Interest-Free Financing Products
Murabahah Term Financing
A contract between buyer and seller under which the bank/seller sells certain specific goods to the customer/buyer at a sale price based on cost plus agreed profit payable in cash or on any fixed future date in a lump sum or by installments. The agreed profit may be fixed in a lump sum or in a percentage of the cost price of the goods. All the expenses incurred by the seller in acquiring the goods are included in the cost price.
Unique Features
Murabaha Term Financing is financing granted for working capital and/or for the acquisition of commercial and related purpose fixed assets to be repaid within a specific period of time with a profit. The financing is repaid in a lump sum on maturity or in periodic installments (i.e., monthly, quarterly, semi-annually, or annually), depending on the nature of the business and its cash flow. The bank extends Short-Term Murabaha Financing, Medium-Term Murabaha Financing, and Long Term Murabaha Financing.
Murabahah Revolving Financing
Unique Features
Murabaha Revolving Financing facility is a short or medium-term financing facility by which the customer may use the financing for the purchase of merchandise, raw materials, consumables, etc. to overcome the applicant’s working capital constraint.
Murabaha Revolving Financing Facility is similar to Murabaha Term Financing, but in case of the former limit is set and it has a revolving nature.
Murabaha Revolving Financing Facility shall be availed for a maximum period of one year and reviewed every year unless the ank demands it to be reviewed in less than this period by the Financing approval team for any remedial action when the performance of the account is deteriorating.
Murabahah Import Letter of Credit Financing
Unique Features
Murabaha Import Letter of Credit is a facility that the bank extends to applicants who engaged in the import business or other applicants who import for various purposes using the bank’s funds, at zero percent margins paid, based on markup agreement. But the customer shall deposit 30% Hamish Jiddiyyah deposit or based on the IFB financing approving committee decision.
Murabaha financing requires the bank and the customer/importer to sign at least two agreements separately, one for the purchase of the goods to be imported and the other for appointing the importer as the bank (agency agreement). Once these two agreements are signed, the importer can negotiate and finalize all terms and conditions with the exporter on behalf of the bank.
The bank extends one-time or revolving Murabaha Import Letter of Credit facilities
Murabahah Pre-Shipment Export Financing
Unique Features
Murabaha pre-shipment export financing is a facility extended for the purchase of raw materials and/or exportable goods.
The selling price of the exportable item shall be within the acceptable range. It shall be confirmed by the National Bank of Ethiopia (NBE) or ECX (Ethiopian Commodity Exchange) or the concerned government organ.
Murabaha financing requires bank and exporter to sign at least two agreements separately, one for the purchase of goods to be exported and the other for appointing the exporter as the bank (that is agency agreement). Once these two agreements are signed, the exporter can negotiate and finalize all the terms and conditions with the importer/seller of goods on behalf of the bank.
Murabaha pre-shipment export financing against the sales contract can be one-time or revolving.
Murabaha Post Shipment/Revolving Export Financing
Unique Features
Murabaha Post Shipment (Revolving Export Facility) is an advance extended to exporters upon presenting acceptable export documents, except a bill of loading. The facility should be advanced against valid export documents.
In the case of post-shipment, Murabaha cannot be executed for goods already exported. However, Murabaha can be executed for the new purchase required for the next shipment against the assignment of proceeds that are not yet collected from the earlier shipments.
The exporter/customer appoints the bank as his/her/its agent to collect the proceeds on his/her/its behalf.
This financing requires banks and exporter to sign at least two agreements separately. One, the applicant will authorize the bank to collect the proceeds on his/her/its behalf as an agent. The second agreement will provide Murabaha financing to the exporter and authorize the bank, keeping for Murabaha financing.
Murabaha Import Letter of Credit Settlement Financing
Unique Features
Murabaha Import Letter of Credit Settlement Financing is a form of financing extended to trade partners/debtors/borrowers by converting the outstanding import letter of credit document’s value to a Murabaha term financing for a maximum period of one year when a customer is unable to clear the L/C documents due to shortage of working capital.
It is granted to existing high-value customers of the bank having financing risk rate- 1 or 2 or 3 who encounter a temporary cash-flow problem to settle the import L/C document value.
Accrued service charge/commission/profit rate on the advance account, if any, shall be fully paid in cash at the time of the request.