Bank Muamalat Malaysia Berhad » Letter of Credit-i (LC-i/DC)

Letter of Credit-i (LC-i/DC)

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 (Agency)

Al-Wakalah refers to any agency relationship where a Bank acts as an agent on behalf of a company or individual.

Benefits

Revolving in nature;
The Bank at its discretion may grant Ibra´ or rebate on any financing amount unutilized.

Features

The customer pays in advance the DC value (100% deposit);
Undertaking of payment by the Bank;
The Bank acts as an agent of the customer. There is no financing from the Bank.

Al-Murabahah (Mark Up Cost Plus)

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.

Benefits

Purchase goods on credit and enjoy the cash price from the supplier;
Obtain financing from the Bank;
Pays the bank on deferred term;
Rebate may be given on early settlement.

Features

Undertaking to pay by the Bank;
The Bank appoints the customer as purchasing agent;
Upon arrival of the complied documents, the Bank pays the negotiating bank
by utilizing its own funds;
The bank sells the goods to the customer (purchasing agent) at a selling price
comprising its cost and profit margin.
Settlement by customer on deferred payment;
Bank provides financing.

Al-Musyarakah (Joint Venture Profit Sharing)

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.

Benefits

Customer shares the profit from the venture as provided in this agreement;
The absolute return on the investment depends on the profitability of the venture.

Features

Project/contract is required;
Customer places with the bank a deposit for his share of the cost of goods to be purchased (marginal deposit);
Bank accepts the deposit under the principle of Al-Wadiah Yad Dhamanah.
Payment made by the bank by utilising the customer’s deposit as well as its own share of financing;
Upon completion of the project, the parties share the profit/loss.