Skip to main content

Profit Calculation and Distribution

The profit sharing calculation methods were designed to be compliant with Shari'ah rules.

The profit sharing calculation consists of three key stages:

  1. Profit calculation
  2. Profit approval (currently unavailable)
  3. Profit distribution (currently unavailable)

This page describes the first stage - profit calculation.

The purpose of profit calculation in Islamic funding, beyond profit approval and distribution, includes determining the equivalent rate for the Pool profit. This equivalent rate is essential in defining the proportions of profit attributable to specific accounts or investment holders. By calculating the rate, Islamic financial institutions can allocate the profit fairly between different accounts based on their contributions to the Pool, while ensuring compliance with Shariah principles. This process helps maintain transparency and fairness, ensuring that each participant receives their rightful share of the profit in accordance with the risk-sharing structure of Islamic finance.

Profit calculation formula​

Currently we support Equivalent rate for the Pool calculation:

Formula

  • Equivalent rate for the Pool = (Profit amount for the Pool * Days in a year) / (Average balance for the Pool * Days in a month)
  • Profit amount for the Pool = Income for the Pool - Expenses for the Pool
  • Average balance for the Pool = Average balance for the Account 1 + Average balance for the Account 2 + Average balance for the Account 3 + Average balance for the Account 4 + Average balance for the Account 5 + etc.

Data input​

We use data input for profit calculation for specific investment periods.

  1. Utilisation of income from GL accounts: Income recorded in specific GL accounts will be taken into consideration during each investment period. This will ensure that all relevant income is accurately captured for profit allocation.
  2. Inclusion of expenses: any expenses tracked in the associated GL accounts will also be factored into the overall profit calculation, ensuring a comprehensive understanding of net profit.
  3. Average balances of accounts: average account balances will be calculated over the investment period and will be used to distribute income proportionately. This will take into account different balance measures such as Average Daily Balance, Minimum Daily Balance, and End of Day Balance. For more information, refer to Interest Calculation Methods in Deposit Accounts.

Process flow​

The profit calculation process can be triggered manually. If this action is performed during the investment period, the system will return indicative profit calculations. However, if the user needs to calculate the equivalent rate for a Pool with a completed period, they must ensure that the End-of-Day (EOD) process has been finalised.

Income allocation methods​

This section describes how the available income allocation methods are calculated.

  • Average Balance (default): This method calculates profit allocation based on the average balance of accounts over a specified period, typically a month.
    • Example:
      • Income amount: 200.000
      • Pool 1 average balance: 30.000
      • Pool 2 average percentage: 70.000 Pool 1 will receive 30% of the income (60.000), and Pool 2 will receive 70% of the income (140.000).
  • Number of accounts: With this method, profit allocation is determined by the total number of accounts participating in the profit calculation period.
    • Example:
      • Income amount: 200.000
      • Pool 1 has 1M accounts
      • Pool 2 has 9M accounts Pool 1 will receive 10% of the income (20.000), and Pool 2 will receive 90% of the income (180.000).
  • Percentage: This method allocates profit based on the percentage of each pool’s defined share relative to the total income. Pools with higher defined percentages receive a proportionately higher share of the profit.
    • Example:
      • Income amount: 200.000
      • Pool 1 is allocated 20% of the income
      • Pool 2 is allocated 80% of the income Pool 1 will receive 20% of the income (40.000), and Pool 2 will receive 80% of the income (160.000).