Export bill financing in Islamic banking: a critical appraisal of Sharìah adaptations

Purpose This study aims to critically investigate various Sharìah adaptations for export bill financing in Islamic banking. This study examines corresponding Sharìah issues and provides recommended Sharìah contracts for export bills financing by Islamic banks. Design/methodology/approach This study uses the qualitative approach. The focus group discussions method is used to collect the primary data. A content analysis method is applied to delve into the related scholarly works, journal articles and books available in Arabic and English. Besides, with a thematic analysis technique, this study developed a few themes to analyse the qualitative data. Findings This study finds that export bill financing through discounting is impermissible for Islamic banking because the discounted amount will be interest (riba). This study posits that a musharakah partnership is the most preferred mode for financing through export bills in Islamic banking, provided the partnership starts from the beginning of the export works and not just at the post-shipment stage. Musharakah is suitable for factoring, invoice financing and bill purchase, as the bank can precisely identify the amount in the bill, profit margin, duration, parties involved and potential risk mitigation techniques. Qard is also applied in export bill financing, provided the service charge received by the bank should be up to the actual cost incurred in collecting the bills. The service charge in qard cannot vary depending on the amount and duration of bill maturity; otherwise, it will be riba. Wakalah is another suitable contract for export bill financing. The bank can charge a wakalah fee, which is flexible and can vary based on the bill amount and its maturity. Nonetheless, if the client needs to buy goods instead of cash, then the bill can be exchanged for the goods, and using a murabahah (mark-up) contract, the bank can facilitate the client’s purchase of the goods. Practical implications Across the globe, Islamic banks provide a significant amount of financing for export and import business, while, as a brand image, ensuring Sharìah compliance is crucial for Islamic banking. This study contributes to ensuring Sharìah compliance in export bill financing operations, which eventually supports maintaining the credibility and reputation of Islamic banking. Ensuring Sharìah complaint income also accelerates Islamic banks’ profitability. In the event of Sharìah non-compliance, whatever revenue is earned shall be disposed of in charity. Originality/value The scarcity of a critical study on Sharìah adaptations of export bill financing in Islamic banking is evident. A few theoretical studies have been found, mainly in Arabic. This study is an unprecedented effort in English to empirically investigate various Sharìah adaptations for export bill financing in Islamic banking and to provide recommended Sharìah contracts. This study will guide all respective stakeholders of Islamic banking to ensure Sharìah compliance in conducting export bill financing operations. As this study is conducted with a small sample size, future studies may be undertaken with diverse contexts to enhance a comprehensive understanding of the issue and investigate further aspects of providing export bill financing through Sharìah-compliant modes.