RESOLUTION OF BOARD OF NATIONAL BANK OF TAJIKISTAN

of January 13, 2022 No. 2

About the Instruction No. 250 "About procedure for forming and use of reserve and fund of covering of possible losses for assets of Islamic credit institutions"

According to part 2 of Article 34 and article 35 of the Law of the Republic of Tajikistan "About Islamic banking activity", the Board of National Bank of Tajikistan decides:

1. Approve the Instruction No. 250 "About procedure for forming and use of reserve and fund of covering of possible losses for assets of Islamic credit institutions" it (is applied).

2. In accordance with the established procedure to provide this resolution to the Ministry of Justice of the Republic of Tajikistan for state registration and to enact after state registration and the official publication.

3. Authorize department of banking supervision in case of state registration of this resolution in the Ministry of Justice of the Republic of Tajikistan if necessary to bring in its text of appendix of change and amendment of editorial nature, the contents which are not changing it.

4. To assign execution of Item 2 of this resolution to the secretary of Board, department of banking supervision, legal managements and department of the press.

5. To impose control of execution of this resolution on the vice-chairman of National Bank of Tajikistan Tolibzod Firdavs Nazrimad.

Approved by the Resolution of Board of National Bank of Tajikistan for of January 13, 2022 No. 2

The instruction No. 250 "About procedure for forming and use of reserve and fund of covering of possible losses for assets of Islamic credit institutions"

1. General provisions

1. The instruction No. 250 about procedure for forming and use of reserve and fund of covering of possible losses for assets of Islamic credit institutions (further - the Instruction) is developed according to part 2 of Article 34 and article 35 of the Law of the Republic of Tajikistan "About Islamic banking activity" for the purpose of management and supervision of quality of assets in Islamic credit institutions (except for Islamic microcredit institutions and Islamic microcredit funds) and establishes single procedure for forming and use of reserve of Islamic credit risk and fund of covering of possible losses for assets of Islamic credit institutions.

2. In this Instruction the following basic concepts are used:

- reserves under Islamic credit risks - the amount determined for covering of potential losses by risks of assets according to the normative requirements established by National Bank of Tajikistan, and intended in addition to fund of covering of possible losses for assets;

- fund of covering of possible losses for assets (further - fund) - the amount intended as the general fund or special fund for covering of possible losses for Islamic financing, Islamic securities (sukuk), to the received pledges for resale and to other assets according to requirements of this Instruction, other corresponding regulatory legal acts of National Bank of Tajikistan and international accounting standards; Islamic financing - is meant urgent placement, interbank financing, subordinated financing, murabakha, commodity murabakha, idzhara, idzhara of munt, iya bittamlik, mudaraba, musharaka, musharaka of mutanokis, fat, istisna, the Islamic credit (cards Hassan), the mortgage, the letter of credit added, but not gained income, unused credit lines of clients, guarantees issued by Islamic credit institutions and others according to the Islamic principles of financing;

- restructuring of asset - review of terms of the contract (the agreement, the transaction) asset;

- depreciation of cost of asset is inventory of movement of future cash flows according to the changed conditions which is determined by use of initial interest rate and comparison of discount cost with the current asset carrying amount;

- unattended assets (Islamic financing, investments into Islamic valuable papers / the capital of the companies, etc.) - financing, the main amount and (or) profit of which (for unattended financing) are not settled according to the requirement of the agreement. Within this Instruction unattended financing belongs to one of groups of non-standard, doubtful and hopeless financings;

- the general fund - the amount which is created on standard assets and assets under observation (active);

- special fund - the amount which is created on unattended assets, i.e. assets of non-standard, doubtful and hopeless groups.

3. The Islamic credit institution for maintenance of liquidity, assistance in protection of interests of the shareholders and clients, shall reveal timely unattended assets and for the purpose of prevention of the related losses to take necessary measures.

4. The Islamic credit institution shall have the corresponding management structure for identification, assessment, monitoring and control of credit risk of Islamic banking activities.

5. If reasons to believe are had that assets, including the principal debt and the added markups/income, will not be timely extinguished according to the agreement of Islamic financing and (or) the financial position of the client is unsatisfactory, unattended assets are classified as non-standard, doubtful or hopeless.

6. Islamic credit institutions shall develop the corresponding rules and processes for determination of quality of assets and management of them in which acceptance of the following measures shall be provided:

- assessment and classification of assets;

- regular consideration of unattended assets;

- timely creation of proper and reliable levels of fund;

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