Working Capital 71subsequent spot sale are done in as quick succession as possible.^1 Thirdly,
the original permission to carry outsalamtransactions given by the Prophet
Mohammed was granted specifically so that poor farmers could have access
to funds when they needed them most (ie. in the period before the harvest
when farmers faced many costs, but didn’t have liquidity). Thus,salamby
design was meant to be anarrangement to generate finance for production.
Musharaka
Returning tomusharaka, a somewhat unique product has been developed
recently in Pakistan, that provides a solution for WCF-2, but is also
applicable to WCF-1, thus it can theoretically address all WCF needs^2 , and
can be classified as a WCF-3 product.
The WCF-3 solution based on musharaka is meant to provide an
alternative to the conventional running-finance facility. The mode of
operation of the latter is that customers can withdraw variable amounts of
money, depending on need. In additional, the customer is also able to
replenish or pay back amounts into the finance facility at any time as well.
For these reasons it is commonly referred to as a “running” account. Thus,
the client draws upon and/or refills the running account periodically, and
pays interest to the bank based on a measure of average money utilized over
the duration of the finance facility.
The Shari’a-compliant alternative to such a conventional finance facility
is the recently-designedmusharakarunning finance facility, and would
work as follows. The bank sets up a runningmusharakabank account for
its client business, and sets a finance ceiling or “upper limit” for the client.
The client can draw upon this account up to this limit, and can also pay
money into this account. Thus, the client will use this account to make
payments periodically for various costs it faces from time to time, using his
finance limit. These costs could relate to both WCF-2 needs such as bills,
staff salaries, and advertising, etc, as well as WCF-1 needs such as
inventories, raw materials, equipment, etc. At the same time, the client will
also receive payments for various orders received, and may credit these into
the account, thus replenishing it. On any given day, depending on how much
money the client has used for payments drawn on themusharakaaccount,
and how much money the client has paid back in that day, there will be a
daily balance positionfor the account.
This daily balance position represents the money contributed by the bank
to themusharakathat day, and equals the amount used by the customer
from his/her finance limit, less the amount paid back by the customer into
themusharakaaccount.
(^1) However, it is noted that insalam(as practiced today), unless the client is an agricultural producer, the
seller usually purchases the commodity from the market at the last minute prior to delivery, leading critics
to point out that even insalam, the seller often doesn’t produce the traded good.
(^2) Subject, of course, to the condition that the credit limit set by the bank in favour of the client is sufficient to
cover the needs.