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Export Finance

The Leverage You Deserve

EXPORT FINANCE

As an exporter, you can’t afford to wait until your buyer receives the goods you’ve shipped to receive payment and you certainly can’t wait until the goods are re-sold. But if you could offer terms to your buyers you would rack up more sales. We can bridge that gap by structuring Export Financing that will protect you throughout the deal, provide needed cash flow before shipment, and extend favorable terms to your buyer.

Letter of Credit

DLC is the most widely used instrument in international trade to mitigate financial risk, especially, in a higher amount of transactions. It protects both seller and buyer; the seller gets the payment and the buyer gets the goods. DLC is issued by a financial organization on request of the buyer, providing payment assurance to the seller once all the terms of the agreement are met.

  • Wakalah
  • Murabahah
  • Musharakah

ISLAMIC ALTERNATIVES FOR LETTER OF CREDIT

WAKALAH

Wakalah arrangements are used for Shariah-compliant letters of credit. Under these arrangements, the bank works as an agent for a client, such as a purchaser or supplier of goods. Unlike a conventional agency contract, where interest is paid, in a wakalah arrangement the client pays the banks fees and commissions. In this case the LC will be in customers name, but the full responsibility will be for the bank.

MURABAHA

This is the most common product in Shariah compliant trade finance. With murabahah products, buyers ask banks to import certain goods. The banks do this and then sells the goods to the buyers for a profit. In murabahah contracts, the bank typically uses its own capital to finance the letter of credit for such financing arrangements. In murabahah working capital products, firms are provided with working capital on a similar costplus-profit basis.

MUSHARAKAH

This facility is more suitable for the large buyer who wants investment in their infrastructure, machinery and land. In a mudaraba contract, one party is a financier (silent partner), and the other party (working partner) provides labor and entrepreneurship. But in a musharaka contract, all participants are working partners.

Bank Acceptance

A seller can ask for a BG when he is no sure about the payment form the buyer. BG is a surety bond from the bank where a financial institution also verifies the financial stability of the buyer. It’s a more suitable financial instrument for small buyers or SME’s who can prove their financial health through a bank guarantee. New entrants in the market who wants to do business with corporate clients.

  • Bai’ Dayn (Debt Trading)
  • Murabahah (Cost Plus)

ISLAMIC ALTERNATIVES FOR BANK ACCEPTANCE

BAI' DAYN

Bai`dayn refers to a contract of debt trading created from Shariah compliant business activities. In the context of Islamic finance, bai` dayn is a method of sale of debt created under exchange contracts such as murabahah, ijarah, istisna and others. Being a contract of sale, there must be all the elements or pillars of a sales contract such as legitimacy of contracting parties and offer and acceptance. Between the contracting parties there must be a subject matter of sale, a price, and delivery of the asset. The asset in this case, however, is a financial asset or a debt.

MURABAHA

This is the most common product in Shariah compliant trade finance. With murabahah products, buyers ask banks to import certain goods. The banks do this and then sells the goods to the buyers for a profit. In murabahah contracts, the bank typically uses its own capital to finance the letter of credit for such financing arrangements. In murabahah working capital products, firms are provided with working capital on a similar costplus-profit basis.

Shipping Guarantee

The buyer provides a shipping guarantee. This indemnifies a shipping company, enabling the shipping company to release the indemnified goods to the buyer without a bill of lading. This allows the goods to be collected without the shipping documents, enabling the buyer to reduce delays and save on storage costs.

  • Kafalah

ISLAMIC ALTERNATIVES FOR SHIPPING GUARANTEE

KAFALAH

A financial liability or obligation of the guaranteed party that is already established or that will be established in the future. it is a Performance of a certain act by the guaranteed party and Fulfillment of an obligation by the guaranteed party. Party A purchase goods form Party B on credit basis. While issuing goods on credit, Party B asks for payment guarantee from guarantor. Here guarantor can be a bank or any legit party, who will provide payment assurance to the party B, in case, default of payment from the party A. It can be used by the importer in the bank guarantee, letter of credit and shipping guarantees. Kalafh can be used in other Islamic contracts like Mushrakha, Murabaha, Salam and Ijaraha. It provides payment protection to both importer and exporter.

Documentary Collection

What is DCS? The exporter requests its bank for payment by presenting export documents, the exporter‘s bank will forward these documents to the importer’s bank. The collecting bank releases the documents once the importer clears the payment. Finally, the importer’s bank sends payment to the exporter’s bank which is then credited to the exporter’s account.

  • Wakalah

ISLAMIC ALTERNATIVES FOR DOCUMENTARY COLLECTION

WAKALAH

Wakalah arrangements are used for Shariah-compliant letters of credit. Under these arrangements, the bank works as an agent for a client, such as a purchaser or supplier of goods. Unlike a conventional agency contract, where interest is paid, in a wakalah arrangement the client pays the banks fees and commissions. In this case the LC will be in customers name, but the full responsibility will be for the bank. The customer will show an applicant and has full right to negotiate with supplier directly. Bill of landing will be in the name of bank, but invoice and other documents can be in customer's name.

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