Paying Foreign Suppliers the Sharia-Compliant Way: Import Finance in Germany
Germany's Islamic import finance lets a company pay a foreign supplier for vehicles, machinery or merchandise through a murabaha, in which the financier buys the goods and resells them at a fixed price, instead of drawing an interest-bearing trade loan.
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How import murabaha works
In an import murabaha the Islamic bank buys the goods from the foreign exporter, either directly or through the importer acting as agent, and pays the supplier. It then sells the goods to the German company at cost plus a mark-up payable on a deferred date or in instalments.
The decisive Sharia point is that the bank must own the goods, or the documents representing them, before the resale. In practice ownership passes when the bank pays against the commercial invoice and transport documents, and the resale contract is signed afterwards.
Islamic letters of credit
A conventional letter of credit is a payment undertaking under the ICC rules UCP 600. Islamic banks issue the same instrument but earn a fee for their service under wakala, or combine it with murabaha when they also finance the payment, avoiding interest on any credit period.
Customs, import VAT and German law
Goods entering from outside the EU are cleared by German customs (Zoll). The customs value is determined using several methods applied in a legally prescribed order, and foreign-currency amounts are converted into euros at the exchange rate valid at the relevant time.
Import VAT (Einfuhrumsatzsteuer) is collected by customs at the standard 19 percent or reduced 7 percent rate. Businesses entitled to deduct input tax can usually reclaim it, but it must be pre-financed, which affects the amount of working capital required.
Inspecting goods on arrival
Between merchants, section 377 HGB requires prompt inspection and notification of defects. For imports financed by a bank, the importer should inspect immediately on arrival, document any problems and inform both the supplier and the financier before signing the murabaha sale.
Who finances imports Islamically in Germany
KT Bank AG, the Frankfurt-based Islamic bank licensed by BaFin since 2015, offers ImportFinanzierung Business. The product covers vehicles, machinery and equipment and other goods bought abroad, with short- to medium-term repayment matched to the company's liquidity planning.
The bank states that it pays the seller directly. Its product page does not mention letters of credit, documentary collections or specific currencies, so importers who need documentary instruments should ask explicitly which services are available through KT Bank or its Turkish parent group.
Supporting services for foreign trade
KT Bank also offers business currency accounts and SWIFT transfers for business clients, which helps companies paying suppliers in Turkey, the Gulf or Asia. Pricing and supported currencies are listed in the bank's fee schedule rather than on the product pages.
Conventional trade finance as the fallback
German commercial banks, savings banks and cooperative banks provide letters of credit, documentary collections and import loans, but on an interest basis. The fee for issuing a letter of credit is not interest, yet any financing of the payment period would be.
Honest limits for German importers
There is no Islamic trade finance desk at any major German bank and no public data on volumes. Larger importers, commodity traders or companies needing confirmed letters of credit often work with Islamic banks in Turkey, the Gulf or London alongside their German house bank.
Step-by-step: an Islamic import transaction
The sequence below shows a typical murabaha-based import of machinery or goods from a non-EU supplier, financed by an Islamic bank and cleared through German customs.
- Negotiate the contract with the foreign supplier, including Incoterms, delivery date and required documents.
- Submit the pro-forma invoice, company accounts and a liquidity plan including import VAT to the bank.
- Obtain approval and sign the agency or purchase undertaking required by the bank.
- The bank pays the supplier directly, or opens a letter of credit if available.
- Arrange customs clearance, pay import duty and import VAT, and receive the goods.
- Inspect the goods promptly and sign the murabaha sale at the agreed fixed price.
- Repay in instalments and reclaim import VAT through the regular VAT return.
Costs and documents for importers
Rates for duty depend on the customs tariff number of the goods; bank margins are individual. The table lists what typically needs to be budgeted and prepared.
| Item | What to expect | Note |
|---|---|---|
| Import VAT | 19 or 7 percent of the taxable value | Usually reclaimable as input tax |
| Customs duty | Depends on tariff number and origin | Check binding tariff information |
| Profit mark-up | Fixed at the murabaha sale | Ask about currency and timing |
| Bank charges | SWIFT transfer and possible L/C fees | Listed in the fee schedule |
| Documents | Pro-forma invoice, transport documents, EORI number | Plus accounts and BWA |
Common mistakes and refusal reasons
Import financing combines credit risk, transport risk and customs rules, so applications fail more often on documentation than on the business case itself. These points recur.
- Paying a deposit to the supplier before the bank has approved the deal.
- Forgetting import VAT and duty in the liquidity plan.
- Unclear Incoterms, leaving open who bears the transport risk.
- Goods or suppliers that fail Sharia or sanctions screening.
- Missing EORI number, delaying customs clearance and the resale.
Does KT Bank issue letters of credit?
Its ImportFinanzierung page does not mention letters of credit; it describes direct payment to the seller. Companies needing a documentary credit should ask the business team directly, as availability, confirming banks and pricing are not published online.
Can goods from inside the EU be financed?
Yes, the murabaha mechanism works for any supplier. For intra-EU purchases there is no customs clearance or import VAT; instead the German buyer declares an intra-Community acquisition in its VAT return, which simplifies the liquidity planning considerably.
Who bears currency risk?
If the supplier invoices in dollars or lira, the bank pays in that currency and the resale price is usually fixed in euros at signing. Islamic banks avoid conventional forward contracts, so exchange-rate risk before the sale must be discussed openly.
Is import finance different from working capital finance?
Both use murabaha, but import finance is tied to a specific cross-border shipment and documents, while working capital finance covers recurring domestic purchases. KT Bank runs separate products for each, with similar direct-payment mechanics.
Are customs duties part of the financed amount?
This depends on the bank's structure. Duty and import VAT are public charges paid by the importer as declarant, so they are usually financed from the company's own funds rather than included in the bank's purchase price.
Where to access these solutions
- KT Bank AG – ImportFinanzierung Business — Islamic bank in Frankfurt financing vehicles, machinery and goods bought abroad; pays the seller directly, short- to medium-term.
- KT Bank AG – InvestitionsFinanzierung Business — Islamic purchase financing for machinery, plant and vehicle fleets, an option when imported goods are long-term investments.
- KT Bank AG – BetriebsmittelFinanzierung Business — Short-term Islamic financing of materials and merchandise, for recurring stock purchases rather than single shipments.
Official and legal references
- German Customs (Zoll) – Customs value — Official explanation of how the customs value of imported goods is determined and converted into euros.
- German Customs (Zoll) – Import VAT — Customs overview of import VAT, its collection, applicable rates and deduction as input tax.
- Section 377 HGB – Inspection and notice of defects — Duty of merchants to inspect delivered goods promptly and report defects to preserve warranty rights.