Corporate Financing Vs. Trade Financing
Corporate Financing is generally used in order to allow a company to grow it’s product/service offerings to it’s highest potential. For example, a garment manufacturer may acquire a loan in order to build a new factory due to high demand. Trade Financing, on the other hand, allows a company to fill the temporary time gap between Accounts Payables and Accounts Receivables. For example, a small garment manufacturer receives a large order and doesn’t have enough money to buy the raw materials as well as fulfill the order, since there will be a time gap between paying for the production costs and receiving funds from the customer. In principle neither one of these setups fall under the injunction of riba. Since business financing may vary from one institution to another and may also vary according to the opportunity, each loan contract must still be individually validated to make sure that there are no elements of injustice or immorality in it. Ghamidi sahab has explained riba in a lot of detail in his Response to 23 Questions series. You can view all of these videos in the thread below: Discussion 30863