Findings

In our research of credit application in Islamic Banking, we are

focusing on two parts. First part is Islamic credit application for personal

loan and the next part is for businesss sides. During our visit to Public

Bank, we have interviewed two of their credit officer and recorded it for

further references after the visit.

For the first part which is persoal loan application, Islamic contract

that Public Bank use in their product for housing financing is based on

Musharakah Mutanaqisah. Musharakah Mutanaqisah is a contract of

partnership between two parties, where one partner gradually buys the

whole parts of the property. The transaction starts with the formation of

partnership, after which buying and selling of the equity take place

between the two partners. It is therefore necessary that this buying and

selling should not be stipulated in the partnership contract. In addition,

the buying and selling agreement must be independent of the partnership

contract. It is not permitted that one contract should be entered into as a

condition for concluding the other. To cover any risks in future, there are

two types of insurance, first MRTT for the cover whole financing and fire

insurance where to cover building.

There are four documents that consumer has to provide to the bank

which are identity card, copy of individual title deed, documentation for

salaried applicants and documentation for self-employed application.

There are different for the documentation for salaried and self- employed

application that Public Bank need. For salaried applicants, the document
that Public bank needed is latest 3 months pay slip, EPF statements (latest

not more 1 year), Tax returns (latest) and employment letter. Finally for

the self-employed applicants, the documents need is latest 1 year tax

return and latest 6 months CASA statements @ 20% of average 6 month

deposits.

There are four term that Public Bank provides for the customer and

the terms are the customer is at least 21 years old, less than 70 years old,

salaried/ self- employed with regular income and earn more than the

minimum income required. The bank will accept application of customers

loan even though it is for the second time. Public Bank still evaluate and

process the application based on the financial statement because the

application might be approved for the second time as the financial has

growth.

In order to make a right decision before proceed an application for

any financing, Public Bank Berhad use Credit Risk Ratio (CRR) to evaluate

customer as the main ratio in their system. CRR is the system used in

Public Bank Berhad that analyse the ability and strength of the customer

towards the loan. The credit officer will key in all the information about the

customer such as their income each month, their other commitments like

car and home financing and personal loan. Besides that, CRR will give a

good result if the applicator has savings or assets. After all the information

processed, the CRR will grading the customer from grade A to E based on

their compatibility for their application. The grade A customer will easily

pass their application for financing meanwhile customer grade B to D will

be discussed in the meeting. Without no doubt, application for grade E

customer will be rejected because of many reasons such as too much

liabilities with limited income or not enough asset to be assigned as a

collateral. Even CRR is the only ratio used, Public Bank Berhad use Central

Credit Reference Information System (CCRIS) first to make an evaluation

of a customer. In simple words, good performance recorded in CCRIS, CRR

will follow the flow. If the customers record of CCRIS is quite bad, The

credit officer will advise the customer to clear up his bad record at least 1

year before apply new application of any debt financing at any banks.

Every transaction that occurs or contract occurs have their own

problems. On behalf of the Public Bank will be facing the problems faced

in advance before and during the process to sign a contract. Public Bank

will try to resolve the problem faced by customers and consider all

opinions from their customers. The problem of customers who neglect to

pay their loan, Public Bank will try to contact them and discuss to

reschedule their payment. However, for customers who do not to

cooperate, Public Bank will send a warning letter at first. If the customers

are still reluctant to pay the loan, then the case would be taken to court

for settlement.

On the other hand, corporate or business loan application slightly

differed from personal loan application. Still using Musharakah

Mutanaqisah contract as their medium of financing, they need special

document for such application. The document required for apply the

business loan is Entity proof Partnership deed / Certificate of

Incorporation / Shops and Establishment certificate. Besides Copy of PAN

Card of Entity, Proprietors / Partners / Directors, Security providers and

guarantors. Finally Address Proof of Entity, Proprietors / Partners /

Directors, Security providers and guarantors. In order to evaluate the

solvency of a company, Public Bank need a document of 3 years Audited /

Provisional Financials (audited financial to include Balance Sheet, Profit

and Loss Account along with schedules and Notes to Accounts, Tax audit

reports, Statutory Audit report). In case of Provisional financials, VAT

returns are also required. Then show the current year performance and

projected turnover on letterhead of the entity. Then show the last 1 year

Income Tax returns of the borrowing entity (along with Computation of

Income and copy of acknowledgment, if filed online, acknowledgment

number is required).

Every loan must be considered with certain criteria. Not all banks

are created equal, but many of them focus on the same areas throughout

the loan review process. Whether the company applying to a bank like a

line of home equity credit, a line of credit for business working capital, a

commercial short-term loan, an equipment loan and real estate financing.

The most fundamental characteristics most prospective lenders will

concentrate focus firstly on credit history. Lenders will want to review

strictly credit history of the company if the business is not a start-up.

Secondly, the bank will review the cash flow history and projections for

the business. The bank will look from the purchase of inventory through

the collection of accounts receivable, most important factor for obtaining

short-term debt financing. The third criteria is the collateral available to

secure the loan. When it comes to obtaining a secured loan, providing

collateral is a must. To a bank, collateral is simply defined as property that

secures a loan or other debt, so that the lender may be seize that

property if the company fail to make proper payments on the loan.

For the companys application, they will analyse the application by

referring to the past three years of the audited financial report of that

particular company and it will consider all the information in that report.

Within the three years, the credit officer will consider the financial report

either it has growth or not (turn over) and they will make a business visit

at the clients business premise as well

Every action there is a result. For this case, if the company does not

pay the debt within the stipulated time, the bank can take the appropriate

action. For example, company A makes a loan to the bank and approved.

Then, company A does not pay the loan on time, the bank can take action

using the Credit Control Department (CDD). Firstly, CCD will negotiate

with the borrower in terms of the rescheduling of payments. If

consultation has been taken and the borrower is still not able to explain

the debt, the bank will send a reminder letter for 3 times. If still no

response from the borrower to pay the debt, the bank can take the case to

court to resolve this problem.