EXPORT EXPORT FINANCINGFINANCING

Conventional Banks play two veryConventional Banks play two very

important roles in Exports.important roles in Exports. They act as a They act as a negotiating banknegotiating bank and charge a fee for and charge a fee for

this purpose which is allowed in Shariah.this purpose which is allowed in Shariah. Secondly they provide Secondly they provide export-financing facilityexport-financing facility to the to the

exporters and charge Interest on this service. exporters and charge Interest on this service.

These services are of two types:These services are of two types: Pre Shipment Financing Post Shipment Financing

As interest cannot be charged in any

case, Shariah experts have proposed

certain methods for financing exports.

PRE SHIPMENT FINANCING:PRE SHIPMENT FINANCING:

Pre shipment financing needs can bePre shipment financing needs can be

fulfilled by two methods,fulfilled by two methods,

MusharakahMusharakah MorabahaMorabaha

MUSHARAKAH:MUSHARAKAH:

The most appropriate method forThe most appropriate method for

Financing exports is Financing exports is MusharkahMusharkah or or

MudarbahMudarbah. Bank and exporter can make. Bank and exporter can make

an agreement of Mudarbah if exporter isan agreement of Mudarbah if exporter is

not investing , otherwise Musharakahnot investing , otherwise Musharakah

agreement can be madeagreement can be made. .

Agreement in this case will be easy,Agreement in this case will be easy,

as cost and expected profit is known.as cost and expected profit is known.

Exporter will manufacture or purchaseExporter will manufacture or purchase

Goods, and profit that will be obtainedGoods, and profit that will be obtained

by exporting it will be distributedby exporting it will be distributed

between them according to the pre-between them according to the pre-

determined ratio.determined ratio.

One problem faced by the bank is that ifOne problem faced by the bank is that if

exporter is not able to deliver the goodsexporter is not able to deliver the goods

according to the terms and the conditions ofaccording to the terms and the conditions of

the importer then importer can refuse tothe importer then importer can refuse to

accept the goods , and in this caseaccept the goods , and in this case

exporter’s bank will ultimately suffer. exporter’s bank will ultimately suffer.

This problem can be rectified by This problem can be rectified by including a condition in Mudarbah or including a condition in Mudarbah or Musharakah agreement that if exporterMusharakah agreement that if exporter

violates the terms and conditions ofviolates the terms and conditions of

Import agreement then the Import agreement then the bank will bank will not be responsible for any lossnot be responsible for any loss which which

arises due to this negligence.arises due to this negligence.

This condition is allowed in Shariah asThis condition is allowed in Shariah as

the the rabb-ul-mal rabb-ul-mal is not responsible for anyis not responsible for any

Loss that arises due to the negligence ofLoss that arises due to the negligence of

mudarib.mudarib.

MORABAHAMORABAHA

Morabaha is being used in many IslamicMorabaha is being used in many Islamic

banks for export financing. banks for export financing.

Banks purchases goods that are toBanks purchases goods that are to

be exported at price that is less than thebe exported at price that is less than the

price, which is agreed between theprice, which is agreed between the

exporter and the importer. exporter and the importer.

It then exports goods at the original priceIt then exports goods at the original price

and thus can earn profit. and thus can earn profit.

Morabaha financing requires bank andMorabaha financing requires bank and

exporter to sign at least two agreementsexporter to sign at least two agreements

separately.separately.

One for the purchase of goodsOne for the purchase of goodsOther for appointing the exporter as the Other for appointing the exporter as the agent of the bank (that is Agencyagent of the bank (that is Agency

Agreement). Agreement).

Once these two agreements are signed,Once these two agreements are signed,

the exporter can negotiate and finalize all the exporter can negotiate and finalize all the terms and conditions with the importer the terms and conditions with the importer on behalf of the bank.on behalf of the bank.

POST SHIPMENT FINANCING:POST SHIPMENT FINANCING:

Post shipment finance is similar to thePost shipment finance is similar to the

discounting of discounting of Bill of ExchangeBill of Exchange. Its. Its

alternate Shariah compliant procedure isalternate Shariah compliant procedure is

as follows. as follows.

Exporter with Bill of Exchange canExporter with Bill of Exchange can

appoint bank as his agent to collectappoint bank as his agent to collect

receivable on his behalf. receivable on his behalf.

Bank can charge a fee for this service.Bank can charge a fee for this service.

Bank can provide interest free loan to theBank can provide interest free loan to the

Exporter equal to the amount of bill, andExporter equal to the amount of bill, and

exporter will give his consent to the bankexporter will give his consent to the bank

that it can keep the amount received fromthat it can keep the amount received from

the bill as a payment of loan.the bill as a payment of loan.

Here two processes are separated, andHere two processes are separated, and

thus two agreements will be made. thus two agreements will be made.

OneOne will authorize the bank to collect will authorize the bank to collect thethe

loan on his behalf as an agent, for whichloan on his behalf as an agent, for which

he will charge a particular fee.he will charge a particular fee.

SecondSecond agreement will be for providing agreement will be for providing

Interest free loan to the exporter, andInterest free loan to the exporter, and

authorizing bank for keeping the amount authorizing bank for keeping the amount

received through bill as a payment for received through bill as a payment for

loan. loan.

These agreements are correct and These agreements are correct and

allowed according to Shariah because allowed according to Shariah because

collecting fee for service and giving collecting fee for service and giving

interest free loan is permissible.interest free loan is permissible.