Shariah Legitimacy of Islamic Letter of Credit and Shipping Guarantee Procedure adopted by Islamic Banks in Pakistan

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Muhammad Shahid Siddique
Muhammad Hussain Qureshi
Ghulam Sughra Sadiq
Muhammad Sadil Ali
Dr. Irfan Ullah Shah

Abstract

Abstract
Islamic banking had gained much popularity among public especially in Muslim
countries including Pakistan. Islamic Letter of Credit is an important product of Islamic
banks when customers are involved in international trade. Similarly, the Shipping
Guarantee is very useful for importer to get their goods released from port in case goods
reach before receipt of shipping documents. This process is carried through documents.
At one side Islamic bank in importer’s country is called issuing bank and the bank
involved in exporter’s country is called negotiating bank. Banks all over the world
follow UCP rules for process of letter of credit. Islamic banks are not supposed to
follow the same procedure as adopted by conventional banks. In this study, we have
explored which underlying contracts are made base for facility of letter of credit and
shipping guarantee. Further we investigated whether dealing mere in documents and not
checking physical condition and existence of goods is Shariah compliant or not. We
found that Wakalah and Murabaha are the most widely used contracts in Pakistan for
trade financing purpose. First of all a Wakalah contract is made with the customer and
then second contract is Murabaha or any other. Other contracts made after Wakalah
contract may be Musawma, Musharkah or Ijarah. Scholars are of the view point that the
process of letter of credit may be concluded without noticing the goods as goods are
determined through detailed specifications in written form and to precede further constructive possession is also permissible. There is not prohibited element in shipping
guarantee; hence it is also Shariah compliant.
Keywords- Islamic Letter of Credit, Shipping Guarantee, Shariah Legitimacy,
Wakalah, Murabaha, UCP Rules 

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How to Cite
Muhammad Shahid Siddique, Muhammad Hussain Qureshi, Ghulam Sughra Sadiq, Muhammad Sadil Ali, & Dr. Irfan Ullah Shah. (2022). Shariah Legitimacy of Islamic Letter of Credit and Shipping Guarantee Procedure adopted by Islamic Banks in Pakistan. Al-Qanṭara, 8(3). Retrieved from https://alqantarajournal.com/index.php/Journal/article/view/79
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