2.4
Trade Finance
Richard T de Belder, Denton Wilde Sapte LLP
Introduction
With the recent growth in Islamic finance, there are now more Islamic
finance products available, but Islamic trade finance still represents a
significant proportion of Islamic finance transactions. The most common
forms of Islamic trade finance aremurabahaandsalam.
The nature of Shari’a-compliant sale and
purchase agreements
Islamic trade finance can be made available within the parameters that
apply to Shari’a-compliant sale and purchase agreements. Some of the main
features are as follows:
Goods must be in existence
As a general principle, the goods that are the subject of a sale agreement
must be in existence when the agreement is signed. There are some
exceptions to this rule such as:
- Salam– An agreement to purchase a commodity for future delivery but
with payment being made upfront; and
- Istisna’a– This form of agreement is similar tosalamin many respects;
it is a contract for the sale of an item that is still to be constructed or
manufactured. Payment can be immediate or deferred, and payment by
instalments is possible. However, it is different from asalamcontract in
various respects such as:
there is no requirement for the purchase price to be paid when the
contract is entered into;
there is no requirement to stipulate when the asset is to be delivered
(although in practice this is usually done); and
the asset need not be an item that is commonly available in the market.
