Exploring novel Islamic finance methods in support of OIC exports
Journal of Islamic Accounting and Business Research
ISSN: 1759-0817
Article publication date: 11 April 2016
Abstract
Purpose
This paper aims to propose a new Islamic trade finance framework for Islamic financial institution (FIs) to support exports in Organisation of Islamic Co-operation (OIC) countries.
Design Methodology Approach:
This paper introduces and proposes the recently developed Islamic finance methods of the supplier financing Wakala agreement, restricted Mudaraba and award-winning Export Credit Agency (ECA) export finance structures from the aspects of Shari’ah compliance, efficiency, simplicity for traders and risk management. This paper uses the approach of critical realism. The three-stratum approach is appropriate for Islamic product development, where the real, the actual and the empirical can be observed.
Findings:
The author argues that the ECA export financing structures, or restricted Mudaraba if preferred, with an embedded supplier financing Wakala agreement can pave the way for Islamic FIs to support exporting companies. It is also concluded that development and support of the Takaful industry are vital for the success of Islamic export financing schemes because of its role in risk management.
Originality Value:
Although very active in import financing with standard Murabaha contracts, Islamic FIs are still not able to meet the need for financing the expanding exports of OIC countries. Because of the difficulty in developing products that are both efficient and Shari’ah-compliant, export financing is the most controversial issue for the Islamic trade finance industry. Existing or proposed export finance products are heavily criticised by concerned Muslims, as they include bill discounting, akin to factoring in conventional finance. This paper introduces methods aimed at overcoming the inadequacy of existing structures.
Keywords
Acknowledgements
Part of this paper was presented at the Sixth Foundation of Islamic Finance Conference held at Durham University, Durham, UK on 2-3 April 2014. The author extends his thanks to the conference organisers and participants for their feedback.
Citation
Gundogdu, A.S. (2016), "Exploring novel Islamic finance methods in support of OIC exports", Journal of Islamic Accounting and Business Research, Vol. 7 No. 2, pp. 78-92. https://doi.org/10.1108/JIABR-04-2014-0015
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited