Special Trade Finance - TKBB...2- Islamic Trade Finance Products (New Frontiers) 2.a Asset Based 2.b...
Transcript of Special Trade Finance - TKBB...2- Islamic Trade Finance Products (New Frontiers) 2.a Asset Based 2.b...
Special Trade FinanceBy Dr.Ahmet Suayb Gundogdu
Istanbul Sabahattin Zaim University Summer School 2014, 17-20 June 2014
Content
1- Theory
2- Islamic Trade Finance Products (New Frontiers)
2.a Asset Based
2.b Asset Backed
3- Future Direction
3.a Financing Trade in Services
3.b 2-Step Murabaha for Liquidity Management
3.c 2-Step Murabaha STF Lines
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1- Theory
International Trade Theories
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Mercantilism (pre-16th century)
Free Trade theories
Absolute Advantage (Adam Smith, 1776)
Comparative Advantage (David Ricardo, 1817)
Infant-Industry (Alexander Hamilton, 1790)
Free Trade refined
Factor-proportions (Heckscher-Ohlin, 1919)
International product life cycle (Ray Vernon, 1966)
Gravity Model (Tinbergen (1962) and Poyhonen (1963))
Intra-Industry Trade
Trade Facilitation
1- Theory
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1- Theory
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Prophet Noah (PBUH)’s Arc: 24,000 TDW
1- Theory
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1- Theory
Side Effects of Free Trade: Distribution
Islamic Solution: “Second Best Policy; barriers to Trade” or “Zakah”
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1- Theory
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1- Theory
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Singapore Issues, 1996:
• Transparency in government procurement,
• Trade and investment, and
• Trade and competition
• Trade facilitation
1- Theory
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Singapore Issues, 1996:
• Transparency in government procurement,
• Trade and investment, and
• Trade and competition
• Trade facilitation
1- Theory
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Trade Facilitation:
• Port Efficiency
• Single Window
• Mutual Recognition Agreements
• Etc.
1- Theory
“Those who gorge themselves on usury behave but as he might behave whom Satan has confounded with his touch; for they say, "Buying and selling is but a kind of usury" - the while God has made buying and selling lawful and usury unlawful. Hence, whoever becomes aware of his Sustainer's admonition, and thereupon desists [from usury], may keep his past gains, and it will be for God to judge him; but as for those who return to it -they are destined for the fire, therein to abide! (2:275)”
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2- Islamic Trade Finance Products
• Bai Al-Inah
• Islamic Discounting (Factoring)
• Commodity Murabahah based on Organized Tawarruq
• Mudaraba
• Direct Murabaha
• 2-Step Murabahah
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Controversies
2- Islamic Trade Finance Products
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Commodity Trader-1
Commodity Trader-2
$100 millionImmediate Payment
Sale for $102 millionRepayment Differed
by 12 months
Sale $100 millionCost $102 million
Liquidity Managing
Resource Mobilizing
Commodity Murabaha based on Organized Tawarruq
2- Islamic Trade Finance Products
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Asset Based v.s. Asset Backed
2.a Islamic Trade Finance Products (Asset Based)
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(2)
Payment of
Purchase
Price
(3)
Repayment
of Sale Price
Importer Exporter
RMB
(1-a) Shipment
(3-a) Repayment of Sale Price
(3-b)
(2-b) Payment of Purchase Price
Bank-A
(2-a)
(1-b)
Notificatio
n
(1-b)
Request
Mudaraba Agreement
Direct Murabaha
Source: ITFC
2-Step Murabaha to Reach SMEs
2.a Islamic Trade Finance Products (Asset Based)
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(2) ShipmentLMB
Supplier
SME
RMB
(4) Payment of Purchase Price
(5)
Repayment
of 1st Sale
Price
(1-b) 2nd Murabaha Agreement(1-a) 1st Murabaha Agreement
(6)
Repayment
of 2nd Sale
Price
(3-b)
Notification
(3-b)
Request
(3-b) Advise
Source: ITFC
2.a Islamic Trade Finance Products (Asset Based)
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5.
Goods
2A. L/C
advised
2B.
L/C Copy
3.A
ICR3.B
ICR Copy
3.C
ICR
Copy
4.
L/C
advised
6.
Document
s
7.
Lodges claim with
documents
complied
8.A
Reimbursement
8.B
Payment
Importer
Bank-B’s Correspondent
Bank/Paying Agent
Advising/Negotiating
Bank
Exporter
Local
Bank
1.
L/C
Opening
LMBLMB’s Paying Agent
Disbursement Mechanism (L/C)
Source: ITFC
2.a Islamic Trade Finance Products (Asset Based)
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5.
Goods
2A. L/C
advised
2B.
L/C Copy
3.A
ICR3.B
ICR Copy
3.C
ICR
Copy
4.
L/C
advised
6.
Document
s
7.
Lodges claim with
documents
complied
8.A
Reimbursement
8.B
Payment
Importer
Bank-B’s Correspondent
Bank/Paying Agent
Advising/Negotiating
Bank
Exporter
Local
Bank
1.
L/C
Opening
LMBLMB’s Paying Agent
Disbursement Mechanism (Documentary Collection)
Source: ITFC
2.a Islamic Trade Finance Products (Asset Based)
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Letter of Credit (L/C)
Source: ITFC
2.a Islamic Trade Finance Products (Asset Based)
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Irrevocable Commitment to Reimburse (ICR)
Source: ITFC
2.a Islamic Trade Finance Products (Asset Based)
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2-Step Export Financing
Source: ITFC
2.a Islamic Trade Finance Products (Asset Based)
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Export Financing
Source: ITFC
2- Islamic Trade Finance Products (Asset Based)
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Risk in Asset Based Murabaha
1
Documents presented
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100% Payment
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Collection
Account
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4
Suppliers
1. Client pays DEPOSIT (15% mini up to 35%)2. Raw Sugar is shipped and docs. are presented3. ITFC pays the supplier for the Raw Sugar5. Client pays for delivery of portion of the shipment4. Raw Sugar delivered to Warehouse, CM issues WR to ITFC6. ITFC sends release instruction to CM7. Client takes delivery of the Raw Sugar
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Warehouse
Collateral Manager
Sugar Refinery
Client
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2.b Islamic Trade Finance Products (Asset Backed)
Asset Backed Import Financing
Source: ITFC
LMB
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2.b Islamic Trade Finance Products (Asset Backed)
Managing Price Fluctuation
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3 Months Tenor 6 Months Tenor 9Months Tenor
Mean 0.02318 Mean 0.047556 Mean 0.073397
Standard Error 0.009758 Standard Error 0.014122 Standard Error 0.017636
Standard Deviation 0.18438 Standard Deviation 0.265695 Standard Deviation 0.330408
Sample Variance 0.033996 Sample Variance 0.070594 Sample Variance 0.10917
Kurtosis 2.043237 Kurtosis 0.978302 Kurtosis 2.4579
Range 1.17546 Range 1.370449 Range 2.086337
Minimum -0.33373 Minimum -0.38914 Minimum -0.46684
Maximum 0.841727 Maximum 0.981308 Maximum 1.619497
Sum 8.275393 Sum 16.83491 Sum 25.76241
Count 357 Count 354 Count 351Security Coverage needed 16.12%
Security Coverage needed 21.81%
Security Coverage needed 25.70%
Cash Deposit needed 13.88% Cash Deposit needed 17.91% Cash Deposit needed 20.45%
Managing Price Fluctuation
2.b Islamic Trade Finance Products (Asset Backed)
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MonthPrice, US cents per
Pound
Change in 1 month
Change in 2 month
Change in 3 month
Change in 4 month
Change in 5 month
Change in 6 month
Jan-12 24.02 2.56% -2.04% -8.67% -9.83% -16.80% -18.49%
Feb-12 23.42 -2.50% 0.00% -4.49% -10.95% -12.09% -18.88%
Mar-12 23.79 1.58% -0.96% 1.58% -2.98% -9.54% -10.70%
Apr-12 22.48 -5.51% -4.01% -6.41% -4.01% -8.32% -14.52%
May-12 20.27 -9.83% -14.80% -13.45% -15.61% -13.45% -17.33%
Jun-12 20.1 -0.84% -10.59% -15.51% -14.18% -16.32% -14.18%
Jul-12 22.76 13.23% 12.28% 1.25% -4.33% -2.82% -5.25%
Margin Call for 6 month financing
2.b Islamic Trade Finance Products (Asset Backed)
7.Offtakers Pay ITFC (principle + mark-up) + remaining amount to the Exporter
1.
2.
6.
3.
5.
4.
7.
Warehouse
1.Suppliers/Cooperatives delivers the Coffee Beans into the warehouse.2. The CM issues WR to ITFC3. ITFC pays Cooperatives / Farmers4. Export contracts assigned to ITFC.5. Release Instructions sent to CM 6. Coffee is Exported + Shipping Docs sent
Exporter
Offtakers
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2.b Islamic Trade Finance Products (Asset Backed)
Asset Backed Export Financing
Source: ITFC
LMB
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We hereby inform you that in the context of financing agreement No:XX datedXX/XX/XXX, concluded with the financier, the contract proceeds was assigned to thefinancier. Therefore, you are kindly requested to irrevocably commit to pay any amountpertaining to the contract to in the following account of the financier:
Account Name:A/C No:Bank Name:SWIFT Code:
The Contract No: XXXX
Please sign and stamp below for your confirmation end send it to the financier.
We hereby acknowledge and confirm to pay the proceeds of the above mentionedcontract into the financier account.Name:Signature:Stamp:
2.b Islamic Trade Finance Products (Asset Backed)
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2.b Islamic Trade Finance Products (Asset Backed)
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Risk in Asset Backed Murabaha
2.b Islamic Trade Finance Products (Asset Backed)
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a) Financing Trade in Services
b) 2-Step Murabaha in Stock Exchange as Alternative to Commodity Murabaha in Liquidity Management
c) 2-Step Murabaha STF Lines
3- Future Direction
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Trade in Services scope extends, as classified in GATS, to wider:
(a) from the territory of one Member into the territory of any other Member;
(b) in the territory of one Member to the service consumer of any other Member;
(c) by a service supplier of one Member, through commercial presence in the territory of any other Member;
(d) by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member.
3.a Future Direction (Financing Trade in Services)
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3.b Future Direction (2-Step Murabaha for Liquidity Management)
4a) Shipping
Docs
1a) Shipment
Finance Request
5a) Goods Delivery
2a) Security
Margin Invoice
3a) Security Margin
Payment
Local Traders
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Bonded WarehouseSuppliers
1b) Shipment
Finance Request
2b) Security
Margin Invoice
3b) Security Margin
Payment
4b) Payment 5b) WR
6a) Purchase Request6b) Purchase Request
7a) Sales Invoice 7b) Sales Invoice
8a) Payment8b) Payment
9a) Release
Order
9b) Goods
Release
3.a- Future Direction (2-Step STF Lines)
Source: ITFC
Local Bank
International Bank
“We are ready to suspect any person of being defective in
selfishness.”
THANK
YOU!
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Email:[email protected]