Islamic Accepted Bill is one of the instruments traded on Islamic Inter-bank Money Market (IIMM) and based on the concept of al-Murabahah /Bai’ al-Dayn. Islamic Accepted Bills is an order to a bank by its customer obliging it to pay a certain amount of money to the holder of the acceptances bill. The bank makes payment in lump sum for the goods purchased by its customer on its behalf and sells those goods to the customer on the deferred payment basis. These due payments represent profit for the holders of the Islamic Accepted Bills that are traded in the secondary market to another party. It attracts a very attractive price because it is a negotiable instrument. The customer is, therefore, financed at a very attractive rate.
Islamic Accepted Bill is similar to Bankers Acceptance. Bankers Acceptance is a bill with a certain face value issued by a bank to the customer at a discount. The discounted value of the bill is credited to the customer’s account while the customer pays back the face value at the maturity date. For example a Bankers Acceptance Bill might have a face value of USD 2 millions, while the amount of money credited to the customer’s account is USD 1.9 millions.
The difference between the face value and the discounted value (the amount of money credited to the customer’s account) represent interest payment. Bankers Acceptances are used for project financing and traded on the secondary market. The Islamic Accepted Bill is introduced as an alternative to Bankers Acceptance in view of the need to provide customers an Islamic alternative. The difference between the Bankers Acceptance and Islamic Accepted Bill is the absence of interest payments in the case of Islamic Accepted Bill. Interest is not allowed in Islam and, therefore, the profit in Islamic Accepted Bill is said to be derived from trading which is permissible. The profit by trading is derived through the contracts of Murabahah. Murabahah refers to the sale of a good at a price based on cost-plus profit margin agreed by the both parties. Here the Islamic bank appoints a customer as agent to purchase the goods at cost. The bank guarantees the payment to the supplier. Then, the bank sells the goods to the customer where credit to be settled in say, 90 days. The selling price includes cost and profit which is called a mark-up price. The bank then draws a bill on the customer who accepts the bill at the mark-up price. The holder of the bill, i.e. the bank can sell the bill to the third party at a price not less than the cost. Such sale is based on the bay’ al dayn contract. Bay’ al dayn refers to the sale of a debt arising from a trade transaction with a deferred payment.
Islamic Accepted Bills are widely used in financing imports and exports. It is an alternative to the Bankers Acceptance Bill that is used to finance purchases and sales by conventional banks. Islamic Accepted Bill, however, is used only in transactions involving halal goods and services. Examples of using Islamic Accepted Bills in imports and exports are as follows:
Islamic Accepted Bill-Imports (al-Murabahah / al-Bai’ al-Dayn).
The customer can approach the bank to provide financing for his working capital requirements to import inventories or raw materials. The bank purchases the required goods and settles the purchase price from its own funds. Then, the bank sells the goods to the customer at an agreed price comprising its purchase price and a profit margin and allows the customer to settle this sale price on a deferred term of 30 days, 60 days or 90 days. Lastly, on the due date the customer pays the Bank the agreed sale price on maturity date of the financing. The sale of goods by the bank on deferred payment term constitutes the creation of debt. This debt is securitized in the form of a bill of exchange drawn by the bank on the customer for the full amount of the bank’s selling price payable at the maturity. Islamic Accepted Bills are traded in the secondary market based on bay’ al dayn concept. This makes them an attractive financing instrument with low cost.
Islamic Accepted Bill – Exports or Sales ( al-Bai’ al-Dayn).
The bank finances exports and sales under the principle of al- Bai al-Dayn. Under this bill, an exporter who wishes to avail himself of this facility, prepares export documents as required under the sale of contract or letter of credit. He represents these documents to the Bank to be purchased. As the export documents have to be sent to the buyer overseas, the exporter is requests by the bank to draw another Bill of Exchange drawn on the bank. This bill is known as Islamic Accepted Bill-Exports (IAB-Exports). The IAB-Exports can be traded in secondary market.
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