Conventional banks are able to meet the requirement of customers to convert their non-funded facility into a funded facility by entering into the relevant arrangements at the relevant point of time

Fatawa Question

Conventional banks are able to meet the requirement of customers to convert their non-funded facility into a funded facility by entering into the relevant arrangements at the relevant point of time. This may be demonstrated by an example as follows : A customer has obtained a letter of guarantee from a conventional bank favoring a subject beneficiary. If the relevant guarantee has been called by the subject beneficiary and if the customer does not have the necessary funds to provide the same to the conventional bank to meet the call under the guarantee, the customer can request the conventional bank to convert the subject guarantee amount, being an unfunded facility, into an interest-bearing funded loan facility. Resultantly, the conventional bank pays to the subject beneficiary from its own fund and books the interest-bearing loan under the customer’s account. The above modus operandi can also be adopted by conventional banks in the case of letters of credit. An Islamic bank has sought Shariah guidance as to whether the above can also be provided to their customers in a Shariah compliant manner.

Fatwa

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Publisher

Islamic Finance News

Publication Date

2014-06-04

Country of Publication

Malaysia

Main Subjects

Economics & Business Administration
Islamic Studies

Data Type

Fatawa

Language

English

Record ID

BIM-783532

• APA
• MLA
• AMA