Financing Amounts:

 

1)     The Facilities will be granted only in local currency of the Kingdom of Bahrain, Bahraini Dinars.

 

2)     Applicants may ask finance for amounts:

·       Salaried Bahrainis: Between BD 1,000 and BD 100,000.

·       Salaried Expatriates: Between BD 1,000 and BD 25,000 (or 80% of their indemnity)

·       Self employed individuals: Between BD 1,000 and BD 25,000.

·       Small business owners: Between BD 1,000 and BD 10,000

·       Retired People: Between BD 1,000 and BD 10,000.

 

 

3)     Where an Applicant enjoys other credit facilities with the Bank, the maximum amount per individual personal finance facility plus all other credit facilities (such as Cards, other consumer finance facilities, or any other commercial financing) should not exceed maximum limits permissible by the Central Bank or the Bank’s internal Single Obligor policies (whichever is lower).

 

Pricing:

 

Normal Profit Rate     :           As per the matrix

 

Customer Type	Salaried Bahraini	Salaried Expat	Self Employed	CR Owner	Retiree
Maximum Tenor	84	84	60	60	60
Minimum Finance - BD	1,000	1,000	1,000	1,000	1,000
Maximum Finance – BD	100,000	25,000 or 80% of the indemnity[2]	25,000	10,000	10,000
Minimum Salary - BD	200	200	800	1,000	350
Salary Transfer	Mandatory	Mandatory	N/A	N/A	Mandatory
Life Insurance	Mandatory	Mandatory	Mandatory	Mandatory	Mandatory
Life Takaful Arrangement Fee	BD 1	BD 1	BD 1	BD 1	BD 1
Checks	Security checks	Security checks	Post dated	Post dated	Security checks
Administration Fee	BD 100	BD 120	BD 150	BD 150	BD 120
Installment Fee	BD 1	BD 1	BD 1	BD 1	BD 1
Grace Period (tenor > 24 months)	Max 3 months	Max 3 months	Max 3 months	Max 3 months	Max 3 months
Pricing*
0-12 months	3.99%	4.09%	4.09%	4.09%	4.09%
13-48 months	4.19%	4.29%	4.29%	4.29%	4.29%
49-60 months	4.49%	4.59%	4.59%	4.59%	4.59%
61-84 months	4.49%	4.59%	-	-	-
Grace Period (3 months)	4.69%	4.79%	4.79%	4.79%	4.79%

 

* General Manager of Commercial Banking will have the right to increase the pricing of the product at any time after the campaign.

 

 

Financing Tenor:

 

Grace Period            :              Maximum of 3 months (Optional for the customer subject to the credit assessment)

Repayment Period      :           Maximum repayment period of 84 months inclusive of Grace Period subject to the pricing matrix.

Payment Holidays      :           Not allowed.

 

 

Administration Fees   :           Administration fees (as shown in the above matrix) will be deducted from the customer account upfront and will not be financed. There will be installment fees of BD 1 that will be collected on the due date of the installments.

 

Penal Rate                   :           If any of the monthly payment(s) under the Facility is (are) not paid on the due date(s), a maximum penal rate of 0.5% flat per day to be charged on defaulted installment (each individually) from the due date(s) until the date(s) of payment. 

 

                                                All penalties collected must be credited to charity accounts after deducting costs and expenses associated with collecting the defaults (Sharia to decide on percentage that Bank may retain).

 

Prepayment Fees        :           To remain compliant with the rulings of our Sharia Board, prepayments under this product shall not be subject to any specific “Prepayment Fees”.  HORB, however, may deduct reasonable amounts from profits refundable to the Applicants in case of full prepayment (Non-accrued amounts – this deduction may also include the life insurance).

 

Life Takaful Fee                     : We charge BD 1 for Life Takaful Insurance Arrangement to the customer due to the service given for arranging Life Takaful through Solidarity.

 

 

Life-Takaful (Insurance) Premium:

 

Life Takaful which is mandatory in all transactions will be made through Solidarity with a rate of 0.2375 per mille and the customer will be charged 0.350 per mille. If Solidarity applies different pricing scheme for the individuals out of the scope the same profit margin will be kept.

 

Security / Support:

 

The securities in this financing scheme are listed in the following:

• In all cases salary transfer will be mandatory
• In all cases the life insurance will be mandatory
• In all cases the security checks will be mandatory from salaried individuals and retirees.
• Post dated checks (from CR owners and SE people)
• Personal guarantee from CR owners and SE people is mandatory.
• If the customer obtains finance against his/her time deposit, there is no need for salary transfer and life insurance. Nevertheless, if the customer obtains finance against his/her real estate there is a need for life insurance, fire insurance and salary transfer.

 

Documentations and Agreements:

 

• Salaried Bahraini

Mandate documents

• Copy of CPR
• Last Salary slip (If overtime is required for better DSR last three salary slips)
• CRB consent form.

Additional Mandate Documents

• 3 months bank statement (If there is additional fixed income, i.e. rent income)
• Salary certificate or 3 months salary slip (If the joining date is not mentioned in the last salary slip or title of the employee is not clearly stated in CPR / salary slip)
• If joining date is mentioned in salary slips but title is not mentioned, salary certificate is required

 

• Salaried Expatriate

Mandate documents

• Copy CPR and Passport for Non-Bahrainis (with Visa work permit) 
• Last Salary slip (If overtime is required for better DSR last three salary slips)
• CRB consent form.

Additional Mandate Documents

• 3 months bank statement (If there is additional fixed income, i.e. rent income)
• Salary certificate or 3 months salary slip (If the joining date is not mentioned in the last salary slip or title of the employee is not clearly stated in CPR / salary slip)
• If joining date is mentioned in salary slips but title is not mentioned, salary certificate is required

 

• Self Employed and Small Business

Mandate documents

• Copy CPR for Bahrainis
• Copy CPR and Passport for Non-Bahrainis (with Visa work permit) 
• 6 months bank statement
• Copy of Commercial registration document.
• CRB consent form.

 

• Retired people

Mandate documents

• Copy CPR for Bahrainis
• Salary Certificate from GOSI or pension fund
• Salary slip if they are working officially in an organization
• CRB consent form.

Additional Mandate Documents

• 3 months bank statement (If there is additional fixed income, i.e. rent income)
• Salary certificate or last 3 months salary slip for the current organization (if joining date is not mentioned in the last salary slip)

 

 

Facility Documents    :           -    Application Form

-      Morabaha Agreement

 

Security Documents   :          

-      Security checks

-      Salary Transfer Letter

-      Post dated checks (from CR owners and SE people)

 

Media Channels:

 

We are expecting an average of BD 40,000 as advertising cost. The channels will be decided after the advertisement agency recommendations.

 

Source of Funding:

All transactions will be funded by the General Modaraba.

 

Appendices:

-      Appendix 1 : Existing pricing

-      Appendix 2 : Income Assessment

-      Appendix 3 : Max tenor / min salary / max limit / grace period

-      Appendix 4 : Pricing and the fees of the banks

-      Appendix 5 : Security structure and specific finances

-      Appendix 6 : Profitability

 

 

 

 

 APPROVALS

Mgr – Retail Banking		Senior Manager – Retail Banking

 

 

 

Head – Risk Management		Sharia Compliance		Legal Advisor

 

 

 

General Manager Com. Bnk.	General Manager Support

 

 

 

CEO

 

 

 

APPENDIX – 1:

 

EXISTING PRICING

 

Facility Type	Morabaha and Commodity Morabaha
Customer Type	Bahraini		Expatriates / Self Employed
Pricing                                        New         Existing       New              Existing
0-12 months	4.55%	4.39%	4.85%	4.49%
13-48 months	4.55%	4.49%	4.85%	4.79%
49-60 months	4.75%	4.75%	4.99%	4.99%
61-84 months	4.75%	4.75%	n/a	n/a
Grace Period (max. 3 months)	4.99%	4.99%	5.29%	5.29%

 

 

 

INCOME ASSESSMENT CRITERIA FOR RETAIL BANKING CUSTOMERS

 

1.           SALARIED BAHRAINIS

"Income" is calculated according to the following formula:

+ Basic income

+ Fixed Allowances

+ Fixed percentage of his last 3 months average overtime earning (depending on the company)

If he has other income

+ 50% of his rent income

+ 25% of his other steady income

The sum of installment and other obligations will not be higher than the basic salary.

The minimum DSR values for Salaried Bahrainis

Income – BD	XYZ Personal Fin.	XYZ Car Fin.	XYZ Home Fin.
0-200	No finance	No finance	No finance
201-250	30%	30%	No finance
251-350	50%	50%	No finance
351-1,000	50%	50%	50%
1,001-3,000	50%	50%	65%
Above 3,000	65%	65%	70%

 

2.           SALARIED EXPATRIATES

"Income" is calculated according to the same formula applied to Salaried Bahrainis:

The minimum DSR values for Salaried Expatriates

Income – BD	XYZ Personal Fin.	XYZ Car Fin.	XYZ Home Fin.
0-200	No finance	No finance	No finance
201-250	30%	30%	No finance
251-500	50%	50%	No finance
501-1,000	50%	50%	50%
1,001-3,000	50%	50%	65%
Above 3,000	65%	65%	70%

 

3.           SELF EMPLOYED INDIVIDUALS

Income is the net average credit turnover of the last 6 months. The monthly installment will not be higher than a percentage of the income which is depicted in the following table.

The minimum installment / income ratios for Self Employed Individuals

Income – BD	XYZ Personal Fin.	XYZ Car Fin.	XYZ Home Fin.
0-800	No finance	No finance	No finance
801-1,000	40%	40%	No finance
1,001-3,000	50%	50%	55%
Above 3,000	60%	60%	65%

 

4.           SMALL BUSINESS OWNERS

 

Income is defined as same as the self employed people.

 

The minimum installment / income ratios for Small Business Owners

Income – BD	XYZ Personal Fin.	XYZ Car Fin.	XYZ Home Fin.
0-1,000	No finance	No finance	No finance
1,001-1,500	35%	35%	No finance
1,501-3,500	40%	40%	50%
Above 3,500	50%	50%	60%

 

5.           RETIREES

 

"Income" is calculated according to the following formula:

+ Pension

If working in an organization

+ Basic income

+ Fixed Allowances

+ Fixed percentage of his last 3 months average overtime earning (depending on the company)

If he has other income

+ 50% of his rent income

+ 25% of his other steady income

The sum of installment and other obligations will not be higher than the basic salary.

The minimum DSR values for Retirees

Income – BD	XYZ Personal Fin.	XYZ Car Fin.	XYZ Home Fin.
0-350	No finance	No finance	No finance
351-600	40%	40%	No finance
601-2,000	45%	45%	55%
Above 2,000	50%	50%	60%

 

 

APPENDIX-3: MAX TENOR / MIN SALARY / MAX LIMIT / GRACE PERIOD

BANK	MAX TENOR	MIN SALARY	MAX LIMIT	GRACE PERIOD
Bank-1	Sal. Bahr 7 years Sal. Exp 7 years SE 6 years SB 6 years Retired No finance	Sal. Bahr BD 200 Sal. Exp BD 200 SE ann. inc. BD 30K Ann.Sales 150K SB ann. inc. BD 30K Ann.Sales 150K	BD 150,000	No
Bank-2	Sal. Bahr 7 years Sal. Exp 7 years SE Upon approval SB Upon approval Retired 7 years	BD 200	BD 50,000	3 months
Bank-3	5 years	Sal. Bahr BD 200 Sal. Exp BD 250 SE BD 1,000 SB BD 1,000 Retired BD 300	Depends on the income.	No
Bank-4	7 years	BD 200	Depends on income	2 months
Bank-5	7 years   No retired finance	Sal. Bahr BD 250 Sal. Exp BD 300 SE Varies SB Varies Retired No finance	Depends on the income	No
Bank-6	7 years	Sal. Bahr BD 200 Sal. Exp BD 250 SE BD 2,000 SB BD 2,000 Retired BD 200	Depends on the income	No
Bank-7	7 years	Sal. Bahr BD 200 Sal. Exp BD 200 SE BD 2,000 SB BD 2,000 Retired BD 200	Depends on the income	No
Bank-8	7 years	Sal. Bahr BD 250 Sal. Exp BD 300 SE Varies SB Varies Retired BD 250	Depends on the income	No
Bank-9	7 years	Sal. Bahr BD 250 Sal. Exp BD 250 SE Varies SB Varies Retired BD 250	Depends on the income	No
Bank-10	7 years	No Info	No info	1 month

APPENDIX-4:

 

PRICING AND THE INSTALLMENTS

 

BANK	PRICING	Insurance rate	Bare Installment	Real Installment
Bank-1	Salaried people 5.02 % flat 9.00% reducing   SE, SB 5.33 % flat 9.50% reducing	0.45/1,000	161   And   163	165   And   167
Bank-2	All customers 4.80% flat 9% reducing	0.19/1,000	161	163
Bank-3	All customers 5.50% flat 9.80% reducing	Included in the admin fee		217
Bank-4	Bahraini, SE, SB 3.25% flat 6.18% reducing   Expatriates 4.50% flat 8.13% reducing	Others 0.85/1,000   Expatriates 0.60/1,000	146   And   157	155   And   163
Bank-5	All customers 5.02 % flat 9.00% reducing	0.4/1,000	161	165
Bank-6	4.53% flat 8.50% reducing	0.4/1,000	158	162
Bank-7	4.60% flat 8.63% reducing	0.34/1,000	157	161
Bank-8	5.33% flat 9.50% reducing	0.35/1,000	163	167
Bank-9	6.90 % flat 12.00% reducing	0.25/1,000	177	181
Bank-10	5.37% flat 10% reducing	0.60/1,000	164	170

 

 

APPENDIX-5:

 

FEE AND SECURITY STRUCTURE

 

BANK	Admin Fee	SECURITY
Bank-1	Sal. Bahr BD 55 Sal. Exp BD 55 SE BD 250 SB BD 250 Retired No finance	ST
Bank-2	Sal. Bahr BD 70 Sal. Exp BD 70 Retired BD 70	ST
Bank-3	3%
Bank-4	Sal. Bahr BD 550 Sal. Exp BD 300 SE BD 550 SB BD 550 Retired BD 550	ST
Bank-5	BD 50	ST
Bank-6	BD 80	ST
Bank-7	BD 60	ST
Bank-8	BD 100	ST
Bank-9	BD 200	ST
Bank-10	BD 210	Cheques, notes, direct debit from A/C

 

 

Pricing
	Sal. Bhr.	Sal. Exp.	SE	SB	Retiree
0-12 months	3.99%	4.09%	4.09%	4.09%	4.09%
13-48 months
49-60 months
61-84 months
Grace Period (3 months)

 

APR’s*
	Sal. Bhr.	Sal. Exp.	SE	SB	Retiree
0-12 months	9.81%	10.43%	10.43%	10.43%	10.43%
13-48 months
49-60 months
61-84 months
Grace Period (3 months)

*APR contains Admin and installment fee but life insurance is not factored

 

 

APPENDIX-6:

 

PROFITABILITY ANALYSIS ASSUMPTIONS FOR CAMPAIGN PERIOD

Incomes	Unit	Total
Profit from funds	8.5% reducing	BHD 24,791
Admin Fee	BHD 101	BHD 35,500
Installment fee	BHD 1	BHD 350
Insurance profit	0.1125/1,000	BHD 393
Total		BHD 61,034
Expenses	Unit	Total
Cost of the deposits	2.93%	BHD 8,545
Advertisement costs	BHD 20,000	BHD 20,000
Total		BHD 28,545
Profit (Advert. Period)		BHD 32,489

 

The profitability of the XYZ Personal Finance Campaign is shown in the above table. In order to create this table we have used conservative figures. The assumptions are:

• The financing will be BD 10.000 on average.
• The tenure will be 60 months on average.
• The target is 350 transactions for 1 month
• Our admin fee will be BD 100 per transaction.
• Life takaful arrangement fee will be BD 1 per transaction.
• The installment fees will be BD 1.
• The insurance profit will be 0.350/1,000 – 0.2375/1,000 which is 0.1125 / 1,000
• We expect the advertisement cost will be BD 40,000 for two months.
• The cost of the deposits of retail banking is calculated regarding the following table.

 

In Million USD[3]	Amount	Rate
Current Accounts	337	0%
Savings Accounts	114	0.75%
Mudaraba Accounts	704	4.45%

 

The average cost of the deposits is estimated as 2.78%. After adding 5% reserve requirement we have found a figure of 2.93%.

---

[1] Self Employed people are the professionals such as accountants, doctors, architects, lawyers etc. The professionals such as entertainers, actors, singers, sport players etc. will not be covered with this product program

[2] Whichever is higher

[3] Taken from our financial control retail daily report.