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    Conventional Vs Islamic Trade Finance PDF Free

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    JAS 0313
    The document compares conventional and Islamic trade finance instruments. It outlines that conventional instruments generally involve interest charges while Islamic alternatives use profit-and-loss sharing structures like murabahah (cost-plus sale) and bay al dayn (debt sale). For example, where a conventional letter of credit charges interest during transit, an Islamic letter of credit would not charge interest but may charge a late payment fee. Overall, the document shows that Islamic finance seeks to avoid interest but still facilitate trade through alternative contractual structures.

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    Conventional Vs Islamic Trade Finance PDF Free

    Uploaded by

    JAS 0313
    33 views2 pages
    The document compares conventional and Islamic trade finance instruments. It outlines that conventional instruments generally involve interest charges while Islamic alternatives use profit-and-loss sharing structures like murabahah (cost-plus sale) and bay al dayn (debt sale). For example, where a conventional letter of credit charges interest during transit, an Islamic letter of credit would not charge interest but may charge a late payment fee. Overall, the document shows that Islamic finance seeks to avoid interest but still facilitate trade through alternative contractual structures.

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    Pdfcoffee.com Conventional vs Islamic Trade Finance PDF Free

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    The document compares conventional and Islamic trade finance instruments. It outlines that conventional instruments generally involve interest charges while Islamic alternatives use profit-and-loss sharing structures like murabahah (cost-plus sale) and bay al dayn (debt sale). For example, where a conventional letter of credit charges interest during transit, an Islamic letter of credit would not charge interest but may charge a late payment fee. Overall, the document shows that Islamic finance seeks to avoid interest but still facilitate trade through alternative contractual structures.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    33 views2 pages

    Conventional Vs Islamic Trade Finance PDF Free

    Uploaded by

    JAS 0313
    The document compares conventional and Islamic trade finance instruments. It outlines that conventional instruments generally involve interest charges while Islamic alternatives use profit-and-loss sharing structures like murabahah (cost-plus sale) and bay al dayn (debt sale). For example, where a conventional letter of credit charges interest during transit, an Islamic letter of credit would not charge interest but may charge a late payment fee. Overall, the document shows that Islamic finance seeks to avoid interest but still facilitate trade through alternative contractual structures.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    CONVENTIONAL VS ISLAMIC TRADE FINANCE

    WAKALAH
    CONVENTIONAL LETTER OF CREDIT
    ISLAMIC LETTER OF CREDIT

     Agency  Agency
     Transit interest  No transit interest
     Upon negotiation – foreign based  Compensation is claimed for late
    interest payment
     Standard remittance days interest
     Penalty is charged for late payment

    MURABAHAH
    TRUST RECEIPT
    ISLAMIC LETTER OF CREDIT

     Based on simple interest basis  Based on murabahah principle


     Payment of principal plus interest  Mark-up deferred payment sales
    upon maturity (tail end)  Buying and selling
     Interest may be varied after issuance  Payment tail-end
    of the trust receipt. The customer may  Profit fixed
    end up paying more when the interest  Budget is simpler
    rate increases-uncertain profit
     Budget may not be accurate

    BANKER ACCEPTANCE ISLAMIC ACCEPTED BILL

     Based on discounting Purchase & Import


     The customer pays the interest plus  Based on murabahah and bay al dayn
    accepts commission upfront either by principles for purchase and import
    the bank debiting customer’s current  Mark-up deferred payment sales and
    account or utilising overdraft facility sales of debt
     Budget may not be accurate  Full financing to the exact amount
     Payment at tail-end
     Islamic accepted bill draft drawn on
    the customer, Islamic bank is the
    drawer and customer is acceptance

    Sales & Import


     Based on bay al dayn principle or
    sale of debt
     Payment at tail-end
     The Islamic bank is the acceptor and
    the customer, the drawer
    ISLAMIC
    EXPORT CREDIT FINANCING
    EXPORT CREDIT FINANCING

     Purchases foreign bill at a discount ECR-i Pre Shipment


     Overhead finances  Based on murabahah and bay al dayn
     Roll over on CP principles
     Involves interest  Finances the customer on a cost plus
    mark-up basis
     Discounts the bill with Exim Bank on
    Bai al dayn basis or sales of debt
     Does not finance overhead
     No roll-over for CP

    ECR-i Post Shipment


     Bay al dayn concept or sale of debt
     Discounting basis

    CONVENTIONAL
    ISLAMIC BANK GUARANTEE
    LETTER OF GUARANTEE

     Charges commission  Based on kafalah (suretyship) or a


    hybrid concept of al wakalah bi al
    istithmar (investment agency) and
    kafalah (suretyship)
     Charges commission on pro-rata basis
    or changes an agency fee for
    managing the funds

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