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Mémoire
Bachelor thesis

Commodity trading firms and Islamic structured trade finance : a contribution to attaining UN’s SDGs

SONAR|HES-SO

    2020

81 p.

Mémoire de bachelor: Haute école de gestion de Genève, 2020

English Over the past decade, some commodity trading firms have increasingly replaced banks in performing financial intermediation across their value chains. Since this role has primarily been fulfilled using prepayment facilities, these financing schemes act as a benchmark to gauge their lending practices. In some countries and commodity markets, prepayment facilities now act as the most readily accessible source of funding for commodity producers and other upstream counterparties. Typically, commodity prepayments are structured in a way which allows the financing commodity trading firms to externalize most of their risk burden and minimize any eventual loss while implicitly exploiting the counterparty’s financing requirements to the extent that the latter’s own bankruptcy may be a contractually implied consequence for safeguarding the interests of the commodity trading firm. Numerous countries and private sector entities are subjected to this form of debt bondage worldwide. As such, this prevailing way of financing commodity trade flows is inherently skewed in favor of the lender and doomed to suppress the economic growth and development of the financed counterparties, implications which significantly hinder the already lagging attainment of the United Nations’ Sustainable Development Goals. Islamic finance, which is based on risk-sharing ventures and interest-free lending practices correlated to real economic outcomes, is inherently aligned with the UN’s SDGs targeted outcomes. Thereby, the United Nations Development Programme (UNDP) committee has been thriving “to position Islamic finance as one of the leading enablers of SDG implementation around the world” (UKIFC, 2020). Considering this effort, an interest-free Shariah-compliant prepayment facility has been suggested to be implemented by commodity trading firms. The facility is based on the bai al salam Shariah-compliant conceptual structure, which is similar to a conventional forward contract, except for the price to be paid upfront to the counterparty to facilitate its working-capital financing needs and readily avail the required supply of commodities. The research performed from a risk management perspective has revealed that the usage of salam-based commodity prepayment facilities in financing commodity trade flows could significantly act as an inclusive means to alleviate poverty, support economic development and growth thus increasing the productivity at national levels and curbing the indebtedness of the financed counterparties.
Language
  • English
Classification
Economics
Notes
  • Haute école de gestion Genève
  • International Business Management
  • hesso:hegge
License
License undefined
Identifiers
  • RERO DOC 329837
Persistent URL
https://sonar.ch/global/documents/314946
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