Letter of Credit

Also abbreviated as ‘LOC’ or ‘LC’, a Letter of Credit is a document from a commercial bank or financial institution that guarantees a seller will receive a buyer’s payment on time and for the full amount. If this obligation is not met, the applicant’s issuing bank will pay the difference or cover it in full to the beneficiary. 

A Letter of Credit is often used within the international trade industry on account of different laws in each country and the fact that those doing business often do not know each other personally. Therefore, before issuing a LC, the bank or financial institution will assess the applicant’s financial position to determine whether the client’s creditworthiness merits the risk taken on the applicant’s ability to pay. In some cases, the bank or financial institution may consider taking a security to minimise any potential loss.

When used by Islamic banks or financial institution, LCs are not treated as a guarantee but rather as a fee-based service to facilitate trade. Such LCs must Shariah-compliant on the basis of Wakalah, Murabaha or Musharakah.

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We would like to inform our existing and prospective customer and clients that Ikhtiar Factoring Sdn Bhd is now operating as usual, from 9:00am – 5:30pm (Monday to Friday). Should you require our services, please do not hesitate to contact us at 03 4024 6200 or visit our website www.ikhtiarfactoring.com for more info:

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