Islamic banking windows may finance foreign trade as per Shariah following import-export and foreign currency policy of the country. Foreign trade may be divided into 3 major categories:
- Import business
- Different services related to foreign trade
- Export Business
Import business
Import business is predominantly conducted through Letter of Credit. A letter of Credit (LC) is a written undertaking given by the Bank to a seller / exporter to the effect that the Bank will pay the seller a certain amount stipulated in the LC, provided that the seller complies with the terms and conditions of the LC. The Bank issues the LC mainly under the following contractual concepts:
- Wakala/ Agency contract
- Murabaha / Bai-Muajjal
- Musharaka
Export business
To accomplish export process / order as per the terms and conditions of the letter of credit (L/C) and the agreement executed between the seller and buyer, an exporter needs financial and other banking facilities on urgent basis. So, it is one of the important functions of a bank to provide investment and banking facilities to the exporter at different stages of export business
An exporter needs financial facilities at two stages of export process – before and after shipment. Hence, financial facilities to export sector complying Shari’ah principles may be classified as:
- Pre-shipment Finance
- Post-shipment Finance
