1. EXPORT FINANCING

2. Conventional Banks play two very important roles in Exports. They act as a negotiating bank and charge a fee for this purpose which is allowed in Shariah. They act as a negotiating bank and charge a fee for this purpose which is allowed in Shariah. Secondly they provide export- financing facility to the exporters and charge Interest on this service. Secondly they provide export- financing facility to the exporters and charge Interest on this service.

3. These services are of two types: Pre Shipment Financing Post Shipment Financing As interest cannot be charged in any case, Shariah experts have proposed certain methods for financing exports.

4. PRE SHIPMENT FINANCING: Pre shipment financing needs can be fulfilled by two methods,  Musharakah  Morabaha

5. MUSHARAKAH: The most appropriate method for Financing exports is Musharkah or Mudarbah. Bank and exporter can make an agreement of Mudarbah if exporter is not investing, otherwise Musharakah agreement can be made.

6. Agreement in this case will be easy, as cost and expected profit is known. Exporter will manufacture or purchase Goods, and profit that will be obtained by exporting it will be distributed between them according to the pre- determined ratio.

7. One problem faced by the bank is that if exporter is not able to deliver the goods according to the terms and the conditions of the importer then importer can refuse to accept the goods, and in this case exporter’s bank will ultimately suffer.

8. This problem can be rectified by including a condition in Mudarbah or Musharakah agreement that if exporter violates the terms and conditions of Import agreement then the bank will not be responsible for any loss which arises due to this negligence.

9. This condition is allowed in Shariah as the rabb-ul-mal is not responsible for any Loss that arises due to the negligence of mudarib.

10. MORABAHA MORABAHA Morabaha is being used in many Islamic banks for export financing. Banks purchases goods that are to be exported at price that is less than the price, which is agreed between the exporter and the importer.

11. It then exports goods at the original price and thus can earn profit. Morabaha financing requires bank and exporter to sign at least two agreements separately.

12. One for the purchase of goods One for the purchase of goods Other for appointing the exporter as the agent of the bank (that is Agency Other for appointing the exporter as the agent of the bank (that is AgencyAgreement). Once these two agreements are signed, the exporter can negotiate and finalize all the terms and conditions with the importer on behalf of the bank.

13. POST SHIPMENT FINANCING: POST SHIPMENT FINANCING: Post shipment finance is similar to the discounting of Bill of Exchange. Its alternate Shariah compliant procedure is as follows. Exporter with Bill of Exchange can appoint bank as his agent to collect receivable on his behalf.

14. Bank can charge a fee for this service. Bank can provide interest free loan to the Exporter equal to the amount of bill, and exporter will give his consent to the bank that it can keep the amount received from the bill as a payment of loan.

15. Here two processes are separated, and thus two agreements will be made. One will authorize the bank to collect the loan on his behalf as an agent, for which he will charge a particular fee. Second agreement will be for providing Interest free loan to the exporter, and

16. authorizing bank for keeping the amount received through bill as a payment for loan. These agreements are correct and allowed according to Shariah because collecting fee for service and giving interest free loan is permissible.