6. Murabaha - Application (Trade Finance)

Application of Murabaha Murabaha

1

Applications of Murabaha • Pu Purch rchase ase of raw mat materi erial; al; for mee meetin ting g work working ing cap capita itall need needs s of of trade and industry. • Med Medium ium to long long ter term m requi requirem rement ents s for for purch purchase ase of land land,, building and equipment. • Tra Trade de

finance fina nce pro produ ducts cts

includi incl uding ng imp import orts, s,

exports expo rts and

alternative to bill purchase. • Fin Financ ancing ing for for consu consume merr durabl durables es can can be offe offered red on on the basi basis s of Murabaha (sale on installments). • Hou House se Fina Financi ncing; ng; for pur purcha chase se of of house house or cons constru tructio ction n material for building a house. 2

Local Purchases

Murabaha Application of Murabaha Agreement for the Purchase of Raw Material 1. The The Custo Custome merr and and the the bank bank sign sign MMF MMFA A Agree Agreemen mentt to Sell Sell & Purchase along with Agency Agreement. 2. Custom Customer er make makes s a writte written n reque request st to the ba bank nk for for the the purchase of Raw Cotton through an Order form. 3. The The bank bank disburs disburses es funds funds amou amounti nting ng to Rs. Rs. 100 mill million ion to to the Agent (usually the Customer) Customer) under Agency Agreement. Agreement. 4. Agent/ Agent/Cus Custom tomer er purch purchase ases s and tak takes es posse possessio ssion n of the the Cotton on behalf of Meezan bank.

4

Murabaha 5. Agent Agent/Cu /Custo stomer mer inf inform orms s Meeza Meezan n bank bank tha thatt it has purchased Cotton of Rs. 100 million and has also taken its delivery/possession on the bank’s behalf through Declaration. The Agent then makes an offer to purchase it at Rs. 105 million to be paid after one year by signing the Murab Mu rabaha aha Con Contra tract ct and sub submit mits s Mur Muraba abaha ha pur purcha chase se evidence in the form of an invoice, bill or some other documentary evidence. 6. Meeza Meezan n bank bank acce accepts pts the the offe offerr and and the the sale sale is concl conclude uded d whereby ownership as well as risk is transferred to the Customer.

5

Import Murabaha

6

Letter of Credit

Import Letter of Credit (LC)

7

Letter of Credit



Conventional Banks earn in two ways while opening Letter Of Credit. They are:  Service

charges for opening an LC

Interest est  Inter

charged on the LCs charged LCs not paid on on due date date

8

Letter of Credit Service Charges

Collecting various service charges (such as documentation charges,

correspondence,

account

maintenance,

credit

assessment charges etc.) for the purpose of opening LC is permissible according to Shariah. However as per the rule of Shariah, bank cannot charge for providing guarantee. At Meezan we have a Shariah approved schedule of charges for LCs. 9

Letter of Credit

SSB has allowed that

the bank may charge service

charges for the following services.



Documentation



Credit Assessment



Correspondence

 Account 

Maintenance Services Maintenance

Monitoring Services

10

Letter of Credit

Profit in LCs 

The bank may need to charge certain profit in case the LC is not settled settled by the importe importerr on time, or if the Nostro Nostro accou account nt of the bank is debited before the importer has made payment to the bank.



In this case appropriate Islamic mode need to be used to charge the profit.

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SIGH SIght GHT LC LC - Basi Ba sics Si Sigh tT LC LC - Ba Basi sics cscs Basics

•

All Si Sight LC LCs are opened under MM MMFA/Agency arrangement, whereby the customer acting as an agent of MBL procures the goods. The ownership of the goods rests with MBL till the time it is sold to t o the customer.

•

In th this is ca case se a val valid id De Decl clar arat atio ion n and and Mu Mura raba baha ha Co Cont ntra ract ct is a must for Murabaha to take place and it needs to be signed at the time of delivery of documents to the customer.

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SIGH SIght GHT LC LC - Basi Ba sics Si Sigh tT LC LC - Ba Basi sics cscs

Basics

•

In ca case se Ij Ijar arah ah is bei being ng do done ne fo forr the the go good ods, s, Mur Murab abah aha a Contract will not be signed since the ownership of asset remains with MBL throughout the Lease period.

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Import Impo rt Mur Murabah abaha a – Sigh Sightt LC LC

•

LCs ope LCs opene ned d and and su subs bseq eque uent ntly ly fin finan ance ced d by by Mee Meeza zan n Ban Bank k are are an ideal example of a direct payment Murabaha.

•

The cus The custo tome merr ope opens ns th the e LC LC fro from m Mee Meeza zan n Ban Bank k as as an an age agent nt of the Bank (i.e. places order with the foreign supplier on behalf of Meezan Bank.

•

Upon re Upon rece ceip iptt of of doc docum umen ents ts Me Meez ezan an Ba Bank nk ma make kes s pay payme ment nt to the foreign supplier.

•

Meezan Meez an Ba Bank nk se sells lls th the e goo goods ds to th the e cus custo tome merr on on Mur Murab abah aha a (i.e. cost plus profit basis) 14


Process Flow: Step 1:

•

Meezan Meez an Ba Bank nk an and d the the cu cust stom omer er wi willll si sign gn a Mas Maste terr Murabaha Finance Agreement for LCs and an agency agreement for the same.

•

As pe perr the the age agenc ncy y arr arran ange geme ment nt th the e cus custo tome merr wou would ld purchase goods from foreign suppliers on Meezan Bank’s behalf by opening LCs with Meezan Bank.

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The customer will negotiate a deal with some foreign supplier (exporter) for the purchase of goods.

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•

Import Impo rter er wi willll re requ ques estt Mee Meeza zan n Ban Bank k to to ope open n L/C L/C by submitting all relevant documents.

•

Insura Insu ranc nce e to be ar arra rang nged ed by th the e im impo port rter er an and d re rele leva vant nt policy to be forwarded along with the L/C application form.

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Meezan Bank will obtain LC opening and other charges from the customer and issue an LC in the favor of the beneficiary(exporter)

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•

On re rece ceip iptt of of L/C L/C ex expo porte rterr wil willl shi ship p the the go good ods s and and de deliv liver er the related shipping documents to the negotiating bank for the payment of bill amount.

•

If th the e doc docum umen ents ts ar are e fou found nd in or orde derr the the ne nego goti tiat atin ing g ban bank k will claim claim reimbursem reimbursement ent from MBL’s MBL’s Nostro Nostro accou account nt and send documents to MBL

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•

On re rece ceip iptt of of doc docum umen ents ts Me Meez ezan an Ba Bank nk wi willll co cont ntac actt the the customer and inform him of the availability of the documents.

•

The cus The custo tome merr wil willl neg negot otia iate te th the e FX FX rat rate e for for th the e req requi uire red d foreign currency amount.

•

Meezan Meez an Ba Bank nk wi willll di disc scus uss s the the pa paym ymen entt ter terms ms wi with th th the e customer and settle the bill

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Import Impo rt Mur Murabah abaha a – Sigh Sightt LC LC Settlement:

•

Incase Inca se Cl Clie ient nt doe does s not not need need an any y fina financ ncin ing, g, cli clien ent’ t’s s a/c a/c will will be debited to settle LC. Declaration should be signed at the time t ime of document delivery.

•

If the the cli clien entt wis wishe hes s to fin finan ance ce LC LC aga again inst st ava availa ilabl ble e Mur Murab abah aha a Limit, sub-Murabaha should be issued. Issuance of SubMuraba Mur abaha ha mea means ns sign signing ing of Mura Murabah baha a Con Contra tract ct by by the the customer and the acceptance of its offer to purchase by MBL. Profitt will be charg Profi charged ed from from the the day day MBL’ MBL’ Nostro was debite debited d to the Murabaha settlement date

•

MBL wil MBL willl rele releas ase e the the sh ship ippi ping ng do docu cume ment nts s to th the e cus custo tome merr and and record a Murabaha receivable.

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Import Impo rt Mur Murabah abaha a – Sigh Sightt LC LC Settlement:

If MBL’s fund funds s are involved involved (other (other than Murabaha Murabaha Financi Financing), ng), two situations could arise: a) No Nost stro ro De Debi bite ted d be befo fore re Cl Clie ient nt se sett ttle les s:

•

MBL wil MBL willl dis discu cuss ss th the e pay payme ment nt da date te wi with th cu custo stome merr and and iss issue ue a Sub-Murabaha.

•

Issuanc Issua nce e of Su Subb-Mu Mura raba baha ha me mean ans s sig signi ning ng of Mu Mura raba baha ha Contract by the customer and the acceptance of its offer to purchase by MBL. Profit will be charged from the day MBL’ nostro was debited debited to the Murabaha Murabaha settlement date. date.

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Import Impo rt Mur Murabah abaha a – Sigh Sightt LC LC Settlement: b) Payment Against Document Documents(PAD): s(PAD):

• Sub-M Sub-Mura urabah baha a wil willl be boo booked ked on the da day y the cus custom tomer er can arrange funds and shipping documents will be released, after getting getti ng Murabah Murabah Cont Contract ract signed, signed, on the same day. day. • The The price price wil willl inclu include de prof profit it from from the the day Mee Meezan zan Ba Bank’s nk’s Nostro account was debited debited till the Sub-Murabaha settlement date.

23


Special Cases Shipping Guarantees or Delivery Order(DO):

• If the the goods goods have have arrive arrived d prior prior to to the shipp shipping ing docume documents nts the the customer may request Meezan Bank to issue a shipping guarantee or delivery order. • In such such cases cases Meez Meezan an Bank Bank will will take take 110% 110% marg margin in from from the customer and execute a Sub-Murabaha based on the FX rate prevailing on that date. The selling price will be fixed at that stage.

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• In thi this s case, case, Mur Muraba abaha ha Con Contra tract ct must must be sig signed ned at the the tim time e of issuance of DO / SG and should not be postponed till the document arrives. arrives.

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• If howev however, er, upon upon arri arrival val of of the docu documen ments ts the cost cost of of the goods comes out to be higher or lower than the cost price of the Sub-Murabaha, Meezan Bank will settle the difference with the customer by paying or receiving the differential amount subject to a Cap & Floor. • This This adjus adjustme tment nt in price price afte afterr the execu executio tion n of Muraba Murabaha ha is possible because Murabaha is a cost plus profit transaction and if after the execution of the Murabaha the seller discovers that the cost was higher or lower he can settle the difference with the buyer 26

Contract Price

Cost Price should include Insurance, LC opening and miscellaneous charges. If the client has already paid above charges from his own sources then profit will be calculated keeping in view the financing amount. An illustration of the above process is as follows:

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Contract Price LC Amount= Rs. 1,000,000 LC Opening Charges= Rs. 2,500 Insurance= Rs. 2,000 Miscellaneous charges= Rs. 1,000 Total Cost= Rs. 1,005,500 

 

Assuming that the client has paid all charges upfront, and needs financing for a period of 30 days against the LC at 10% p.a. The profit for the period will be Rs. 8,220. The total Murabaha contract price would be Rs. 1,013,720. If the client wishes to pay on spot then the goods will be sold to him at Rs. 1,005,500. 28

Key Point

LC Opening 

At the time of opening LC, it must be specified on the LC opening form / Transaction approval sheet whether LC is being opened under MMFA/Agency arrangement or without it.

29

Murab Mu rabah aha a – FIM (P (Ple ledg dge) e) (Financing Against Imported Merchandize)

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Muraba Mur abahaha- FI FIM M (Pledge (Pledge))

Murabaha FIM: (Financing Against Imported Merchandize)

• A Murabah Murabaha a facility facility in PKR PKR which which the subject subject matte matter, r, which which is an imported good, is sold to the customer and then after the delivery the same goods are kept under a pledge arrangement as a security.

31

Muraba Mur abahaha- FI FIM M (Pledge (Pledge)) General Process Flow:

• The bank will appoi appoint nt importer importer as as its agent agent to impo import rt the good goods s on its behalf. In this step, Agreement to Murabaha and an Agency Agreement will be signed. signed. • Exporter Exporter will will ship ship goods goods and will send send docum documents ents (B/L) to the the bank through negotiating bank. • Upon Upon receip receiptt of B/L B/L bank bank and the the custo customer mer will will execu execute te declaration.

32

Muraba Mur abahaha- FI FIM M (Pledge (Pledge)) General Process Flow: Cont…

• The sale price price in in declarat declaration ion corresp corresponds onds to the the number number of days days customer wants to avail financing. • Upon execu execution tion of declara declaration tion bank bank will will release release the docum documents ents to the customer and customer will receive the goods, which will be kept under under a pledge pledge arrangemen arrangementt under bank’s bank’s muccudam muccudam as a security for payment of the Murabaha price. • As pe perr the the mur murab abah aha a co cont ntra ract, ct, cu custo stome merr pay pays s the the mur murab abah aha a price on time and subsequently goods are released from MBL’s pledge.

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Mura Mu raba baha ha – FI FIM M (SP (SPOT OT)) (Financing Against Imported Merchandize)

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Muraba Mur abahaha- FIM (S (SPOT POT))

Murabaha FIM-SPOT: (Financing Against Imported Merchandize)

• A Muraba Murabaha ha facilit facility y in PKR in which which the the subject subject matte matter, r, which which is is an imported good, is kept under a pledge arrangement before selling to the customer and the goods are reflected in the inventory of the Bank. The subject matter is then sold by the Bank to the customer against Spot Payments, as and when required by the customer. “Risk profile “Risk profile is higher higher than than the import import muraba murabaha ha FIM Deffere Deffered d as the ownership of the goods remains with the Bank for a longer of period.”

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Mura Mu raba baha ha – FI FIM M (SP (SPOT OT)) Scenarios

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Case I : With Pledge Margin and Nil Cash Margin

• In this this case case a certa certain in portio portion n of the the importe imported d goods, goods, equi equivalen valentt to the pledge margin is also kept into the pledge along with the whole consignment and financing is provided to the customer net off the margin amount. • Since MBL owns all the the goods goods unde underr the LC, there therefore fore upon receipt of the Documents the customer will provide the Declaration and MBL will handover the documents to the Muccadum Mucca dum who would would then release release the goods, goods, while while customer customer will pay all the duties and taxes as an agent of the bank and all these costs will be added to the cost of the asset.

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Case I : Cont… • Once Once the the goods goods are are relea released sed and and are are recei received ved by our our Mucuddum, MBL will sel selll its its per percen centag tage e own owner ershi ship p in the goods equivalent to the pledge margin amount, LC charges, duties, taxes and other charges (that are paid by the customer as an agent and he does not require financing of these charges) through a specially designed Murabaha Contract (attached as Annexure A). • After execu executing ting this first first sale sale Joint Owne Ownership rship in a specif specified ied ratio ratio will be established on the available goods and will be mentioned in the above mentioned Murabaha Contract.

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Case I : Cont… • The custo customer mer would would also sign a trust trust deed deed (if (if require required) d) for for holding hold ing MBL’s MBL’s share in in the assets. assets. • Upon custom customer’s er’s requ request est for issuan issuance ce of of Delivery Delivery Order from time to time, MBL and the customer will execute a Murabaha Contract for the amount equivalent to the ownership ratio of MBL in the desired lot and MBL will issue the said delivery order for the release of goods.

39

Muraba Mur abahaha- FIM (S (SPOT POT)) Example: ABC opens an import LC of Rs 100,000 with 20% pledge margin i.e. financing finan cing requirement requirement is Rs 80,00 80,000. 0. Upon receipt of documents documents and after after release of goods the break-up of all the costs incurred and paid by the customer as an agent of the bank is as follows: Cost of Goods

: Rs. 100,000

No. of Units

: 100

LC Charges

: Rs. 10,000

(Already paid by the agent)

Takaful Taka ful Pre Premiu mium m

: Rs. 20,000

Already paid by the agent) ( Already

Duties & Clearance Charges

: Rs. 30,000

Already paid by the agent) ( Already

Total Co Cost of of Go Goods

: Rs Rs. 16 160,000

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Muraba Mur abahaha- FIM (S (SPOT POT)) Example: Cont… Pledge Margin Amount of first Sale

: :

Amount of first Sale MBL’s owner ownership ship ratio in goods under pledge after 1st sale MBL Cost per unit as per ownership ration

:

(20% of the LC Value) Rs. 20,000 Pledge Margin Amount +LC Charges +Takaful +Takaf ul Premiu Premium m +Duties +Duties & Clearance Charges Rs. 80,000

:

50%

:

Rs. 800

Delivery Order required for 50 units MBL Cost in 50 Units : 40,000 Total Value of Lot : Rs.80,000 MBL Percentage ratio : 50% in schedule of Assets

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Case II : Where Pledge Margin’s conversion into Cash Margin

• In this this case case LC is estab establis lished hed und under er agenc agency y Agreem Agreemen entt by taking certain cash margin into margin account. At the time of retirement of LC MBL will use its funds with customer’s customer’s cash margin to retire the LC and than amount of goods equivalent to the cash margin would be kept as pledge margin. Once this cash margin is converted into pledge margin the treatment will be same as discussed in Case I.

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Case III : With Cash Margin Only

• In this this case case a certa certain in amoun amountt of mone money y is kept kept as as cash marg margin in in the margin amount and financing is provided to the full value of assets. • In this this case case upon upon recei receipt pt of Docum Document ents s the custo custome merr would would declare the receipt of goods through Declaration and MBL will handover hand over the docume documents nts to the Muccad Muccadum um who woul would d then then release the goods, while customer will pay all the duties and taxes as an agent of the bank.

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Muraba Mur abahaha- FIM (S (SPOT POT)) Case III : Cont… • Once Once the good goods s are rele release ased d and are are received received by by our Mucudd Mucuddum, um, MBL will sell its percentage ownership in the goods equivalent to the LC charges, duties, taxes and other charges (that are paid by the customer as an agent and he does not require financing for these charges) through a specially designed Murabaha Contract (After executing this first sale (attached as Annexure A).

Ownership ratio of the bank and the customer will be established on the available goods and will be mentioned in the above mentioned Murabaha Contract as advised in Case 1).

• The custom customer er would would also also sign sign a trust deed (if require required) d) for holdi holding ng MBL’s MBL ’s sha share re in the the assets. assets. • Upon Upon custome customer’s r’s requ request est for for issuance issuance of of Deliver Delivery y Order Order from time time to time, MBL and the customer will execute a Murabaha Contract for the amount equivalent to the ownership ratio of MBL in the desired lot and will issue the said delivery order for the release of 44 goods.

Muraba Mur abahaha- FIM (S (SPOT POT)) Example:

Cost of Goods No. of Units LC Charges Takaful Premium Duties & Clearance Charges

: : : :

Rs. 100,000 100 Rs. 10,000 Rs. 20,000

(Already paid by the agent) Already paid by the agent) (

:

Rs. 30,000

Already paid by the agent) (

Total Cost of Goods

:

Rs. 160,000

45

Muraba Mur abahaha- FIM (S (SPOT POT)) Example: Cont… Amount of first Sale

:

Amount of first Sale MBL’s owner ownership ship ratio in goods under pledge after 1st sale MBL Cost per unit as per ownership ration

:

LC Charges + Takaful Premium +Duties & Clearance Charges Rs. 60,000

:

62.5%

:

Rs. 1000

Delivery Order required for 50 units : 50,000 MBL Cost in 50 Units Total Value of Lot : Rs.80,000 MBL Percentage ratio in schedule of Assets : 62.5% 46


Case IV : With Pledge Margin arranged by the Customer

• In this this case case the custo customer mer provid provided ed the the goods goods equiva equivalent lent to the the pledge margin amount from his own sources and financing is provided to the full value of assets. However it must be made sure that the goods pledge by the customer as security margin from his own sources must be placed separately from the imported goods under the said LC. • In this this case case upon upon recei receipt pt of Docum Document ents s the custo custome merr would would declare the receipt of goods through Declaration and MBL will handover hand over the docume documents nts to the Muccad Muccadum um who woul would d then then release the goods, while customer will pay all the duties and taxes as an agent of the bank. 47

Muraba Mur abahaha- FIM (S (SPOT POT)) Case IV : Cont… • Once Once the the goods goods are are relea released sed and and are are recei received ved by by our our Mucuddum, MBL will sell its percentage ownership in the goods equivalent to the LC charges, duties, taxes and other charges (that are paid by the customer as an agent and he does not require financing for these charges) through a specially designed Murabaha Contract (attached as Annexure A). (After

executing this first sale Ownership ratio of the bank and the customer will be established on the available goods and will be mentioned in the above mentioned Murabaha Contract as advised in Case 1).

• The custo customer mer would would also sign a trust trust deed deed (if (if require required) d) for for holding hold ing MBL’s MBL’s share in the asset assets. s. 48

Muraba Mur abahaha- FIM (S (SPOT POT)) Case IV : Cont… • Upon custom customer’s er’s requ request est for issuan issuance ce of of Delivery Delivery Orde Orderr from from time to time, MBL and the customer will execute a Murabaha Contract for the amount equivalent to the ownership ratio of MBL in the desired lot (imported goods under LC) and will issue the said delivery order for the release of goods and will simultaneously issue another Delivery Order for the release of goods pledged by customer to maintain the requisite security margin percentage.

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Muraba Mur abahaha- FIM (S (SPOT POT)) Example:

Cost of Goods No. of Units LC Charges Takaful Premium Duties & Clearance Charges

: : : :

Rs. 100,000 100 Rs. 10,000 Rs. 20,000

(Already paid by the agent) Already paid by the agent) (

:

Rs. 30,000

Already paid by the agent) (

Total Cost of Goods

:

Rs. 160,000

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Muraba Mur abahaha- FIM (S (SPOT POT)) Example: Cont… Pledge Margin (Customer Own Soucers)

:

Rs. 20,000

Number of Pledge Units

:

20

Amount of first Sale

:

LC Charges +Takaful Premium +Duties & Clearance Charges

Amount of first Sale

:

Rs. 60,000

MBL’s owner ownership ship ratio in goods under pledge after 1st sale

:

62.5%

MBL Cost per unit as per ownership ration

:

Rs. 1000

(20% of the LC Value)

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Muraba Mur abahaha- FIM (S (SPOT POT)) Example: Cont… Delivery Order required for 50 units

MBL Cost in 50 Units Total Value of Lot MBL Percentage ratio in schedule of Assets

: :

50,000 Rs.80,000

:

62.5%

Delivery Order for Pledge Units

:

Rs.10,000 (For 10 units)

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Import Financing

Solutions for Exporters

53

Islamic Export Refinance Scheme (IERS)

54

Islamic Export Refinance • Th The e first first and and the the only only Shari Shariah ah Comp Complia liant nt Expo Export rt Refi Refinan nance ce Facility available in Pakistan. • Mee Meezan zan Ba Bank nk is the on only ly Islam Islamic ic bank bank curre currentl ntly y practic practicing ing thi this s unique product. • Mee Meezan zan Ban Bank k has has devel develope oped d a prod product uct usi using ng Mur Muraba abaha ha & Istisna to finance exports under Part I & Part II of Export Refinance Scheme. • Mee Meezan zan Ba Bank nk & SBP hav have e creat created ed a join jointt pool pool und under er Musharakah to finance exporters. 55

Islamic Export Refinance The Client Leg

• Having the L/C in hand, hand, the exporter primarily needs funds to: o Pu Purch rchas ase e raw raw mate materia riall o To manu manufactur facture e the the finish finished ed prod product uct • The Bank fulfills the need of the exporter by providing funding through: o Murabaha o Istisna • Mura Murabaha baha is provided provided for purchase purchase of Raw Raw Material Material • Istisn Istisna a is provided provided to manufacture manufacture the required required goods goods 56

Islamic Export Refinance The State Bank Leg

• SBP

will

ente terr

into

a

Musharaka

agre ree ement

with

Meezanbank. • SB SBP P and and the the ban bank k will will inv inves estt in a poo pooll of asse assets. ts. • In Inco come me of th the e poo pooll wi willll be sh shar ared ed ac acco cord rdin ing g to a pr pree- ag agre reed ed profit sharing ratio. • Los Loss s will will be be share shared d accor accordin ding g to the inv invest estmen mentt ratio ratio in the the pool 57

Bill Negotiation

Islamic Alternative to Export Bill Discounting (Based on Murabaha & Bai Salam )

58

Murabaha against Usance Export Bill - an al alte tern rna ati tive ve to Export Bill discounting

59

Usance Bill Negotiation •

Afterr shi Afte shipp ppin ing g goo goods ds as pe perr th the e LC LC/C /Con ontr trac actt ter terms, ms, Exporters do not wish to wait for the proceeds that are expected at some future date.

•

In ord order er to gen gener erat ate e liqu liquid idit ity, y, exp expor orte ters rs bri bring ng Ex Expo port rt Bill Bill to a Conventional Bank’s counter and get them discounted.

•

The Bill The Bill di disc scou ount ntin ing g pro proce cess ss as as foll follow owed ed by con conve vent ntio iona nall banks is not allowed in Shariah as it involves Sale of debt.

•

Howeve Howe ver, r, th the e sam same e pur purpo pose se ca can n be be ach achie ieve ved d thr throu ough gh th the e use of Murabaha. In this transaction, MBL sells the goods required by the Client on Murabaha against a deferred payment in FCY. 60


Meezan Meez an Ba Bank nk is issu sues es a New New Mu Mura raba baha ha to me meet et th the e Liquidity requirement of the Exporter.

•

MBL wil MBL willl disb disbur urse se PK PKR R equ equiv ival alen entt of of US$ US$ to be re real alize ized d after ‘X’ no. of days (after (after agreeing agreeing to a conversion conversion rate). rate).

•

Underr the Unde the Age Agenc ncy y Agr Agree eeme ment nt th the e Exp Expor orte terr wil willl pur purch chas ase e the agreed commodities and submit the Declaration.

•

Afte Af terr offe offerr & ac acce cept ptan ance ce th the e sa sale le wo woul uld d be be co conc nclu lude ded. d.

61


At ma matu turit rity y of of Mur Murab abah aha, a, th the e Exp Expor orte terr w wililll make make rep repay ayme ment nt to MBL. The repayment should not be contingent upon arrival of the LC proceeds.

•

Meezan Meez an Ba Bank nk ma may y ask ask th the e exp expor orte terr to to ass assig ign n its its rec recei eiva vabl ble e (under this LC) to Meezan Bank.

•

It mu must st be un unde derst rstoo ood d tha thatt paym paymen entt of of Mur Murab abah aha a Con Contr trac actt Price is not contingent to the arrival of LC proceeds. In case Bill proceeds do not arrive on time, the Client will have to arrange FCY from his own sources to t o make timely payment.

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Process Flow • •

•

Custome Custo merr app appro roac ache hes s MBL MBL fo forr fin finan ancin cing g aga again inst st spe specif cific ic Export Usance Bill under LC/Contract MBL’ MB L’s s Tr Trea easu sury ry / bra branc nch h TF TF wi willll ne nego goti tiat ate e an an app appro ropr pria iate te exchange rate with the Client. This rate is used to calculate the equivalent PKR amount. On th the e bas basis is of th the e agr agree eed d exch exchan ange ge ra rate te,, ins inste tead ad of discounting the export bill, the bank will extend a new Murabaha facility to the client. The export bill under LC/Contract may be kept as a security to this Murabaha transactio trans action n alongwith alongwith any other other security. security.

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Process Flow •

•

•

The Cli The Clien entt will will su subm bmit it an Or Orde derr For Form m for for di disb sbur urse seme ment nt of the funds funds in PKR upto upto the equivale equivalent nt amount amount of the the Bill (calculated with reference to the agreed exchange rate). MBL MB L wil willl dis disbu burs rse e the the fu fund nds s in in Pak Pak Ru Rupe pees es to th the e cli clien entt under agency or directly to the supplier for purchase of required goods. The Th e Cli Clien entt wil willl mak make e pur purch chas ases es of th the e disb disbur urse sed d fun funds ds (a (as s an Agent of MBL) and furnishes Purchase Evidence and Declaration (as per attached format) for the same with in the duration of the bill period.

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Process Flow •

The Th e Cli Clien entt will will off offer er,, thro throug ugh h Mur Murab abah aha a Co Cont ntra ract ct of of Usan Usance ce bill Murabaha, to purchase the goods in FCY equivalent to the value of the Bill.

•

Afte Af terr con confi firm rmin ing g the the pr pres esen ence ce of go good ods, s, MB MBL L (re (rela late ted d RM/BM) would accept the offer to sell the goods to the client in FCY and Murabaha sale would be executed.

•

On ma matu turi rity ty of Mu Mura raba baha ha,, the the Cl Clie ient nt wi willll ma make ke pa paym ymen entt of of Contract Price in FCY. The Client will assign its receivable against maturity of the Bill to MBL.

65

Usance Bill Negotiation

•

It mus mustt be be und under ersto stood od th that at pa paym ymen entt of of Mur Murab abah aha a Con Contra tract ct Price is not contingent to the arrival of LC proceeds. In case Bill proceeds do not arrive on time, the Client will have to arrange FCY from his own sources to make timely payment.

66

Bai Salam against Sight Export Bill - an al alte tern rna ati tive ve to Export Bill discounting

67

Sight Bill Negotiation •

Expo Ex porte rterr does does not not wis wish h to wa wait it for for the the pa paym ymen entt to be re rece ceive ived d from the LC issuing bank and needs an instant Liquidity.

•

Meez Me ezan an Ba Bank nk wi willll en ente terr into into a Sal Salam am tr tran ansa sacti ction on wi with th th the e customer whereby Meezan Bank will buy FCY from the customer against PKR.

•

The Th e FCY FCY wi willll be be del delive ivere red d on on a spe specif cifie ied d futu future re da date te and and th the e PKR will be paid by MBL full in advance (Spot). The Delivery of FCY should not be contingent upon arrival of the LC proceeds.

68

Sight Bill Negotiation •

No co cons nsid ider erat atio ion n with with re resp spec ectt to th the e del deliv iver ery y dat date e of of FCY FCY wi willll affect the conversion rate of FCY into Pak Rupee.

•

Meez Me ezan an Ba Bank nk ma may y ask ask the the ex expo port rter er to as assi sign gn it its s rece receiva ivabl ble e (under this LC) to Meezan Bank.

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Trade Finance Products TRADE FINANCE

• Imp Import ort Fina Financi ncing ng thro through ugh “Im “Impor portt Murab Murabaha aha & Musha Musharak rakah” ah” • Si Sigh ghtt & Us Usan ance ce LC LCs s - Sh Shar aria iah h Com Compl plia iant nt al alte tern rnat ativ ive e • Shar Sharia iah h Comp Complia liant nt alte altern rnat ativ ive e of Bil Billl Disco Discoun untin ting g – Do Dolla llarr Salam (for Sight Bills) & Murabaha (for Usance Bills) • Isl Islam amic ic Ex Expo port rt Re Refin finan ance ce sch schem eme e – Pa Part rt I & Pa Part rt II

70

Conclusion

71

Conclusion •

Islami Isla mic c bank bankin ing g tran transa sacti ction on are se sens nsit itive ive tr tran ansa sacti ction ons s and and requires extreme care in execution.

•

A sma smallll mi mist stak ake e at at any any sta stage ge ma may y con conve vert rt Mu Mura raba baha ha in into to an interest based loan.

•

It is th the e res respo pons nsib ibililit ity y of of eac each h one one of us to en ensu sure re th that at ou ourr Murabahas are executed in the best manner and the income derived is Halal in true letter and spirit.

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6. Murabaha - Application (Trade Finance)

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