 In this module, we would look into the treatment of early payment in case of Murabaha and of course this is applicable to other Islamic modes of financing as well. But before I start, let me share with you a very interesting incident that took place in Malaysia a few years back. Someone who had bought a house on the basis of Murabaha Home Financing defaulted. And the bank, in this case, decided to ask the customer to settle. And the settlement price which the bank proposed was actually the full Murabaha price. The customer went to the court saying that I have used this house only for five years. Why the bank is charging me a price which is based on a 25 years tenure. The court took a decision in favor of the customer and asked the bank to reduce the amount of the price because effectively this was an early payment which followed a default. So with this one, we actually come to this early payment treatment in case of Islamic banking and finance with a particular reference to Murabaha. Now in case a customer wants to pay early, regulators require Islamic banks to offer an early payment discount. Although as I mentioned previously, there is no compulsion in Islamic law to require the Islamic bank to offer this discount. If that discount takes place, this should be completely discretionary. There is no entitlement of the customer to this discount. So as I mentioned in the example at the start of this module, the regulators, they do intervene and they ask for some kind of rebate in case a customer would like to settle the financing earlier. Now this rebate offered by Islamic banks is normally equal to the amount outstanding of debt minus an administrative charge. This administrative charge is applicable in case of a default payment penalty as well. Let us look at our example. The customer owes a debt of 500,000 to the bank at the start. The tenure of financing is five years. The customer is a good customer. It is paying its monthly installments like a good citizen until this 50th installment when the customer approaches the bank, maybe calls the bank and says that I have got money. It is a windfall. I have got some extra cash and I would like to settle now instead of after 10 months. The bank says okay, if you have got money, we would be happy to do so and we would be offering you an early payment rebate. At that time, remember the customer has already paid 416,666.66 and the amount outstanding is 83,333.33. 10 months are left. So the bank would be using a formula to calculate the early payment rebate which is quite similar. It is very different but it has some similarities with the default payment penalty. That rebate amount would be equal to murabha rate multiplied with number of days of facility left and divided by total number of days of facility, whole multiplied with amount outstanding of debt. Now if we put, if we plug the numerical values, we are assuming that the murabha rate is 10%. So this goes there 10%. The number of days left, that is roughly 300 days, divided by 1825, the total number of days of the facility. So that would give, of course the amount outstanding at the time of the settlement is this one. So this would give an early payment rebate of 1369 to the bank. So this would be the amount of the rebate which the bank would be offering to a customer who would like to settle early. So settlement amount would be equal to total amount of debt outstanding minus rebate amount which we have calculated plus an administrative charge. So if the customer pays this much money in lump sum, in cash, the facility would be settled early. Remember in this case, there would be a reduction in the price, murabha price settled between the bank and the customer already. However, because of this early payment provision, the bank is willing to offer this amount of rebate as a gesture of goodwill.