EXPORT FINANCING

Conventional Banks play two very important roles in Exports. They act as a negotiating bank and charge a fee for this purpose which is allowed in Shariah.
Secondly

they provide exportfinancing 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, Shariah experts have proposed certain methods for financing exports.

PRE SHIPMENT FINANCING: Pre shipment financing needs can be

fulfilled by two methods,
Musharakah Morabaha

MUSHARAKAH: The most appropriate method for

Financing exports is Musharkah or

Mudarbah. Bank and exporter can make

an agreement of Mudarbah if exporter is

not investing , otherwise Musharakah

agreement can be made.

Agreement in this case will be easy, as cost and expected profit is known. Exporter will manufacture or purchase Goods, and profit that will be obtained by exporting it will be distributed between them according to the predetermined ratio.

One problem faced by the bank is that if exporter is not able to deliver the goods according to the terms and the conditions of

the importer then importer can refuse to

accept the goods , and in this case

exporters bank will ultimately suffer.

This problem can be rectified by including a condition in Mudarbah 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.

 MORABAHA

Morabaha 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, which is agreed between the exporter and the importer.

It then exports goods at the original price and thus can earn profit.

Morabaha financing requires bank and

exporter to sign at least two agreements

separately.

One

for the purchase of goods

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 Bill of Exchange. Its

alternate Shariah compliant procedure is

as follows.
Exporter with Bill of Exchange can

appoint bank as his agent to collect

receivable on his behalf.

Bank can charge a fee for this service.

Bank can provide interest free loan to the

Exporter equal to the amount of bill, and

exporter will give his consent to the bank

that it can keep the amount received from

the bill as a payment of 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.

Second agreement will be for providing Interest free loan to the exporter, and

authorizing 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.