Cagamas purchases conventional personal loans granted for education, medical treatment, pawn broking/Al-Rahn, purchase of consumer durables and other personal consumption.
The selling institutions are required to execute a Master Sale and Purchase Agreement with Cagamas. The personal loans are purchased at their book value i.e. the principal balance outstanding on a date which is closest to the purchase date but not earlier than the end of the month preceding the purchase date. The selling institutions are required to pay instalments (known as "Cagamas Instalments") to the Company at regular intervals. The required rate of return for the Company, which is based on the Cagamas Rate, forms the basis for determining the Cagamas Instalments.
At the Review Date, i.e. at the end of the contracted review period, the selling institutions are given the option to repurchase the pool of personal loans sold to Cagamas if the new rate of interest offered by Cagamas is not acceptable, or continue the contract for a further review period.
Eligibility Criteria of Personal Loans
To be eligible for sale to Cagamas, the personal loans must:
- has arisen in connection with credit terms to a borrower pursuant to an agreement entered between a borrower and the selling institution/the vendor from whom the selling institution has purchased the Personal Loan;
- be fully disbursed;
- not be more than 1 month in arrear at the time of sale;
- have a remaining life which expires on or after the Review Date; and
- Other requirements for a personal loan to be eligible for sale to Cagamas are provided in the Cagamas Personal Loans Guide.
Types of Purchase Facilities Offered by Cagamas
Fixed RateThe Cagamas Fixed Rates are quoted for review periods of 3 to 7 years or any other period as may be prescribed by Cagamas. Alternatively, the selling institution may opt for the fixed published or Cost Plus Cagamas Rate.
Floating RateThe Cagamas Floating Rates are quoted for review periods of 3 to 7 years at a fixed margin above the 3-month or 6-month KLIBOR. The Cagamas Rate is reset once every 3 or 6 months depending on the benchmark of the contract (i.e. 3-month or 6-month KLIBOR).
Convertible RateOnly published Cagamas Rates are available under purchase on convertible rate basis. The option is given to the selling institution to convert the mode of the Cagamas Rate from a fixed rate to a floating rate or vice versa.
Back-to-Back ArrangementThe back-to-back purchase facility enables originators of personal loans who cannot sell their loans directly to Cagamas, to sell their loans through an intermediary financial institution (IFI) for onward sale to Cagamas. The originator is required to execute a Master Agreement with an IFI. Similarly, the IFI is required to execute a Master Sale and Purchase Agreement with Cagamas before it can offer personaL loans for sale to Cagamas. The originator is required to pay the IFI a one-off up front arrangement fee as the arranger of the sale transaction.
Repayment Options Available
The selling institution has the option to pay the instalments in respect of each pool of personal loans sold to Cagamas, on a monthly, quarterly or half-yearly basis, depending on its funding requirements. This option has to be exercised upon entering into the purchase contract with Cagamas.