Procedure for Accounting for Murabaha Transactions

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Date of creation: 2026-05-13

Annex to the Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 29, 2021 No. 2021-P-12/75-2-(NPA)

PROCEDURE for Accounting for Murabaha Transactions

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic dated November 16, 2022 No. 2022-P-12/70-1, and April 27, 2026 No. 2026-P-12/26-3-(NPA))

1. General Provisions

2. This Procedure for Accounting for Murabaha Transactions (hereinafter - the Procedure) applies to banks conducting operations in accordance with Islamic banking and financing principles, including through an "Islamic window" (hereinafter - the Bank).

3. This Procedure establishes the rules for the Bank's accounting for Murabaha transactions and the recognition of income from Murabaha transactions in accordance with the Standards on Accounting, Auditing and Governance for Islamic Financial Institutions developed by the Accounting and Auditing Organization for Islamic Financial Institutions (hereinafter - AAOIFI Standards).

4. The Bank is responsible for developing and implementing internal accounting procedures for Murabaha transactions and internal control systems ensuring compliance with this Procedure.

5. Terms and Definitions

6. The following terms and definitions apply in this Procedure:

arbon - an advance payment made by the client to the Bank, which after concluding a Murabaha contract is credited towards the repayment of part of the client's debt to the Bank. In the event that a Murabaha transaction does not take place, the Bank has the right not to refund the arbon to the client; murabaha - the sale of an asset (goods) on credit/installments, acquired by the Bank upon the client's request or already owned by the Bank at the time of the client's request; markup - the Bank's profit under a Murabaha contract, set as a fixed amount or a share of the asset's (goods') cost price; initial cost - the amount of Murabaha receivables based on the price agreed between the client and the Bank, consisting of the asset's cost and the Bank's markup under the contract; hamish jiddiya - an amount paid by the client to the Bank as evidence of the client's serious intention to conclude a Murabaha contract. In the event that a Murabaha contract is not concluded, the Bank has the right to compensate for incurred losses from the hamish jiddiya, and the remaining amount after compensation is refunded to the client; fair value - the estimated monetary amount for which an asset could be exchanged between a willing buyer and a willing seller in an arm's length transaction after proper marketing, where each party acts knowledgeably, prudently, and without compulsion.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated November 16, 2022 No. 2022-P-12/70-1)

3. Recognition and Subsequent Measurement of Assets Intended for Sale under a Murabaha Contract

4. Assets acquired by the Bank for subsequent sale under a Murabaha contract are recognized at cost with an increase in the balance sheet line item "assets/inventory for subsequent transfer under Murabaha".

5. The cost of the asset must include all acquisition costs and other costs incurred during delivery and bringing it to working condition, insurance expenses, and any other agency expenses and commissions. Any additional indirect expenses must be reflected in the Bank's income statement in the relevant period.

6. A discount received by the Bank when purchasing an asset for further resale cannot be treated as the Bank's income. The Bank must reduce the price of the goods for the client by the amount of the discount, except in cases where there is a corresponding decision of the Shariah Board. If the Bank does not reduce the cost of the asset (goods) intended for transfer to the client under a Murabaha contract by the amount of the discount (discount) received by the Bank for said goods, such discount shall be reflected in the Bank's balance sheet under the line item "deferred income".

7. After initial recognition, an asset (goods) intended for sale under Murabaha is measured as follows:

1. in cases where the Bank's client bears an obligation to acquire the asset at a cost equal to or exceeding its cost price, the Bank must account for the asset at cost, regardless of fluctuations in its fair value, if any. It is considered that the Bank's client bears an obligation to acquire the asset and it is mandatory for them in the event that the Bank, awaiting fulfillment of such obligation, has incurred related costs;
2. in cases where the Bank's client does not bear an obligation to acquire the asset:

• real estate is measured at the lower of net book value (cost less depreciation and impairment losses) and fair value, in accordance with the Regulation "On Specific Transactions/Operations of Commercial Banks and Microfinance Companies of the Kyrgyz Republic with Real Estate", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated August 29, 2012 No. 36/2;
• movable property is measured at fair value. Property described in this sub-item is classified in accordance with the Regulation "On Classification of Assets and Corresponding Provisions for Reserves to Cover Potential Losses and Losses in Operations in Accordance with Islamic Banking and Financing Principles", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2009 No. 51/6.

9. In the event of a client's refusal to conclude a Murabaha contract, the Bank's expenses related to the acquisition of the asset (goods) may be covered from previously received amounts of hamish jiddiya or arbon, in accordance with AAOIFI Standards.

10. Recognition and Subsequent Measurement of Murabaha Receivables

11. The Bank reflects Murabaha receivables and markup in its financial statements after the sale of assets under a Murabaha contract.

12. Murabaha is recognized on the Bank's balance sheet at initial cost:

1. the cost of the sold asset is reflected under the balance sheet line item "Murabaha receivables"/"Murabaha financing";
2. the markup on the asset is reflected in full for the entire financing period under the balance sheet line items "Murabaha markup" in other assets and "deferred Murabaha profit" in other liabilities.

12. After initial recognition, Murabaha receivables are accounted for at the amount of outstanding debt less provisions for potential losses and losses.

13. Operational expenses related to negotiations and concluding a Murabaha contract, less any reimbursements from the buyer, are accounted for in the relevant period.

14. After concluding a Murabaha contract:

1. hamish jiddiya is not subject to offset against receivables, except in cases agreed upon with the client in the contract;
2. arbon must be deducted from the client's receivables.

5. Recognition of Profit from Murabaha

6. Profit from a Murabaha transaction is recognized to reduce the balance sheet line item "deferred Murabaha profit" in the period in which it occurred, regardless of the actual receipt of funds.

7. In accordance with AAOIFI Standards, the Bank must apply the effective interest rate to calculate the profit rate for the transaction regardless of the Murabaha financing period, in accordance with the Regulation "On Calculating the Effective Interest Rate when Disclosing the Amount of Remuneration for Banking Services", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated August 27, 2008 No. 33/4.

8. The amount of discount (concession) granted by the Bank to the client upon early repayment of debt or for any other reason under a Murabaha contract must be reflected in the balance sheet by reducing the line items "deferred Murabaha profit" and "Murabaha markup".

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated April 27, 2026 No. 2026-P-12/26-3-(NPA))

6. Establishment of Reserves to Cover Potential Losses and Losses and Disclosure of Information

7. Murabaha receivables are measured at the end of the reporting period and equal the debt amount less provisions for potential losses and losses established in accordance with the Regulation "On Classification of Assets and Corresponding Provisions for Reserves to Cover Potential Losses and Losses in Operations in Accordance with Islamic Banking and Financing Principles", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2009 No. 51/6.

8. Accrual and recognition of income must be suspended under a Murabaha contract in cases stipulated by the Procedure for Granting Non-accrual Status to Interest Income, approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated April 28, 2004 No. 11/2.

9. For the purposes of asset classification and establishing reserves to cover potential losses and losses, the overdue portion of the markup is understood as the unpaid markup amount exceeding 30 days, calculated as the difference between the balance sheet line items "Murabaha markup" and "deferred Murabaha profit".

10. An asset that is the subject of a Murabaha contract must be transferred to the Bank's other property category in accordance with the Regulation "On Specific Transactions/Operations of Commercial Banks and Microfinance Companies of the Kyrgyz Republic with Real Estate", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated August 29, 2012 No. 36/2, in the event of:

1. the client's refusal to conclude a Murabaha contract after the Bank's purchase of the asset;
2. the client's refusal to fulfill obligations or the client's insolvency - to cover full or partial repayment of debt under the Murabaha contract.

22. The Bank must disclose information on Murabaha financing in its financial statements to enable understanding of the impact of assets placed under Islamic financing principles on the Bank's financial position and performance. The Bank should disclose the size, quality, concentration, and restructuring of the Murabaha credit portfolio, the size of assets (goods) for transfer under Murabaha transactions, the size of deferred profit from Murabaha transactions, and any information material to the Bank's activities.

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