A bank plays two very important roles in Exports. It acts as a negotiating bank and charge a fee for this purpose, which is allowed in Shariah. Secondly it provides export-financing facility to the exporters and charge interest on this service. These services are of two types
- Pre shipment financing
- Post shipment financing
As interest cannot be charged in any case, experts have proposed certain methods for financing exports.
Pre Shipment Financing:
Pre shipment financing needs can be fulfilled by two methods
- Musharakah / Mudarabah
Musharakah / Mudarabah:
The most appropriate method for financing exports is Musharakah or Mudarbah. Bank and exporter can make an agreement of Mudarabah provided that the exporter is not investing; other wise Musharakah agreement can be made. Agreement in such case will be easy, as cost and expected profit is known.
The exporter will manufacture or purchase goods and the profit obtained by exporting it will be distributed between them according to the predefined ratio.
A problem that can be encountered by the bank is that if the exporter is not able to deliver the goods according to the terms and conditions of the importer, then the importer can refuse to accept the goods, and in this case exporter’s bank will ultimately suffer. This problem can be rectified by including a condition in Mudarabah or Musharakah agreement that, if exporter violates the terms and conditions of import agreement then the Bank will not be responsible for any loss which arises due to this negligence. This condition is allowed in Shariah as the Rabb-ul-mal is not responsible for any loss that arises due to the negligence of Mudarib.
Murabahah is being used in many Islamic Banks for export financing. Banks purchases goods that are to be exported at price that is less than the price agreed between the exporter and the importer. It then exports goods at the original price and thus earns profit.
Murabahah financing requires bank and exporter to sign at least two agreements separately, one for the purchase of goods and the other for appointing the exporter as the agent of the bank (that is agency agreement). Once these two agreements are signed, the exporter can negotiate and finalize all the terms and conditions with the importer on behalf of the bank.
Post Shipment Financing:
Post shipment finance is similar to the discounting of the bill of exchange. Its alternate Shariah compliant procedure is discussed below:
The exporter with the bill of exchange can appoint the bank as his agent to collect receivable on his behalf. The bank can charge a fee for this service and can provide interest free loan to the exporter, which is equal to the amount of the bill, and the exporter will give his consent to the bank that it can keep the amount received from the bill as a payment of the loan.
Here two processes are separated, and thus two agreements will be made. One will authorize the bank to collect the loan on his behalf as an agent, for which he will charge a particular fee. The second agreement will provide interest free loan to the exporter, and authorize the bank for keeping the amount received through bill as a payment for loan.
These agreements are correct and allowed according to Shariah because collecting fee for service and giving interest free loan is permissible.
Source: Dr. Muhammad Imran Ashraf Usmani, Meezan Bank’s Guide to Islamic Banking.
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