Modern Islamic Banking

CHAPTER 7Application of Islamic Products in Corporate Finance

The definition of “corporate finance” varies considerably across the world,¹ with the USA probably using the broadest definition. Generally, corporate finance describes activities, decisions and techniques that deal with many aspects of a company's finances and capital.

Corporate finance includes, but is not restricted to, activities associated with: capital and debt-raising; the financing of joint ventures; project finance; infrastructure finance; public–private partnerships and privatisations; financing of management buyouts; restructuring debt; and other forms of working capital financing.

The activities a bank undertakes as part of corporate finance depend on its internal structure and the country it is based in. This chapter outlines some of the functions and provides examples of how Islamic financial products can be applied.

7.1 Trade Finance

The trade finance division typically arranges bespoke and structured financing arrangements to provide trade and inventory financing solutions. Inventory and stock finance, receivables finance, international trade finance and working capital finance are all part of the financial services offered by the trade finance division. Trade finance, which is generally associated with any form of trade, is, like the majority of activities within corporate finance, very well suited to the Sharia'a principles due to the fact there is an asset flow underlying the transaction. Islamic ...