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EXPORT FINANCING SOLUTIONS

Expand international operations with having a risk-positive outlook to grow sales in new markets. Our export financing solutions let you increase your capacity, allowing you to take on more export contracts by improving cashflow. We have a higher risk appetite than commercial banks in various market, and can supplement better funding capacity. Our trade specialists have the in-depth knowledge to help you assess emerging market risks and give you the confidence you need to expand your business.

Islamic Export Finance Products

Need

Ensure that the buyer will pay the specified amount 

 

Conventional Product and Description  

Letters of credit provide a conditional payment guarantee to sellers that their buyers will pay the specified amount. This ensures payment is made (for sellers) and goods are provided (for buyers). 

 

Shariah-compliant considerations and alternatives 

Typically, 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. 

 

Risks/ Challenges

For the bank, the main risks are legal and documentation risks. For the buyers and sellers, it is a challenge if the other party is unable to perform their part of the contract (e.g. if the seller is unable to make payment, or the buyer is unable to deliver the goods as specified). 

 

Type of finance 

Both import and export finance

Need

Parties in a transaction do not know each other well, and it is important for them both to rely on the creditworthiness of a bank. 

 

Conventional Product and Description  

A banker’s acceptance is a promissory note that a bank guarantees and accepts, and is usually used for short-term financing of 6 months or less. It states the amount, date and person who should receive payment, and is typically made based on a deposit at the same bank. 

 

Shariah-compliant considerations and alternatives 

An Islamic banker’s acceptance works
on the basis of bai’ dayn (debt trading) and Murabahah (cost-plus- profit) principles. 

 

Risks/ Challenges

Banker’s acceptances are attractive instruments as they are relatively low in credit risk. However, it is still important to ensure the Islamic banker’s acceptance is sought from a reputable bank that can honour the arrangement, especially in OIC countries with lesser-developed financial infrastructures. 

 

Type of finance 

Both import and export finance 

Need

Buyers and sellers need a reliable way of financing their imports and exports through negotiable financial instruments. 

 

Conventional Product and Description  

Accepted bills are negotiable bills of exchange that are used to finance imports and exports. 

 

Shariah-compliant considerations and alternatives 

Islamic accepted bills (also known as “Accepted bills-I”) are used for Shariah-compliant transactions. For imports/ purchases, commodity Murabahah contracts are typically used, while for exports/ sales, bai’ dayn (debt trading) principles are usually used. 

 

Risks/ Challenges

if the company experience solvency problems, e.g. through non-payment by buyers, this creates a credit risk for the bank. 

 

Type of finance 

Both import and export finance 

Need

Manufacturing and trading companies need export credit re-financing to finance their pre- and post-shipment trading activities. 

 

Conventional Product and Description  

Export credit re- financing is a type of short-term financing provided by banks to manufacturing and trading companies to help finance their pre- and post-shipment trading activities. Pre-shipment, it is used to enable the production of goods, and post-shipment, it is used to finance the export of those goods. 

 

Shariah-compliant considerations and alternatives 

The type of Shariah- compliant arrangement used typically depends on whether the purpose is for pre- or post-shipment: for pre-shipment, Murabahah (cost-plus profit) is used, while bai’ dayn (debt trading) principles are used for post-shipment finance. 

 

Risks/ Challenges

Pre-shipment, there can be delays in producing goods or even an inability due to manufacturing problems to produce the goods at all. Post-shipment, foreign buyers may default on payment for goods that were received on a credit basis. Export credit insurance, such as commercial Takaful and Re-Takaful, can help mitigate against this. 

 

Type of finance 

Export finance 

Need

Manufacturing and trading companies need export credit re-financing to finance their pre- and post-shipment trading activities. 

 

Conventional Product and Description  

Export credit re- financing is a type of short-term financing provided by banks to manufacturing and trading companies to help finance their pre- and post-shipment trading activities. Pre-shipment, it is used to enable the production of goods, and post-shipment, it is used to finance the export of those goods. 

 

Shariah-compliant considerations and alternatives 

The type of Shariah- compliant arrangement used typically depends on whether the purpose is for pre- or post-shipment: for pre-shipment, Murabahah (cost-plus profit) is used, while bai’ dayn (debt trading) principles are used for post-shipment finance. 

 

Risks/ Challenges

Pre-shipment, there can be delays in producing goods or even an inability due to manufacturing problems to produce the goods at all. Post-shipment, foreign buyers may default on payment for goods that were received on a credit basis. Export credit insurance, such as commercial Takaful and Re-Takaful, can help mitigate against this. 

 

Type of finance 

Export finance

Need

Sellers need a way to conveniently improve their cash flows by receiving payment upon arrival of goods to the buyer. 

 

Conventional Product and Description  

An outward bill for collection involve the buyer’s bank receiving outward documents, either domestic or foreign in origin, from the seller’s bank. The buyer’s bank then pays the seller based on this receipt of outward bills, either on a spot or future basis. 

 

Shariah-compliant considerations and alternatives 

Typically, Wakalah (agency) contracts are used for Shariah- compliant inward and outward bills financing (also known as “Inward bills-I” and “Outward bills-I”). 

 

Risks/ Challenges

If the specified terms and conditions are not met, e.g. the seller does not submit the proper documents, the buyer’s bank may refuse to process the payment.  

 

Type of finance 

Export finance 

Need

Sellers need a convenient and efficient way to convert their accounts receivable into cash to finance their expenses. Sellers may also not have the full financial capability to purchase goods on their own, and may need capital to do so. 

 

Conventional Product and Description  

The bank and seller may enter into a partnership finance arrangement to purchase goods together. 

 

Shariah-compliant considerations and alternatives 

The bank and the seller have a Musharakah/ partnership arrangement for the sale and purchase of items which are specified by the buyer, and the cost of goods is split between both parties. Profits (or losses) arising from this arrangement are shared following a pre-agreed ratio: this ratio may differ from the ratio of capital provided by the parties. 

 

Risks/ Challenges

As with any risk sharing partnership arrangement, a Musharakah between the bank and an Islamic economy company may incur losses, e.g. if the company is unable to sell its goods. 

 

Type of finance 

Both import and export finance

Process To Secure Trade Finance

Each funding provider has specific requirements and criteria which must be addressed before funds can be advanced to a business.

Application

The process starts with an application from the business to the provider. When applying for trade finance, the provider will ask for a set of information on the company, the individuals involved (Directors) and details on why the business is seeking finance.

Evaluation

The evaluation process will normally involve some kind of credit scoring process, taking into account any vulnerabilities such as the market the business is entering, probability of default and even the integrity and quality of management.

Negotiation

Eligible SMEs applying for trade finance can negotiate terms with provider. An SME’s aim with a provider is to secure finance on the most favourable terms and price

Approved

Once all the due diligence is done, the funding amount will be aproved with all terms and conditions as greed in the signed documented contract. The funds will be issued to business to carry on their trade business.

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