A customer of an Islamic bank is a main contractor of a big development project. It has decided to hire a subcontractor for land leveling and grading

Fatawa Question

A customer of an Islamic bank is a main contractor of a big development project. It has decided to hire a subcontractor for land leveling and grading. Since the payments under the agreement with the subcontractor were proposed to be made in tranches through a letter of credit (LC), the customer has requested from the Islamic bank to open the LC and finance the payments to be made under the LC. The payments under the LC will be in tranches as per the following details: 30% to be paid as advance payment 30% to be paid upon shipment of equipment and machineries required for land leveling and grading 40% to be paid upon completion of the work Furthermore, as per the terms of the contract for performing its job, the equipment and machineries will be shipped by the subcontractor itself and shall remain under its ownership and disposal. Shariah guidance has been sought by the contractor in order to find a suitable shariah compliant structure to finance payments to the subcontractor. It is also pertinent to note that the Islamic bank has a standard product of Murabahah to finance the import of the goods under the LC.

Fatwa

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Publisher

Islamic Finance News

Publication Date

2015-02-11

Country of Publication

Malaysia

Main Subjects

Economics & Business Administration
Islamic Studies

Data Type

Fatawa

Language

English

Record ID

BIM-783056

• APA
• MLA
• AMA