4.1 Introduction
A Letter of Credit contract is an instruction wherein a customer requests the bank to issue, advice or confirm a letter of credit, for a trade transaction. An Islamic Letter of Credit (Islamic LC) substitutes a bank’s name and credit for that of the parties involved. The bank thus undertakes to pay the seller/beneficiary even if the remitter fails to pay.
The sequence of the events involved, in processing the Islamic LC is considered as an Islamic LC contract. The specific letters of credit thus processed for the customers of your bank constitutes a contract.
- Who is the buyer or importer?
- Who is the seller or the exporter?
- The operation that your branch is performing on the Islamic LC
- The merchandise traded under the Islamic LC
- Specifications for the transportation of the consignment
- The documents that should accompany the Islamic LC
- The amount for which the Islamic LC is drawn
- Details of the parties involved in the Islamic LC
- The type of Islamic LC you are processing
- The details of the insurance company under which the goods traded are covered
You have defined products to group together or categorize Islamic LC which share broad similarities. Under each Product that you have defined, enter specific Islamic LCs based on your customers’ needs. Each of these will constitute a contract. While products provide a general framework and services to classify or categorize Islamic LCs, contracts are customer-specific.
By default, an Islamic LC inherits the attributes of the Product to which it is associated. This means that you will not have to define these general attributes each time you input an Islamic LC involving a product.
Parent topic: Process an Islamic LC Contract