Bullet Principal Repayment Product
In addition to the periodic repayment of principal and interest/profit by the seller on loans and debts sold to Cagamas with recourse, the seller can now chose to pay only interest/profit throughout the contract period with principal bullet repayment at maturity of contract. The product variant would give the seller greater flexibility in managing its cashflow and duration matching of assets and liabilities.
The seller can sell housing loans, hire purchase and leasing debts, industrial property loans, Islamic house financing debts and Islamic hire purchase debts either on amortising or non-amortising principal repayment with compulsory replacement features.
At maturity of the contract, the seller has the option to roll-over the contract for another period with the choice of either amortising or non-amortising features at a new Cagamas rate or to repurchase all loans and debts sold under the contract to Cagamas.
Advantages to Seller
- The seller can utilise the sale proceeds for the full tenure of the contract instead of repaying principal and interest over the life of the contract.
- Cost of funds based on Cagamas rate will be reflective of the tenure the seller has contracted for.
- Improves liquidity as principal repayments are delayed.
- Wider options available to seller for asset and liability management.
- Seller can lock in the sale faster since loan profiles are not required to determine the effective cost of funds.
Islamic structure
The seller shall pay monthly instalment to Cagamas which consist of principal and profit. However, under a special arrangement, the principal amount will be reinvested in a Special Investment Account (SIA) with the seller or any appropriate investment account offered by the seller. The investment is targeted to achieve a rate of return that is equivalent to the contracted Cagamas rate. The structure is shown in the diagram below:
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