International Trade Finance
We would be addressing the trade Finance needs of our target customers who would like to conduct their business transactions in compliance with the Shariah guidelines.
The Murabaha concept has been adopted to create a generic structure that allows for Islamically structured finance deals i.e. spot purchase of commodities/ assets and subsequent sale on deferred payment basis. Apart from that we would also offer financing based on the Tawarukh Process.
Another Islamic process is known is Wakala, where bank would perform agency function on behalf of the customer to undertake transactions.
These structures has been adapted to accommodate customers’ requirement for import finance both on Letter of Credit (LC – Sight or Usance) and open account basis including request for Import Finance Secured against Trust Receipt (IFATR), Invoice Financing, Finance Against Import.
Documentary Letter of Credit (“L/C”)
It is a written undertaking issued by the Bank in favour of the seller (beneficiary) at the request and in accordance with the instructions of the buyer (applicant), to effect payment up to a stated amount within a prescribed time limit and against stipulated documents.
Generally in conventional cases, L/Cs are, by their nature, separate transactions from sales or other contracts on which they may be based and banks are in no way concerned with or bound by such contracts. As such, all financial parties concerned deal with documents, and not with goods. However, in case of Islamic Finance, the Bank has to take the ownership of the goods to be able to facilitate the import transaction in a manner which is compliant with Islamic guidelines.
Import Murabaha Finance
This is short-term trade finance which enables an importer to fulfill his payment obligation under a sight & usnace documentary presentation and allows time for the goods to be cleared, manufactured (in the case of raw materials) and stocked. The importer then sells the goods within the terms of the finance, repaying NIB on or before maturity of the finance. Such Finances are offered in conjunction with Import L/Cs and Import Bills for Collection. NIB takes a charge over the goods by way of a pledge and the security arises when possession of the goods, actual or constructive, is delivered to the Bank. Constructive possession takes place when the documents of title, i.e. a full set of bills of lading consigned to the order and blank endorsed (to the order of NIB) are delivered to NIB.
Finance Against Import ("FAI")
This is provided to finance a drawing under an Import L/C or Import Bill for Collection where NIB retains control of the merchandise, usually in a warehouse approved by NIB with the goods held to the order of NIB. The goods are insured by an acceptable insurer at the expense of the customer. The goods remain in the warehouse until the importer sells the goods to the ultimate buyer.
The features of FAI are:
- The main attraction of FAI is its self-liquidating nature, i.e. when the goods are sold, the sale proceeds are received into the account, thus repaying the finance.
- NIB would provide FAIs upto 80% of the value of the imports unless either approval is obtained or the provision exists under a specific product program.
- The maximum tenor for this product is 180 days. Any exceptions must be documented and require separate credit approval.
Murabaha Finance – Trade Sales
Conventionally known as Factoring is an ongoing arrangement between the client and the factor, where the sales of goods and services are made on open account terms and the invoices for the same are assigned to the factor regularly for the purpose of funding, collection and sales ledger administration.
Under the Murbaha Finance NIB or its assigned/nominated Agent will buy the product from the Supplier (Client) and do a Murabaha sale to the Buyer. NIB will pay the Supplier or the Agent up to 80% of the sale value and the Buyer will pay on deferred payment basis at maturity 100% of the sale value. To cover Buyer’s default risk Insurance Company will cover 90% of the sale value.
Pre-shipment finance against Export LC
Pre-shipment Finance is provided to a customer that intends to export goods, is a beneficiary of an export letter of LC and requires Pre-Shipment Finance to purchase goods or to produce the goods in order to fulfil an export order.
Pre-shipment finance against Export Orders
Pre-shipment Finance is provided to an exporter who is the recipient of an export order as evidenced by a purchase order / contract or equivalent from the importer. The exporter may require Pre-Shipment Finance to purchase goods, or to produce the goods in order to fulfil the export order. The maximum financing would be up to 90% of the individual export order value.
Financing Against Export Bills
This is a post shipment financing where we would finance customer’s export bill under ‘Tawarukh’ mode of Islamic finance. We would only finance the accepted bills by the issuing bank.
