Other Forms Of Finance

Question 1

Committed facilities

Sometimes known as revolving credit facilities

Answer 1

For a specified period of time it will allow the bank account to go overdrawn up to a stated amount and it will remain in place for the while of the stated period as long as customer is not in breach

Question 2

Uncommitted facilities

Answer 2

Do not charge commitment fees however can be withdrawn by bank anytime usually with 7day notice

Question 3

Acceptance credits

Answer 3

Documentary credits where the beneficiary(supplier) draws a draft on the bank nominated to accept it.
Once documents are compliant with banks acceptance beneficiary can easily raise finance by discounting the draft with nominated bank or other willing banks
Anything from 30days to 180

Question 4

Produce loans for importers

Answer 4

Short term loans to pay suppliers when the debt of the purchase is due which is usually 30-180days.
Offers finance to the importer with the underlying goods being held as security

Question 5

Produce loan procedure

Answer 5

Banks provide customers that are importers with short-term loans to pay suppliers when the debt of the purchase is due

1 bank checks supplier, goods and ultimate buyers

2 bank pays the collection pledged as security to the bank

3 bank credits customers current acc

4 goods are warehoused in banks name

5 agents of bank will arrange to insure the goods and charged to customer

6 good remain in warehouse until delivery time to ultimate buyer. Customer must provide trust receipt

7 bank loses physical control of the goods while being delivered to ultimate buyer

8 ultimate buyer pays the bank directly

Question 6

Commercial paper issues by larger companies

Answer 6

Some very large companies can raise short-term funds by the issue of commercial paper direct to investors.
Unsecured debt security thats has a maturity of less than one year from date of issue. Issued at discount reflecting prevailing market interest rates. Form of promissory note and is discounted with investors

Question 7

Islamic general principles

Answer 7

Islam has left a wide area of human activities to the individuals own rational judgement; on the other, Islam has subjected human activities to a set of principles that have eternal application

Question 8

Islamic finance

Answer 8

Overarching characteristics of Islamic finance is that it is an asset-backed form of financing.
Islamic system is always matched with corresponding goods and services and creates real assets. Contrast with conventional finance as financial institutions does not normally match with real goods and services produced in society

Question 9

Divine guidelines in Islamic finance

Answer 9

Does not allow usury and interest (riba)

Prevention if excess uncertainty (gharar) in contracts

Prohibition of speculative transactions (maysir)

Exclusion of investments that are forbidden in Islam (muharramat)

Question 10

Gharar

Answer 10

Uncertainty that may lead to dispute between contracting parties
‘Unnecessary uncertainty’

Question 11

Musharaka

Answer 11

Ideal instrument-Sharing. Joint venture in which all the partners share in the profit and loss of the joint venture

Question 12

Mudaraba

Answer 12

A partnership agreement in which one party invests all the capital while the other manages the business

Question 13

Salam

Answer 13

If musharaka not feasible-Sales contract in which payment occurs in the present for goods to be delivered in the future

Question 14

Istina

Answer 14

If musharaka not feasible-Provide a facility for financing the manufacturing or construction of projects. Contract allows cash payment in advance and future delivery or future payment and future delivery

Question 15

Ijara

Answer 15

When musharaka, mudaraba, salam, istina not workable- leasing arrangement in which known benefit arising from a specified asset is made available over an agreed period in exchange for an agreed payment

Question 16

Murabaha

Answer 16

When musharaka, mudaraba, salam, istina not workable- type of sale where the seller expressly mentions to the buyer the cost of goods purchases and adds a profit to it to arrive at the final selling price

Question 17

Barter

Answer 17

One contract is drawn up setting out what will be exchanged for what and giving the terms of the exchange.

Question 18

Counter-purchase

Answer 18

Two separate contracts are involved, one for sale and one for the counter-purchase.
Seller may agree to counter purchase anything between 9% to full value of what has been sold

Question 19

Buyback

Answer 19

Agreements involve the supplier agreeing to take back a percentage of what has been produced

Question 20

Off-set

Answer 20

Where transfer of technology is involved, the seller agrees to incorporate into the end product components or partly manufactured goods made by the buyer to off set the full cost of tech transfer to the buyer