Government Bonds SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued g. Securities continued

PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2008 and 2007 Expressed in millions of Rupiah, unless otherwise stated 24

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued l.

Loans continued based on the agreement or approval between Bank Syariah and other party obliging the other party given the funds facility to return the fund over a period of time with reward of ujrah, without reward, or profit sharing. Brief explanation for each type of financing is as follows: Mudharabah is fund placement of lenders maal shahibul to fund managers mudharib to do certain business activity by using profit sharing or net revenue sharing between both parties based on the ratio which has been agreed upfront. Musyarakah is a placement of funds by fund owners to jointly combine these funds for certain business activity with profit sharing scheme based on nisbah which is agreed upfront, while loss is borne by the fund owners based on the proportion of each funds. Ijarah is a leasing arrangement of goods andor services between the owner of lease object including ownership of right to use of the lease object with the lessor for the purpose of obtaining profit for the lease object. Ijarah muntahiya bittamlik is a leasing arrangement between the lessee and the lessor to obtain profit on the lease object being leased with option to transfer ownership of the lease object through purchasesale or giving hibah at certain time according to the lease agreement akad. Murabahah is a financing in the form of salepurchase transaction at cost of the goods plus agreed profit margin. Murabahah receivables are stated at amount of receivables less deferred margin which can be realized. Murabahah receivables are presented net of allowance for losses. Istishna’ is a financing in the form of salepurchase of ordered goods with certain agreed criteria and conditions with payment terms in accordance with the agreement. Qardh is a loanborrowing funds without profit wherein the borrower return the principal of the loan at lump sum or on installment over certain period. Loans Purchased from IBRA Bank Indonesia issued Regulation No. 47PBI2002 regarding “Prudential Principles for Credits Purchased by Banks from IBRA” dated September 27, 2002, which applies for all loans purchased from IBRA starting January 1, 2002. The difference between the outstanding loan principal and purchase price is booked as deferred income if the Bank enters into a new credit agreement with the borrower, and as an allowance for possible losses if the Bank does not enter into a new credit agreement with the borrower. The allowance for loan losses or deferred income is only adjusted once the Bank has recovered the original purchase price. Income arising from the loans purchased from IBRA is recognized on a cash basis. If the Bank enters into a new credit agreement with the borrower, any receipts from a borrower are recognized as a deduction of the outstanding principal andor as interest income following the terms or conditions as set out in the new credit agreement. If the Bank does not enter into a new credit agreement with the borrower, any receipts from a borrower must be recognized firstly as a deduction of outstanding principal. The excess of receipts over the outstanding principal balance shall be recognized as interest income.