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Corporate Financing Vs. Trade Financing
Sir, how do you rate two bank (conventional) employees one in Trade Finance and the other selling General Purpose Loans. Trade Finance is used to Finance purchase and sale of goods and services where underlying transactions are known to the bank. The bank either charges a fee or interest to purchase and discount receivables. At maturity, the repayment comes from a repayment by the borrowing company. On the other hand a loan employee issues large amounts of loans to companies for general purposes for medium term say 5 years. These loans are either paid at maturity or refinanced by other loans. My view is that Trade finance is allowed per Shariah while Corporate Lending may not be. Please advise.
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Corporate Financing Vs. Trade Financing
updated 2 years, 4 months ago
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Corporate Financing is generally used in order to allow a company to grow it’s product/service offerings to it’s highest potential. For example, a garment manufacturer may acquire a loan in order to build a new factory due to high demand.
Trade Financing, on the other hand, allows a company to fill the temporary time gap between Accounts Payables and Accounts Receivables. For example, a small garment manufacturer receives a large order and doesn’t have enough money to buy the raw materials as well as fulfill the order, since there will be a time gap between paying for the production costs and receiving funds from the customer.
In principle neither one of these setups fall under the injunction of riba. Since business financing may vary from one institution to another and may also vary according to the opportunity, each loan contract must still be individually validated to make sure that there are no elements of injustice or immorality in it.
Ghamidi sahab has explained riba in a lot of detail in his Response to 23 Questions series. You can view all of these videos in the thread below:
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Thank you very much. You have explained in very clear terms. Also Ghamdi Sahebs 4 videos on Usury are very detailed.
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