Bank Muamalat Malaysia Berhad » Outward Letter of Credit (OLC-i)

Outward Letter of Credit (OLC-i)

Outward Letter of Credit (OLC-i) is a written undertaking by BMMB, given to the beneficiary (seller) at the request and on the instructions of the applicant (BMMB client), to pay at sight or at a determinable future date, up to a stated sum of money within a prescribed time limit and against stipulated documents which are in compliance with the terms and conditions of the credit and subject to current Uniform Customs and Practice for Documentary Credits (Current rules is UCP600).

The OLC-i can be issued under 3 contracts:

Wakalah Outward Letter of Credit-i

Wakalah refers to a contract where a party authorises another party to act on behalf.

Benefits

Ensures buyer receive merchandise on time
Payment made upon receipt of complied documents

Features

The client pays in advance the OLC-i value (100% deposit)
Undertaking of payment by BMMB
BMMB acts as an agent of the client. There is no financing from BMMB

Documents Required

The following documents are required for issuing Wakalah Outward Letter of Credit-i are:

Completed and signed Documentary Credit Application Form
Proforma Invoice / Purchase Order
Insurance / Takaful Certificate / Policy (where applicable)

Murabahah Outward Letter of Credit-i

Murabahah refers to the sale of good at a price, which includes cost- plus profit 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.

Documents Required

The following documents are required for issuing Murabahah Outward Letter of Credit-i are:

Completed and signed Documentary Credit Application Form
Signed Letter of Hypothecation
Signed Documentary Credit Murabahah Contract Note
Signed Bill of Exchange or Signed Accepted Bills-i Draft
Proforma Invoice / Purchase Order
Insurance / Takaful Certificate / Policy (where applicable)

Musyakarah Outward Letter of Credit-i

Musyarakah is defined as a joint venture on profit / loss sharing between a bank and its client whereby the client 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 its client.

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 Wadi’ah Yad Dhamanah. Payment made by the bank by utilizing the customer’s deposit as well as its own share of financing
Upon completion of the project, the parties share the profit/loss.