Special Trade Finance - TKBB...2- Islamic Trade Finance Products (New Frontiers) 2.a Asset Based 2.b...

transcript

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

1- Theory

International Trade Theories

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

Prophet Noah (PBUH)’s Arc: 24,000 TDW

1- Theory

Side Effects of Free Trade: Distribution

Islamic Solution: “Second Best Policy; barriers to Trade” or “Zakah”

1- Theory

Singapore Issues, 1996:

• Transparency in government procurement,

• Trade and investment, and

• Trade and competition

• Trade facilitation

1- Theory

Singapore Issues, 1996:

• Transparency in government procurement,

• Trade and investment, and

• Trade and competition

• Trade facilitation

1- Theory

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)”

2- Islamic Trade Finance Products

• Bai Al-Inah

• Islamic Discounting (Factoring)

• Commodity Murabahah based on Organized Tawarruq

• Mudaraba

• Direct Murabaha

• 2-Step Murabahah

Controversies

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

Asset Based v.s. Asset Backed

2.a Islamic Trade Finance Products (Asset Based)

Payment of

Purchase

Repayment

of Sale Price

Importer Exporter

(1-a) Shipment

(3-a) Repayment of Sale Price

(2-b) Payment of Purchase Price

Bank-A

Notificatio

Request

Mudaraba Agreement

Direct Murabaha

Source: ITFC

2-Step Murabaha to Reach SMEs

(2) ShipmentLMB

Supplier

(4) Payment of Purchase Price

Repayment

of 1st Sale

(1-b) 2nd Murabaha Agreement(1-a) 1st Murabaha Agreement

Repayment

of 2nd Sale

Notification

Request

(3-b) Advise

Source: ITFC

2A. L/C

advised

L/C Copy

ICR3.B

ICR Copy

advised

Document

Lodges claim with

documents

complied

Reimbursement

Payment

Importer

Bank-B’s Correspondent

Bank/Paying Agent

Advising/Negotiating

Exporter

Opening

LMBLMB’s Paying Agent

Disbursement Mechanism (L/C)

Source: ITFC

2A. L/C

advised

L/C Copy

ICR3.B

ICR Copy

advised

Document

Lodges claim with

documents

complied

Reimbursement

Payment

Importer

Bank-B’s Correspondent

Bank/Paying Agent

Advising/Negotiating

Exporter

Opening

LMBLMB’s Paying Agent

Disbursement Mechanism (Documentary Collection)

Source: ITFC

Letter of Credit (L/C)

Source: ITFC

Irrevocable Commitment to Reimburse (ICR)

Source: ITFC

2-Step Export Financing

Source: ITFC

Export Financing

Source: ITFC

2- Islamic Trade Finance Products (Asset Based)

Risk in Asset Based Murabaha

Documents presented

100% Payment

Collection

Account

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

Warehouse

Collateral Manager

Sugar Refinery

Client

2.b Islamic Trade Finance Products (Asset Backed)

Asset Backed Import Financing

Source: ITFC

Managing Price Fluctuation

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

MonthPrice, US cents per

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

7.Offtakers Pay ITFC (principle + mark-up) + remaining amount to the Exporter

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

Asset Backed Export Financing

Source: ITFC

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:

Risk in Asset Backed Murabaha

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

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)

3.b Future Direction (2-Step Murabaha for Liquidity Management)

4a) Shipping

1a) Shipment

Finance Request

5a) Goods Delivery

2a) Security

Margin Invoice

3a) Security Margin

Payment

Local Traders

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

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.”

Email:agundogdu@isdb.org