An overview of Shari'ah issues regarding the application of the Islamic letter of credit practice in Malaysia

The Letter of Credit (LC) serves as an instrument of payment in international trade. Its aim is to facilitate trade between seller and buyer in different countries. To date, the Islamic banking environment promotes the use of the Islamic LC as a method of financing in international trade, particular...

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Main Authors:	Othman, Ahmad Azam, Che Hashim, Rosmawani, Abdul Aziz, Akhtarzaitie
Format:	Article
Language:	English
Published:	International Shari'ah Research Academy for Islamic Finance (ISRA) 2010
Subjects:	KBP173.25 Islamic law and other disciplines or subjects
Online Access:	http://irep.iium.edu.my/3011/ http://irep.iium.edu.my/3011/ http://irep.iium.edu.my/3011/1/An_overview_of_sharia%27h_issues_regarding_the_application_of_the_Islamic_letter_of_credit_practice_in_Malaysia.pdf

id	iium-3011
recordtype	eprints
spelling	iium-30112014-09-11T01:49:33Z http://irep.iium.edu.my/3011/ An overview of Shari'ah issues regarding the application of the Islamic letter of credit practice in Malaysia Othman, Ahmad Azam Che Hashim, Rosmawani Abdul Aziz, Akhtarzaitie KBP173.25 Islamic law and other disciplines or subjects The Letter of Credit (LC) serves as an instrument of payment in international trade. Its aim is to facilitate trade between seller and buyer in different countries. To date, the Islamic banking environment promotes the use of the Islamic LC as a method of financing in international trade, particularly to Muslims and to the general public as a whole. Thus far, this facility is offered not only by Islamic banks, but also by all commercial banks. It is basically governed by the same rules of the UCP 600 that regulate the conventional LC. Realising the peculiarity in the application of this conventional rule to the Islamic LC, this paper focuses on the aim of harmonising the practice of the Islamic LC with the requirements of Shari'ah principles where elements such as interest (riba) and uncertainty (gharar) are prohibited. It begins by giving the background of the Islamic LC in Malaysia. Next, it discusses the definition and types of Islamic LCs, murabahah (cost-plus sale), wakalah (agency) and musharakah (partnership), as the issuance of the Islamic LC is based on these three concepts. In addition, it highlights comparisons between these three concepts. Furthermore, the focal point of discussion is on Shari'ah issues in the practice of the Islamic LC, such as governing rule, subject-matter, interest, INCOTERMS and insurance, contract ('aqd), discrepancy fee, and exclusion of risk of goods in the Islamic LC. Discussion of these issues leads us to identify whether they are in compliance with Shari'ah principles. In relation to this, various proposals are suggested to harmonise the rules applicable to the Islamic LC and Shari'ah principles. International Shari'ah Research Academy for Islamic Finance (ISRA) 2010-12 Article PeerReviewed application/pdf en http://irep.iium.edu.my/3011/1/An_overview_of_sharia%27h_issues_regarding_the_application_of_the_Islamic_letter_of_credit_practice_in_Malaysia.pdf Othman, Ahmad Azam and Che Hashim, Rosmawani and Abdul Aziz, Akhtarzaitie (2010) An overview of Shari'ah issues regarding the application of the Islamic letter of credit practice in Malaysia. ISRA International Journal of Islamic Finance, 2 (2). pp. 37-66. ISSN 0128-1976 http://www.isra.my/publications/journal/english/volume-2-dec-2010.html?tmpl=component&print=1
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	KBP173.25 Islamic law and other disciplines or subjects
spellingShingle	KBP173.25 Islamic law and other disciplines or subjects Othman, Ahmad Azam Che Hashim, Rosmawani Abdul Aziz, Akhtarzaitie An overview of Shari'ah issues regarding the application of the Islamic letter of credit practice in Malaysia
description	The Letter of Credit (LC) serves as an instrument of payment in international trade. Its aim is to facilitate trade between seller and buyer in different countries. To date, the Islamic banking environment promotes the use of the Islamic LC as a method of financing in international trade, particularly to Muslims and to the general public as a whole. Thus far, this facility is offered not only by Islamic banks, but also by all commercial banks. It is basically governed by the same rules of the UCP 600 that regulate the conventional LC. Realising the peculiarity in the application of this conventional rule to the Islamic LC, this paper focuses on the aim of harmonising the practice of the Islamic LC with the requirements of Shari'ah principles where elements such as interest (riba) and uncertainty (gharar) are prohibited. It begins by giving the background of the Islamic LC in Malaysia. Next, it discusses the definition and types of Islamic LCs, murabahah (cost-plus sale), wakalah (agency) and musharakah (partnership), as the issuance of the Islamic LC is based on these three concepts. In addition, it highlights comparisons between these three concepts. Furthermore, the focal point of discussion is on Shari'ah issues in the practice of the Islamic LC, such as governing rule, subject-matter, interest, INCOTERMS and insurance, contract ('aqd), discrepancy fee, and exclusion of risk of goods in the Islamic LC. Discussion of these issues leads us to identify whether they are in compliance with Shari'ah principles. In relation to this, various proposals are suggested to harmonise the rules applicable to the Islamic LC and Shari'ah principles.
format	Article
author	Othman, Ahmad Azam Che Hashim, Rosmawani Abdul Aziz, Akhtarzaitie
author_facet	Othman, Ahmad Azam Che Hashim, Rosmawani Abdul Aziz, Akhtarzaitie
author_sort	Othman, Ahmad Azam
title	An overview of Shari'ah issues regarding the application of the Islamic letter of credit practice in Malaysia
title_short	An overview of Shari'ah issues regarding the application of the Islamic letter of credit practice in Malaysia
title_full	An overview of Shari'ah issues regarding the application of the Islamic letter of credit practice in Malaysia
title_fullStr	An overview of Shari'ah issues regarding the application of the Islamic letter of credit practice in Malaysia
title_full_unstemmed	An overview of Shari'ah issues regarding the application of the Islamic letter of credit practice in Malaysia
title_sort	overview of shari'ah issues regarding the application of the islamic letter of credit practice in malaysia
publisher	International Shari'ah Research Academy for Islamic Finance (ISRA)
publishDate	2010
url	http://irep.iium.edu.my/3011/ http://irep.iium.edu.my/3011/ http://irep.iium.edu.my/3011/1/An_overview_of_sharia%27h_issues_regarding_the_application_of_the_Islamic_letter_of_credit_practice_in_Malaysia.pdf
first_indexed	2023-09-18T20:10:42Z
last_indexed	2023-09-18T20:10:42Z
_version_	1777407458233286656

An overview of Shari'ah issues regarding the application of the Islamic letter of credit practice in Malaysia

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