The following query has been raised in relation to the Murabahah financing of usance letters of credit (usance LCs)‎

Fatawa Question

The following query has been raised in relation to the Murabahah financing of usance letters of credit (usance LCs). It is easier to conclude the Murabahah contract if the currency of the lc and Murabahah are the same, such as usance LCs in local currency or the creation of Murabahah in the same foreign currency in which the LC has been established. Moreover, if the local currency is pegged to the currency of import (as the uae dirham is pegged to us dollar), there is no issue in the creation of Murabahah deal and its subsequent settlement by the client. In all these cases, upon arrival of documents under the usance LC, the bank concludes the Murabahah contract with the customer pursuant to calculation of profit in any agreed manner so as to arrive at the Murabahah sale price. In case of a usance LC, where the payment to the supplier is to be made in an un-pegged foreign currency, and Murabahah installments are to be paid by the customer in local currency, the bank upon arrival of the documents and thereby concluding the Murabahah contract, may not be in a position to know what the exchange rate of foreign currency will be upon payment date to the supplier, because upon payment date the foreign currency exchange rate may increase-which would cause loss to the bank-or decrease, to the detriment of the customer. In order to address the situation, is it allowed for the bank to execute the Murabahah contract with the customer by leaving the Murabahah amount blank for it to be filled on the date of usance bill payment when the rate shall be known so that neither the bank nor the customer suffer a loss? Or else, insert the amount in the Murabahah contract based on the current rate and increase or decrease it on the date of usance bill payment when the actual rate shall be known ?

Fatwa

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Publisher

Islamic Finance News

Publication Date

2015-01-07

Country of Publication

Malaysia

Main Subjects

Economics & Business Administration
Islamic Studies

Data Type

Fatawa

Language

English

Record ID

BIM-783156

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