LC-i / DC is similar to the conventional letter of credit. It is written undertaking given by the Bank at the request of the buyer to pay a seller (the beneficiary) to the effect that the Bank which issues the credit will pay the seller (beneficiary) a certain sum of money, as stipulated in the letter of credit provided the seller complies with the terms and conditions of the Letter of Credit.
The LC-i / DC can be issued under 3 contracts:
Al-Wakalah refers to any agency relationship where a Bank acts as an agent on behalf of a company or individual.
Al-Murabahah refers to the sale of good at a price, which includes cost plus as agreed by both seller and the buyer.
This is a contract where the commodity exchanged for is delivered immediately and the price is paid in lump sum at a later date.
Al-Musyarakah is defined as a joint venture on profit / loss sharing between a bank and customer whereby the customer
has to contribute part of the capital in a joint venture project. The profit derived from the project shall be distributed at a
profit ratio as agreed between the bank and the customer.