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Letter Of Credit-i (LC-i)
A written undertaking by Bank Islam at the request of the Buyer/Applicant to pay the Seller/Beneficiary a certain sum of money as stipulated in the Letter of Credit, provided that the Seller/Beneficiary complies with the terms and conditions of the Letter of Credit.
The Letter of Credit can be issued under Wakalah contract (agency relationship) and thereafter the goods purchased maybe financed under the Murabahah contract (cost plus).
WAKALAH CONTRACT
- Bank Islam is appointed to act as an agent on behalf of the Buyer/Applicant
- Buyer/Applicant will place deposit to the full amount of goods to be purchased
- Bank Islam establishes the Letter of Credit and remits the payment to the Seller/Beneficiary utilising the customers’ deposit
MURABAHAH CONTRACT
- Bank Islam will act as the financier for the Buyer/Applicant for the purchase of the goods
- Bank Islam will establish the Letter of Credit and remit the payment to the Seller/Beneficiary utilising its own funds
- Bank Islam sell the goods to the Buyer/Applicant at a sale price comprising its cost and a profit margin
- Buyer/Applicant is given a deferred payment term for the settlement of the purchase
BENEFITS
- No ‘transit interest’ charges as Bank Islam remits payment to the Seller/Beneficiary only upon receipt of documents
- No other hidden costs
- Efficient payment arrangement
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