International Banking Under Islamic Banking

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international banking under islamic banking

Transcript of International Banking Under Islamic Banking

  • International Banking under Islamic Banking FrameworkDr. Shah Md. Ahsan HabibProfessor & Director [Training] , BIBM

  • International BankingCross Country TransactionCross Currency Transaction

  • Activities Performed by the Banking SectorFacilitation of Trade PaymentFinancing International TradeForeign Exchange Services

  • Rules/System for International Banking- Investment System for Import/Export [BB]

    The importers avail of investment facilities under the Shariah approved Bai-Murabaha and Bai-Muajjal modes; and Hire Purchase. .

    Moreover, Mudaraba, Musharaka (shirkat); Bai Salam and Bai-al-sarf are in use.

  • Rules/System for International Banking- Investment System for Import/Export [BB]

    To accomplish export process/ order as per the terms of L/C and the contract, an exporter needs financial and other banking facilities on urgent basis. Financial assistance/ facilities complying Shariah principles are provided at both Preshipment and Post-shipment Stages by the Islamic Banks under Bai Muajjal, Bai Murabaha, Bai Salam, and Musharaka.

  • Rules/System for International Banking- Investment System for Import/Export [BB]

    ..Besides, the Islamic banks will fully abide by the national and international norms and guidelines relating to export/import business.

  • Rules/System for International BankingDomestic Set of RegulationsInternational Set of Regulations

  • Rules/System for International BankingDomestic Set of RegulationsFERA 1947Export PolicyImport Policy

  • Regulatory Framework International Set of RegulationsUCPDCURRISBPURC

  • Facilitation of Trade PaymentCash in AdvanceOpen AccountDocumentary CollectionDocumentary Credit

  • Cash in AdvanceInterest of Exporter ProtectedInterest of Importer Not ProtectedInsignificant Involvement of Bank No universal Regulation

  • Open AccountInterest of Importer ProtectedInterest of Exporter Not ProtectedInsignificant Involvement of Bank No universal Regulation

  • Documentary CollectionInterest of Importer ProtectedInterest of Exporter better Protected than Open AccountInvolvement of Bank is higherRegulated by URC 522

  • Documentary CollectionImporterExporterCollecting BankRemitting BankPresentingBankPurchase- SaleContract

  • Documentary Credit [LC]Islamic LC allows to procure goods locally as well as imports from overseas providing your supplier an undertaking to pay them upon shipment of goods and presentation of documents complying with the terms of LC. Islamic LC is provided under the Islamic Shariah principle of Wakalah (agency arrangement). a Bai Murabaha agreement is commonly executed at the time of opening LC.

  • Before establishing LC, the bank shall receive an application from the client in prescribed form which shall include : price, Expected sale price of imported goods; expected sale price of the imported goods; Estimated net profit; Capital and profit /loss sharing ratios; The Bank shall, thereafter, receive the equity portion of the client and after completion of documentation shall make payment against the import liability and all expenses related to it as per the Musharaka agreement [BB].

  • Documentary Credit [LC]ImporterExporterAdvisingBankIssuing BankNominatedBankPurchase- SaleContract

  • Documentary Credit [LC]Interest of Importer ProtectedInterest of Exporter Protected Significant Involvement of Bank Regulated by UCP 600


  • The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600 ("UCP") are rules that apply to any documentary credit ("credit") when the text of the credit expressly indicates that it is subject to these rules.

    They are binding on all parties thereto unless expressly modified or excluded by the credit.Application of UCP 600

  • Complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.

    Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation. Important DefinitionsImportant Definitions

  • Honour means to pay at sight; to incur a deferred payment undertaking and pay at maturity; or to accept a bill of exchange ("draft") drawn by the beneficiary and pay at maturity.

    Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.

    Important Definitions

  • ImporterExporterAdvisingBankIssuing BankNominatedBankContract of Reimbursement Purchase- SaleContractCredits v. Contracts

  • Standard for Examination of Documents Banks must examine a presentation on the basis of the documents aloneBank shall each have a maximum of five banking days following the day of presentationPresentation not later than 21 calendar days after the date of shipment, but in any event not later than the expiry date of the creditIn documents other than the commercial invoice are examined in general terms not conflicting with their description in the credit

  • Standard for Examination of DocumentsIf a credit requires presentation of a document without stipulating by whom the document is to be issued or its data content, banks will accept the document if not conflictingA document presented but not required by the credit will be disregarded If a credit contains a condition without stipulating the document banks will deem such condition as not stated and will disregard it.A document may be dated prior to the issuance date of the credit

  • Discrepant Documents, Waiver and NoticeWhen a presentation does not comply, it may refuse to honour or negotiate.When an issuing bank determines that a presentation does not comply, it may in its sole judgement approach the applicant ..When decides to refuse, it must give a single notice to .........the presenterContents of Discrepancy Notice..

  • Documents under UCP 600Commercial InvoiceTransport DocumentInsurance DocumentsOther Documents

  • Disclaimer on Transmission and TranslationForce MajeureDisclaimer for Acts of an Instructed PartyDisclaimer on Effectiveness of Documents

  • Transferable CreditAssignment of Proceeds

  • ISBP 745Application and Issuance of the CreditGeneral Principles Drafts and Calculation of MaturityCommercial InvoiceTransport Documents


  • ICC UNIFORM RULES FOR BANK-TO-BANK REIMBURSEMENTS (URR 725)Direct Reimbursement Bank to Bank Reimbursement URR 725 and UCP 600Effective Date: October 01, 2008

  • LC Procedure and ReimbursementImporterExporterAdvisingBankIssuing BankNominatedBankReimbursingBank

  • ICC Uniform Rules for Collections [URC]

    Publication No. 522

  • .Article 2: Definition of CollectionFinancial documents means bills of exchange, promissory notes, cheques, or other similar instruments used for obtaining the payment of money.

    Commercial documents means Invoices, transport documents, documents of title or other similar documents, or any other documents whatsoever, not being financial documents.

  • Collection ProcedureImporterExporterCollecting BankRemitting BankPresentingBank

  • Import FinancingImporters are financed in the form of Bai-Murabaha Post Import Basis; or Trust Receipt on Bai-Muazzal.

  • Export Financing- Back to BackBank extends Back to Back letter of credit (L/C) facility for producing exportable goods at pre-shipment stage under the mode of Bai-Muajjal. Initially, no financial facility from the Bank is required when the back to back L/C is opened. But if the exporter fails to pay the L/C value at maturity or on due date, the bank provides financial facilities to the client under Bai- Muajjal mode..(BB).

  • Export Financing- Post-Shipment InvestmentBank provides post-shipment investment facilities through Negotiation (FBN) and purchase of export bills. It normally negotiates or purchases the export documents if the documents/bills prepared by the exporter are found in order/correct.[BB]. ..banks commonly use Bai-al-Sarf for negotiation of documents.

  • Foreign Exchange Foreign Exchange MarketForeign Exchange Market ProductsExchange Rate Exchange Rate Management System

  • Foreign Exchange Foreign exchange remittances, spot sale and purchase of foreign currency is allowed; foreign currency forward cover is generally allowed with certain conditions.. Only Actual delivery This must be used only for hedging purposes

  • Foreign Exchange ProductsSpotFutureForwardSwapOption

  • Exchange Rate SystemsFixed HybridFloating PeggingManaged Floating

  • Commodity TradingBanks are allowed to offer commodity swap as part of foreign exchange most cases Islamic scholars do not have objections on Commodity Swap/Forward..Information should be made availableGreater benefits of producers and farmers should be ensured.

  • Thank You