Tuesday, April 23, 2019

Criteria for Import/Export Services set by Interest Free Banking Service Providers in Ethiopia

Eligibility Criteria for  Islamic Banking Import/Export Service Facility

Customers that require for import/export services should fulfill the following criterions (for all payment methods):

  • Should be in possession of valid foreign trade /Investment /Industry license,
  • Should have Tax Identification Number (TIN),
  • Should not be reported as delinquent by National Bank of Ethiopia (NBE),
  • Should have NBE account number,
  • Should maintain a checking (current) account with the bank.

Product Restrictions set by Interest Free Banking Service


 Importor/Exportor are not allowed to imort/exprt some products inorder to be eligible for the IFB import/export financing services as per IFB Principles.

Import Restrictions 
Export Restrictions
a) Alcohol,
b) pork,
c) gambling, casino,
d) pornography and
e) dead meat
f) Bill of Lading should be Consigned to the Order of the bank (if LC is by Murabaha facility) so that to transfer ownership title by endorsement.
a) Alcohol,
b) pork,
c) gambling, casino,
d) pornography and
e) dead meat



Documentary Credit


Import


According to the concept of Wakalah: the bank will act on behalf of its client who will authorize the bank to represent him in issuing the letter of credit and all its subsequent operations. This includes the terms of the letter of credit that is issued and checking for compliance of documents when a payment claim is made. The bank receives payment/ commission or Ujra for the services provided.

The essence of Wakala is as follows:


a) The customer informs the bank to open the LC and authorizes it to act on his behalf under the Wakalah concept;

b) The customer deposits with the bank the full amount of the L/C to cover the import transaction

c) The bank issues the LC according to the instructions and the advice of its client and according to the terms and conditions agreed upon as found in documents /contract/ confirming the sale provided by the client;

d) After shipment of goods and submission of stipulated documents by the exporter, the bank makes payment using the client’s deposit.

e) The bank will charge its client fees as commission or (Ujra) for the services rendered.

According to the concept of Murabahah:


The bank at the request of their client imports goods for him through an LC established to the seller with whom the buyer has a contract. The bank entirely utilizes its own funds to open the LC and the terms of the LC are in accordance with the terms agreed between the seller and the buyer. The bank blocks the customer’s account by 30% of the invoice value for security purpose (security deposit). This contract is based on the Murabaha facility agreement.

a) Applying the Murabahah contract, the bank, in turn, sells the goods to their client at the price agreed upon, which includes the bank's profit (on mark-up basis). Depending on the terms of the Murabahah, payment can be prompt or deferred.

b) The bank may appoint the client or third party as its agent for importing the commodity/asset on its behalf and both parties sign an Arrangement of Agency.

This facility can be also operated with commission or service charge payments similar to the conventional mode





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