#IMPORTANT One case study for interest-free post shipment finance!
Let’s assume a valued client, Abdul, of Islamic bank B has prepared an export consignment of 100 million dollars from his own resources or through borrowing from the informal sector; the consignment is almost ready for shipment as per a negotiable L/C already opened and accepted in Abdul’s favour, involving the period of 90 days. Now, for payment of some urgent liabilities, problems in the plant or other unexpected expenses, Abdul needs a huge amount of liquidity within one week and approaches bank B for a solution without the involvement of interest-based discounting. One solution that B can offer is that it purchases the goods from Abdul on a cash payment basis; the L/C would be assigned in its favour, it would appoint Abdul its agent and he would arrange to ship the goods on behalf of the bank. The bank would get its profit margin while purchasing the goods from Abdul and receive the proceeds of the bill after 90 days. In this way, the client would be helped without the involvement of interest.
📓Understanding Islamic Finance
©️Muhammad Ayub
Let’s assume a valued client, Abdul, of Islamic bank B has prepared an export consignment of 100 million dollars from his own resources or through borrowing from the informal sector; the consignment is almost ready for shipment as per a negotiable L/C already opened and accepted in Abdul’s favour, involving the period of 90 days. Now, for payment of some urgent liabilities, problems in the plant or other unexpected expenses, Abdul needs a huge amount of liquidity within one week and approaches bank B for a solution without the involvement of interest-based discounting. One solution that B can offer is that it purchases the goods from Abdul on a cash payment basis; the L/C would be assigned in its favour, it would appoint Abdul its agent and he would arrange to ship the goods on behalf of the bank. The bank would get its profit margin while purchasing the goods from Abdul and receive the proceeds of the bill after 90 days. In this way, the client would be helped without the involvement of interest.
📓Understanding Islamic Finance
©️Muhammad Ayub