Degree

Master of Business Administration Executive

Faculty / School

School of Business Studies (SBS)

Year of Award

2024

Advisor/Supervisor

Dr. Azima Khan

Project Type

MBA Executive Research Project

Access Type

Restricted Access

Keywords

Bai Salam, Shariah-compliant finance, Export financing, Ready Range exchange rate, Liquidity constraints, State Bank of Pakistan

Executive Summary

The growing demand for Shariah-compliant financial solutions necessitates the development of Islamic alternatives to conventional banking products. One such product, Bai Salam, has been proposed as an Islamic substitute for bill discounting in export financing. However, operational inefficiencies in Currency Salam, particularly delays caused by the Ready Range exchange rate mechanism, have hindered its adoption among exporters. Currently, 72% of HBL Islamic’s export customers rely on external funding, yet challenges in Bai Salam's execution prevent them from effectively addressing liquidity constraints post-shipment. The primary obstacle lies in the State Bank of Pakistan’s (SBP) USD 50,000 regulatory threshold, which restricts smaller transactions from contributing to exchange rate calculations. This leads to inconsistent rate finalization, prolonged transaction processing times (5-10 days), and frequent failures (30-50%), forcing exporters to opt for conventional bill discounting despite their preference for Islamic finance. To address these inefficiencies, the project proposes regulatory negotiations with SBP to allow HBL Islamic to utilize its conventional treasury’s negotiated forex rates for determining the Ready Range. This adjustment would broaden exchange rate bands, reduce transaction failures, improve liquidity accessibility, and enhance Islamic banking’s competitiveness. By streamlining Bai Salam operations, HBL Islamic aims to strengthen its position in trade finance, align with Shariah compliance, and support Pakistan’s export sector.

Pages

31

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