Murabaha Local Bill Discounting

Discounting bills of exchange is quite routine activity in conventional banking. A bill of exchange originates with a sale or purchase. The seller draws a bill of exchange asking the buyer to pay a certain amount (value of purchase plus profit) after a certain time period called maturity. When the buyer “accepts” the bill of exchange, it becomes a valid financial instrument that can be traded in the market. The seller now goes to a commercial bank and sells the instrument at a discount to the maturity value. The discount is determined by the rate of interest and the time between date of purchase of the instrument by the bank and the date of maturity. When the bank buys the instrument, it effectively engages in lending at interest “Local Bill Discounting Finance” (LBDF), a new product that we view as a unique & innovative solution in the market among the local Islamic banks. The scope of coverage of this product will be the Islamic Shari’ah compliant version of Conventional Cheque Discounting and / or Invoice Discounting offered.