EXPORT

FINANCING
Conventional Banks play two very
important roles in Exports.
 Theyact as a negotiating bank and
charge a fee for this purpose which is
allowed in Shariah.
 Secondly they provide 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, 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 pre-
determined 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
exporter’s 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.