Modes of Export Finance in Islamic Banking.

(i) Bai-Muajjal (Export): Under this arrangement a Credit is sanctioned against hypothecation of raw materials or finished goods intended for export. Such facility is allowed to first class exporters. As the bank has got no security in this case, except charge documents and lien of export L/C or contract, bank normally insists on the exporter in furnishing collateral security. The letter of hypothecation creates a charge against the merchandise in favour of the bank.

(ii) Bai-Murabaha (Export) : Such Credit facility is allowed against pledge of exportable goods or raw materials. In such cases, Lien of export L/C or Firm contract and Murabaha facilities are extended against pledge of goods to be stored in godown under Bank’s control by signing letter of pledge documents. The exporter surrenders the physical possession of the goods under bank’s effective control as security for payment of bank dues. In the event of failure of the exporter to honour his commitment, the bank can sell the pledge merchandise for recovery of the credit.

(iii) Murabaha Trust Receipt (Export): In this type, Credit limit is sanctioned against Trust Receipt and lien of export L/C or firm contract. In this mode the exportable goods remain in the custody of the exporter. He is required to execute a stamped Export Trust Receipt in favour of the bank, wherein a declaration is made that goods purchased with financial assistance of Bank are held by him in trust for the bank. This type of Credit is granted when the exporter wants to utilize the Credit for processing, packing and rendering the goods in exportable condition and when it seems that exportable goods cannot be taken into bank’s custody. This facility is allowed only to the 1st  class party of the bank and collateral security against this type of investment may be obtained.

(iv) Musharaka Pre-shipment (ECC): It is a type of investment provided by a bank to an exporter for purchase of raw materials, Cost of processing the same to finished goods against lien of specific L/C or firm contract. Collateral security may be obtained against this type of investment considering banker – customer relationship and reputation/track record of the exporter. This type of investment must be adjusted out of the export proceeds within 180 days.

(v) Musharaka Pre-shipment (PC): Investment allowed to a customer against specific L/C or firm contract for packing and despatching of goods to be exported is called Musharaka Pre-shipment (PC). This type of investment allowed against lien of export L/C or firm contract and collateral security may be obtained on the basis of Banker-Customer relationship. This type of investment must be adjusted from the export proceeds within 180 days.

(vi) Foreign Documentary Bill Purchased (FDBP): Payment made to a customer through purchase/negotiation of a Foreign Documentary Bill is FDBP. Temporary investment is adjustable from the proceeds of shipping/export documents.

(vii) Local Documentary Bill Purchased (LDBP): Payment made against documents representing sell of goods to export oriented industries that are deemed as exports and which are denominated in local currency/foreign currency is called LDBP. This temporary liability is adjustable from the proceeds of the bill.

(viii) Back to Back Letter of Credit (BTB L/C): Under the arrangement of Back to Back L/C, the bank finances export business by opening Letter of Credit on behalf of the exporter who has received export L/C from the Overseas buyer. To execute the export order, the exporter have to procure raw materials from outside or inside the country by making lien of the master export L/C. This type of financing is called Back to Back Letter of Credit. BTB L/C must not exceed 75% of the FOB value of the master export L/C and this type of investment to be adjusted from the export proceeds.

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