A letter of credit is a document issued by a financial institution or a similarly accredited professional
party. The letter assures payment to a seller of goods or services provided certain documents have been
presented to the bank.[1] "Letters of Credit" are documents that prove the seller has performed the
duties specified by an underlying contract (e.g., the sale of goods contract) and the goods/services have
been supplied as agreed. In return for these documents, the beneficiary receives payment from the
financial institution that issued the letter. A letter of credit may often be provided to waive a deposit or
to prove that the buyer has a proven upstanding financial background. The letter of credit serves as a
guarantee to the seller that it will be paid regardless of whether the buyer ultimately fails to pay. In this
way, the risk that the buyer will fail to pay is transferred from the seller to the letter's issuer. The letter
can also be used to ensure that all agreed standards are met by the supplier, provided that these
requirements are reflected in the documents described in the letter of credit.
Following are the various kinds of letter of credit
1. Revocable L.C :A recoverable L.C can be cancelled or modified without the consent of all the parties.
2. Irrevocable L.C :It can not be cancelled or modified without the the consent of all the concerned parties.
3. Confirmed L.C :The confirmed letter has the protection of the credit standing of the importers as well as the exporters
bank. The exporters bank gives undertaking to honour the drafts.
4. Unconfirmed L.C :The intermediately bank forward the L.C to the beneficiary but does not takes any liability.
5. Fixed L.C :It is issued for a fixed amount, it is exhausted when the total amount is received.
6. Revolving L.C :The amount of this L.C is automatically renewed or revived when the draft is drawn under it is paid.
7. Documentary L.C :The drafts drawn under this L.C is accompanied by different documents, relating to the merchandise.
8. Special L.C :This L.C is restricted in its operations to a particular intermediately bank written in L.C. This bank acts as
advising as well as negotiating bank.
9. Without Resource L.C :The L.C under which the drawer of the draft is not liable to holder if the draft is not honoured.
10. Red Clause L.C :The L.C authorizes the intermediary to grant an advance to the seller before shipment. The advance may
be for packing and handling.
11. Green Clause L.C :This is an improvement over the red clause L.C. In addition it also allows the storage in the name of the
opening bank.
12. Transferable L.C :Under this L.C the beneficiary has the right to give instructions to the intermediary bank to make the L.C
available in the whole or in part to second beneficiary.
13. Buy To Back L.C :This L.C achieves much the same purpose as a transferable L.C. In this L.C beneficiary is not actual
supplier. He produces his own L.C to his bank.
14. Freely Negotiable L.C :Under this L.C the beneficiary is allowed to get the documents negotiated through any bank. But
negotiating bank may differ from the advising bank.
Applicant
Applicant is the buyer of the goods or services supplied by the seller. Letter of credit is opened
by the issuing bank as per applicant's request. However, applicant does not belong one of the
parties to a letter of credit transaction. This is because of the fact that letters of credit are
separate transactions from the sale or other contract on which they may be based.
Beneficiary
Beneficiary is the seller of the goods or the provider of the services in a standard commercial
letter of credit transaction. Letter of credit is opened by the issuing bank in favor of the
beneficiary.
Issuing Bank
Issuing Bank is the bank that issues a letter of credit at the request of an applicant or its own
behalf. Issuing bank undertakes to honor a complying presentation of the beneficiary without
recourse.
Nominated Bank
Nominated bank is the bank with which the credit is available or any bank in the case of a credit
available with any bank.
Advising Bank
Advising bank is the bank that advises the credit at the request of the issuing bank. An advising
bank that is not a confirming bank advises the credit and any amendmend without any
obligation to honor.
Confirming Bank
Confirming bank is the bank that adds its confirmation to a credit upon the issuing bank's
authorization or request. Confirming bank may or may not add its confirmation to a letter of
credit. This decision is up to confirming bank only. However, once it adds its confirmation to the
credit confirming is irrevocably bound to honor or negotiate as of the time it adds its
confirmation to the credit. Even if the issuing bank fails to honor, confirming bank must pay to
the beneficiary.
Reimbursing Bank
Reimbursing Bank shall mean the bank instructed and/or authorized to provide reimbursement
pursuant to a reimbursement authorization issued by the issuing bank.
letter of credit - credit given by bankers for the purpose of making payment to our suppliers - lc
to be opened against our purchases minimum of 30 days & maximum of 180 days - margin
money (min 10% max 30%) to be deposited by us. The bankers will release payment to our
suppliers on behalf of us. At the time of maturity of lc, the amount which has been paid by
banker to be returned to them with interest and margin money which we have deposited at the
time of opening lc will be refunded by bank with interest and we can open new lc to the new
supplier or existing supplier against our purchase
Required papers of a new importer for Import Registration Certificate (IRC).
After submission of the application by the intending importers for IRC alongwith the papers in
mentioned above (a) and deposit of requisite fees, on being satisfied the Chief Controller of
Import & Export (CCI&E) issue IRC to the Industrial Consumers or Commercial importers with
their half yearly/yearly entitlement mentioning item of commodities.
Requirements:
+ Application in a prescribed form.
+ Valid Trade license.
+ Membership certificate of the respective trade organization or Membership from the Chamber
of Commerce & Industry.
+ Registered partnership deed/Memorandum and Articles of Association alongwith Certificate of
Incorporation.
+ Two copies attested photograph of the applicant(s).
+ Regular Bank Account.
+ Affidavit from 1st class Magistarte.
+ Asset Certificate of the applicant(s).
+ Ownership deed or Lease deed of the office premises alongwith rent receipt.
+ Bank solvency certificate.
+ Tax Identificate Number (TIN) Certificate.
+ Money receipt of requisite fee.
+ Any other document as required.
Preparatory Steps for opening L/C
Before opening the L/C Bank will takes the following Steps:
(1) Applicant to be Bank's A/C Holder: Bank will open the L/C on behalf of a person
who has a account with the Bank. Unknown person will not be allowed to open L/C.
(2) Registered importer: Before opening the L/C Bank must confirm that the L/C applicant is
a registered importer or personal user, and the IRC of the importer has been
renewed for the current year.
(3) Permissible item: The item to be imported must be permissible and not banned
item. If the item is from conditional list, the condition must be fulfilled to import the
same.
(4) Market Report: Bank will verify the marketability of the item & m arket pri ce of t he
goods. S om etim es the importer may misappropriate the Bank's money through over
invoicing.
(5) Sufficient Security or margin: Price of some items fluctuates frequently. In case of
those items Bank will be more careful to take sufficient cash margin or other
s ecuri t y. Bank will al so foll ow Ban g l adesh Bank's Instructions from time to time.
(6) Business Establishment: Bank should not open an L/C on behalf of a floating business
man. The importer must have business establishment, particularly he must have
business net work for marketing the item to be imported.
(7) Restricted Country: Goods not to be imported from Israil.
(8) Credit report of the beneficiary: If the amount of L/C in one item exceeds Tk. 5.00 lac
against pro- forma invoice and Tk. 10.00. lac against indent, suppliers credit report (is
mandatory. The report will remain valid for one year.
(9) Application of the client to open the L/C: The client will approach to open the L/C in
Bank's prescribed form, duly stamped & signed, along with the following papers & documents.
I) Indent/proforma invoice
II) Insurance cover note with money receipt.
III) LCAF duly filled in & signed.
IV) Membership certificate from chamber of commerce/Trade Association.
V) Tax payment certificate/declaration.
VI) IMP & TM form signed by the importer
VII) Charge documents.
VIII) IRC, Pass book, Trade license, Membership certificate & VAT registration
certificate in case of
new client.
XI) Export L/C in case of Back to Back L/C.
I0. Permission from Ministry of Commerce: If the goods to (imported under CIF (cost
insurance & freight), then permission from ministry of commerce to be obtained.
11. Creditability of the Client: In consideration of all the above points, if Bank becomes
satisfied regarding the client then L/C may be opened on behalf of the client. Before opening the
L/C Bank will issue & authenticate a set of LCAF in the name of the importer.
Authentication/Registration of LCA form:
When the importer submits LCAF (letter of credit Authorization form) with other paper to the
Bank and approach to open an L/C, Bank will authenticate the LCAF. Confirming the following:
1. IRC renewal fees paid by the importer.
2. Item to be imported is eligible as per import policy/pass book of the importer.
3. LCAF is duly filled in and Signed by the importer.
If Issuing Bank required to purchase Foreign Currency from Bangladesh Bank for making
payment of the concerned import, the Bank will send the LCAF to Bangladesh Bank Registration
unit for registration. If the Bank needs no fund from Bangladesh Bank, registration is not
required.
On obtaining full set of LCAF from Issuing Bank, Bangladesh Bank will:
a) Insert Registration number.
b) Emboss with security seal &
c) Put authorized signature on the LCAF.
Distribution of LCAF Original:
This is Exchange monitoring copy to be sent to Bangladesh Bank, while reporting payment of
the import or to be preserved at the branch for Bangladesh Bank auditing. Duplicate: This is the
custom purpose copy, to be used for clearance of the consignment.
Triplicate & Quadruplicate: These two copies to be sent to CCI & E's office.
Quintuplicate: Registration unit of Bangladesh Bank will obtain this copy, other copies will
retain with the branch.
LCAF remains valid for remittance for one year. However, in case of capital machineries &
spare parts it remains valid for remittance for 18 months.
Important points to prepare an L/C:
The ADs should take care on the following points:
(1) L/C Number: ADs will put a number for each L/C, which is the serial number of the L/C for
a particular year. The number to be of 12 Digits. 1st 4 Digits for AD's Code, 2nd 2 Digits for the
respective year, 3rd 2 Digits for Nature of the LC and last 4 Digits for Serial Number of the L/C.
First Foreign Cash L/C of Islami Bank Bangladesh Ltd., Paltan Branch, in 2008 may be
numbered like "0885 08 01 0001.
(2) Place & Date of Issue: L/C must indicate the place and date of issue.
(3) Date & Place of Expiry: L/C must have an expiry date. This is the last date of presentation
of document under the L/C. Place of presentation is the place of Bank with which the credit is
available in addition to the place of issuing Bank
.
(4) Shipment date: There should be a last shipment date after which shipment is not allowed.
Bank may also fix-up a first shi ment date before which shipment will not be allowed.
5. Presentation period: Issuing Bank will allow a period within which exporter must present the
export documents to the negotiating Bank or to any other nominated Bank. Presentation must not
be made later than 21 days from the date of Shipment and not later than the expiry date.
(6) Applicant: Name of the applicant with business address to be put in the L/C.
(7) Beneficiary: Name of the beneficiary with address also to the indicated in the L/C.
(8) Advising Bank: Name of the advising Bank with address to be mentioned in the L/C.
(9) Amount: Every L/C must show the amount of the L/C. The word "About” may be used with
amount, which means 10% more or less of the said amount.
(10) Part-shipment & Transshipment: Issuing Bank also clearly indicate in the L/C, whether
part-shipment & Transshipment is allowed or not.
(11) Availability: L/C must indicate whether the credit is available by sight payment, deferred
payment, acceptance or negotiation.
(12) Port of shipment & port of destination: L/ will also indicate from where shipment to be
made & where goods to be delivered.
13) Tenure of the Draft: Whether the draft to drawn at sight or usance, also to be cleared in the
L/C.
(14) Documents required: Bank will give the list of required documents & data content there in.
Each & every term must be supported by documents. Because any term without asking
document is valueless.
(15) Payment: When & where, by whom payment to be made, also to be indicated in the L/C.
(16) UCP: Bank will incorporate the reference of UCP 600 in the L/C, for its application in all
the operation of the L/C.
(17) Bill of lading: B/L must be issued or endorsed to the order of the Issuing Bank. It should
be 'clean' and "freight prepaid" if L/C is on CFR basis. Short form & charter party B/L to be
avoided. All these terms to be incorporated in the B/L clause of the L/C.
(18) Bill of exchange: Bill of Exchange to be drawn on the issuing Bank.
(19) Pre-shipment Inspection: Pre-shipment inspection certificate is compulsory for both govt
and private importt except in few cases.
(20) Data content: Invoice & other documents if required should indicate the H.S code number,
LCAF NO. with description of the item & country of origin.
(21) Special conditions: Special conditions, such as in case of food, machineries, vehicles and
any other items should be incorporated in the L/C, where required.
(22) Authenticity of the credit: L/C to be authenticated by putting a test number or signing by
two authorized officers or Auto authenticated by SWIFT.
Issuance/ Transmission of LC
Authorised dealer will scrutinize the LC application with all related papers. If it becomes
satisfied, it will put a number for the L/C and will entry the L/C in the L/C opening register with
particulars of the L/C. Non AD branch will forward and open the L/C through an AD branch.
Particulars of the L/C should be noted on the back of LCA as under "Opened L/C No….. dated
…. for F.0 equv to Tk. … balance is Tk.
Realization of Bank charges: Every Bank has its own L/C opening Commission, fixed by the
Head office. Normally there is a particular percentage of commission for the I.st, quarter (90
days from the date of opening to the date of expiry and for the subsequent quarter of the L/C.
Telex, SWIFT, and Foreign Correspondence charges, where required, are to be realized from the
applicant.
L/C Amendment: Irrevocable letter of credit may be amended against applicant's written
application, with the joint consent of all the parties involved in the documentary credit operation.
L/C to be amended before it's expiry date only. Dispatch or transmission of the amendment is not
sufficient to become the amendment effective. Amendment becomes effective, upon
beneficiary’s acceptance of amendment or upon his tender of complying documents under the
amended credit to the Nominated Bank. Shipment date & expiry date of the L/Cs may be
amended if relevant LCA, permit, remain valid up to that period. L/C amount may be decreased
with the consent of the beneficiary. Numbering of amendments may be done but it is not
mandatory.
Accounting Procedure for Opening L/C
At the time of opening L/C bank will pass contingent liability voucher and will realize cash
security and bank charges from the client.
In case of amending the L/C to increase the value or extending validity of the L/C for subsequent
quarter following procedure to be maintained.
a. Contingent Liability Voucher: Original contingent (liability voucher to be reversed & fresh
contingent liability voucher, including the increased amount to be passed.
b. Charges Realization Voucher: Commission for increased amount & for subsequent quarter
along with telex & other charges to be realized from party's account.
Debit: Asset as per contra Import LC
Credit: Liability as per Contra Import LC
For Charges and commission:
Debit: Party Account
Credit: Income Account( LC commission Charges)
The Incoterms rules or International Commercial Terms are a series of pre-defined
commercial terms published by the International Chamber of Commerce (ICC) that are widely
used in International commercial transactions or procurement processes. A series of three-letter
trade terms related to common contractual sales practices, the Incoterms rules are intended
primarily to clearly communicate the tasks, costs, and risks associated with the transportation
and delivery of goods.
The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide
for the interpretation of most commonly used terms in international trade. They are intended to
reduce or remove altogether uncertainties arising from different interpretation of the rules in
different countries. As such they are regularly incorporated into sales contracts[1] worldwide.
First published in 1936, the Incoterms rules have been periodically updated, with the eighth
version— Incoterms® 2010 [2]'—having been published on January 1, 2011. "Incoterms" is a
registered trademark of the ICC.
Contents



1 Incoterms 2010
2 General Transport
o 2.1 EXW – Ex Works (named place)
o 2.2 FCA - Free Carrier (named place of delivery)
o 2.3 CPT – Carriage Paid To (named place of destination)
o 2.4 CIP – Carriage and Insurance Paid to (named place of destination)
o 2.5 DAT – Delivered at Terminal (named terminal at port or place of destination)
o 2.6 DAP – Delivered at Place (named place of destination)
o 2.7 DDP – Delivered Duty Paid (named place of destination)
3 Sea and Inland Waterway Transport
o 3.1 FAS – Free Alongside Ship (named port of shipment)
o 3.2 FOB – Free on Board (named port of shipment)
o 3.3 CFR – Cost and Freight (named port of destination)
o 3.4 CIF – Cost, Insurance and Freight (named port of destination)
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4 Allocations of costs to buyer/seller according to Incoterms 2010
5 Previous terms from Incoterms 2000 eliminated from Incoterms 2010
o 5.1 DAF – Delivered at Frontier (named place of delivery)
o 5.2 DES – Delivered Ex Ship
o 5.3 DEQ – Delivered Ex Quay (named port of delivery)
o 5.4 DDU – Delivered Duty Unpaid (named place of destination)
6 See also
7 References
8 External links
Incoterms 2010
Bai- as-Sarf is a contract of exchange of money for money. This contract is tightly regulated under
Shari`ah because it can be easily manipulated for the purpose of producing an interest-bearing loan,
which is prohibited in Islam.
In pre-Islamic times gold was exchanged for gold, silver for silver and gold for silver or vice versa. In
Islamic law such exchange is regarded as sale of price for price and each price is consideration of the
other. It also means sale of monetary value for monetary value i.e. currency exchange.
Ibn Rushd examines the three forms of sale that can arise in a market where goods and money are in
existence:
"When two commodities are exchanged, one may serve as a currency and the other as a priced
commodity, or both may be currencies. When a currency is exchanged for a currency the sale is called
'sarf', and when a currency is exchanged for a priced commodity, the transaction is sale property
('bay'). Similar is the sale of a priced commodity for another priced commodity (barter)"
In respect of Bank, Bai-as-Sarf is a contract/agreement between the Bank and the Client under which
the Bank purchase the foreign currency against the Foreign documentary bill in advance from the
Client at specified/agreed exchange rate.
“Bai-as-Sarf (FDB) ” is practiced for providing post shipment finance facility against Foreign
Currency export Bills and “Bai-as-Sarf (FCD) ” is done for providing advance finance facility against
Foreign Currency Cheque /Draft
Objectives for Introduction of Bai-As-Sarf



To perform the post-shipment finance under shariah compliant mode.
To meet up the exporter’s urgent need to run the business smoothly.
To meet up the urgent need of Foreign Currency Cheque /Draft holders.
Area and Eligibility of Bai-As-Sarf


100% export oriented industries/farms having limit of Bai-as-Sarf or availing working capital
limit.
Valued Client who receives Foreign Currency Cheque /Draft from home and abroad against
sales proceeds or services.


NRBs who remit the Foreign Currency from abroad through Foreign Currency Cheque /Draft.
The client who have valid export registration certificate.
Feature
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
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
This is a post-shipment finance mechanism under Bai mode.
Bai-as-Sarf means‘sale of price for price’ and each price is consideration of the other. It also
means sale of monetary value for monetary value i.e. currency exchange.
This is also known as purchase/sale of Foreign Currency to earn Exchange income under the
Bai-as-Sarf agreement.
Usually exchange of one currency into another currecy is dealt under Bai-as-Sarf mode.
The related foreign currency will be received by the bank as the client sold out the same to the
bank at agreed upon exchange rate
Since no law in this regard is prevalent in Bangladesh to govern such Bai- As-Sarf agreement,
the relationship between the Client and the Bank shall be treated as seller and buyer
In case of any dispute arising out of Bai-As-Sarf agreement or regarding the terms and
conditions of the agreement, the Banks decision shall be final and binding upon the parties
In the event of the Client's failure to repatriate the export proceeds by any consequence even
for which the client is not responsible, the Client shall be liable to pay back the amount paid to
him in connection with the said documents with Compensation/Fine/Penalty to the Bank
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.
The term ‘Bai-Murabaha’ has been derived from Arabic words ‫ ﻊﻴﺒ‬and ‫( ﺢﺑﺭ‬Bai’un and
Ribhun). The word ‫ ﻊﻴﺒ‬means purchase and sale and the word ‫ ﺢﺑﺭ‬means an agreed upon
profit. ‫‘ ﻊﻴﺒ ﺍﻠﻤﺮﺍﺒﺢ‬Bai-Murabaha’ means sale on agreed upon profit.
Bai-Murabaha may be defined as a contract between a buyer and a seller under which the
seller sells certain specific goods (permissible under Islamic Shariah and the Law of the
land), to the buyer at a cost plus agreed profit payable in cash or on any fixed future date
in lump-sum or by installments. The profit marked-up may be fixed in lump-sum or in
percentage of the cost price of the goods.
In Breif




Profit is shared as per agreement.
Loss beared by client.
Amount can be paid on installment basis.
Usual duration 1-2 year(s).

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
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
Rebate may be given on Early Adjustment.
The term ‘Bai-Muajjal’ has been derived from Arabic words ‫ ﻊﻴﺒ‬and ‫( ﻝﺟﺍ‬Bai’un and
Ajalun). The word ‫ ﻊﻴﺒ‬means purchase and sale and the word ‫ ﻝﺟﺍ‬means a fixed time or
a fixed period. " Bai-Muajjal " means sale for which payment is made at a future fixed
date or within a fixed period. In short, it is a sale on Credit
Bai-Muajjal may be defined as a contract between a Buyer and a Seller under which the
Seller sells certain specific goods permissible under Islamic Shari‘ah and Law of the
land) to the Buyer at an agreed fixed price payable at a fixed future date in lump sum or
within a fixed period by fixed instalments. The seller may also sell the goods purchased
by him as per order and specification of the Buyer.
The term ‘Bai-Salam’ has been derived from Arabic words ‘‫ ’ ﻊﻴﺒ‬and ‘‫( ’ ﺴﻠﻡ‬Bai’un and
Salamun). The word ‘‫ ’ﻊﻴﺒ‬means ‘purchase and sale’ and the word ‘‫ ’ ﺴﻠﻡ‬means ‘advance’.
‘Bai-Salam’ means advance purchase and sale.
Bai-Salam may be defined as a contract between a Buyer and a Seller under which the
Seller sells in advance the certain commodity (ies)/product(s) permissible under Islamic
Shari‘ah and the law of the land to the Buyer at an agreed price payable on execution of
the said contract and the commodity (ies)/product(s) is/are delivered as per specification,
size, quality, quantity at a future time in a particular place.
In other words, Bai-Salam is a sale whereby the seller undertakes to supply some specific
Commodity (ies) /Product(s) to the buyer at a future time in exchange of an advanced
price fully paid on the spot.
Here the price is paid in cash, but the delivery of the goods is deferred
Hire Purchase under Shirkatul Meelk
Under this mode Bank may supply implements/ equipment/goods on rental basis. The ownership
of the implements/equipment/goods will be with the Bank and the client jointly and the portion
of the client will remain to the Bank as mortgage until the closure of the investment account, but
the client will be authorized to possess the equipment for certain period. The client, after
completion of the installments, will be the owner of the implements/ equipment/goods.
Hire Purchase under Shirkatul Melk is a Special type of contract which has been developed
through practice. Actually, it is a synthesis of three contracts:



Shirkat
Ijarah
Sale
Musharakah
Musharakah is a type of Shirkah al-Amwal which literally means sharing. In the context of business, it
refers to a joint enterprise in which parties share the profit and loss of the enterprise. It plays a vital role
in financing business operations based on Islamic principles, which prohibit making a profit on interest
from loans. Musharakah may sometimes include Shirkah al-Amal, where a joint partnership is formed to
render
some
services
without
requiring
any
capital
investment.
Musharakah allows each party involved in a business to share in the profits and risks. Instead of charging
interest as a creditor, the financier will achieve a return in the form of a portion of the actual profits
earned, according to a predetermined ratio. However, unlike a traditional creditor, the financier will also
share in any losses. The relationship established between parties, in Musharakah, is by a mutual
contract; hence, all the necessary ingredients of a valid contract must be present. However, there are
number of conditions that apply specifically to the contract of Musharakah.
In fact, the capital to be invested in a joint venture can be unequal between the partners and should
preferably be in cash. If it were to be based on commodities or other Shari’ah-compliant assets, the
market value prevalent at the time of the contract would have to be appropriately valued with the
mutual consent of all the partners in order to determine the share of each of them. The commodity
should be compensable by similar commodities or assets in quality or quantity, in case it could be
destroyed. Otherwise, its price should be paid. The capital may also be in the form of equal units or
shares representing currency. And if partnership capital involves a variety of currencies, it must be
translated into the currency of the enterprise at the current rate. Finally, Debts or receivables alone
cannot form part of the capital until they are received, although, they may become part of the capital
contribution where they become inseparable from the other assets of the business.
Bai Salam (Arabic ‫ملس عيب‬, more accurately transliterated as Bai us salam) is a contract in
which advance payment is made for goods to be delivered at a future date, following Islam and
Islamicshariah. The seller undertakes to supply some specific goods to the buyer at a future date
in exchange of an advance price fully paid at the time of contract. It is necessary that the quality
of the commodity intended to be purchased is fully specified leaving no ambiguity leading to
dispute. Bai salam covers almost every thing which is capable of being definitely described as to
quality, quantity and workman ship. For Islamic banks this product is an ideal for Agriculture
financing. However, this can also be used to finance the working capital needs to the customer. It
is one of the most popular Islamic Modes of finance used by banks in Islamic countries to
promote riba-free transactions. Typically, banks use Bai Salam.[1]
Bai-Salam has been permitted by the Islamic prophet Mohammed himself, without any
difference of opinion among the early or the contemporary jurists, notwithstanding the general
principle of Shariah that the sale of a commodity which is not in the possession of the seller is
not permitted. Upon migration from Makkah, Mohammed came to Madinah, where the people
used to pay in advance the price of fruit or dates to be delivered over one, two or three years.
However, such sale was carried out without specifying the quality, measure or weight of the
commodity or the time of delivery. Mohammed ordained: “Whoever pays money in advance for
fruit to be delivered later should pay it for a known quality, specified measure and weight (of
dates or fruit) of course along with the price and time of delivery
Bai- as-Sarf is a contract of exchange of money for money. This contract is tightly regulated
under Shari`ah because it can be easily manipulated for the purpose of producing an interestbearing loan, which is prohibited in Islam.
In pre-Islamic times gold was exchanged for gold, silver for silver and gold for silver or vice
versa. In Islamic law such exchange is regarded as sale of price for price and each price is
consideration of the other. It also means sale of monetary value for monetary value i.e. currency
exchange.
Ibn Rushd examines the three forms of sale that can arise in a market where goods and money
are in existence:
"When two commodities are exchanged, one may serve as a currency and the other as a priced
commodity, or both may be currencies. When a currency is exchanged for a currency the sale is
called 'sarf', and when a currency is exchanged for a priced commodity, the transaction is sale
property ('bay'). Similar is the sale of a priced commodity for another priced commodity (barter)"
In respect of Bank, Bai-as-Sarf is a contract/agreement between the Bank and the Client under
which the Bank purchase the foreign currency against the Foreign documentary bill in advance
from the Client at specified/agreed exchange rate.
“Bai-as-Sarf (FDB) ” is practiced for providing post shipment finance facility against Foreign
Currency export Bills and “Bai-as-Sarf (FCD) ” is done for providing advance finance facility
against Foreign Currency Cheque /Draft
Objectives for Introduction of Bai-As-Sarf
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To perform the post-shipment finance under shariah compliant mode.
To meet up the exporter’s urgent need to run the business smoothly.
To meet up the urgent need of Foreign Currency Cheque /Draft holders.
Area and Eligibility of Bai-As-Sarf
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100% export oriented industries/farms having limit of Bai-as-Sarf or availing working
capital limit.
Valued Client who receives Foreign Currency Cheque /Draft from home and abroad
against sales proceeds or services.
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NRBs who remit the Foreign Currency from abroad through Foreign Currency Cheque
/Draft.
The client who have valid export registration certificate.
Feature
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This is a post-shipment finance mechanism under Bai mode.
Bai-as-Sarf means‘sale of price for price’ and each price is consideration of the other. It
also means sale of monetary value for monetary value i.e. currency exchange.
This is also known as purchase/sale of Foreign Currency to earn Exchange income under
the Bai-as-Sarf agreement.
Usually exchange of one currency into another currecy is dealt under Bai-as-Sarf mode.
The related foreign currency will be received by the bank as the client sold out the same
to the bank at agreed upon exchange rate
Since no law in this regard is prevalent in Bangladesh to govern such Bai- As-Sarf
agreement, the relationship between the Client and the Bank shall be treated as seller and
buyer
In case of any dispute arising out of Bai-As-Sarf agreement or regarding the terms and
conditions of the agreement, the Banks decision shall be final and binding upon the
parties
In the event of the Client's failure to repatriate the export proceeds by any consequence
even for which the client is not responsible, the Client shall be liable to pay back the
amount paid to him in connection with the said documents with
Compensation/Fine/Penalty to the Bank
Modes of Import financing by Islami Bank.
(i) Import of goods by Letter of Credit: A Letter of Credit (L/C) is a
conditional undertaking to the exporter (Seller) by a bank on behalf of his customer
(Importer/buyer) to pay the bill amount, if all the terms & conditions of the L/C are
fulfilled. By issuing a L/C, a bank undertakes the full responsibility of payment, if
otherwise in order. Since bank takes the liability of payment against some percentage
of margin from the importer, which may be in cash or collateral or both cash &
collateral depending upon banker customer relationship – so it is an Import financing.
(ii) Murabaha Import Bill (MIB):
Payment made by the bank against
lodgement of transport documents of goods imported through L/C is called MIB. It is
an interim investment for a maximum period of 21 days connected with import and is
generally liquidated against payment usually made by the party for retirement of the
documents for release of imported goods from the customs authority. In conventional
banking this type of investment is called Payment Against Document (PAD).
(iii) Mudaraba Post Import (MPI):
Normally importer pay the duty &
sales tax of the impoted goods after arrival at the port. Due to shortage of fund or
some other reasons, sometimes importer approach the L/C opener bank to assist him
for retirement of the imported goods. In some cases importer do not come forward to
retire the goods. In these cases the L/C opener bank themselves arrange to retire the
goods by pledge in Godown under bank’s lock & key. This type of payment (forced
loan) is called MPI. This is a temporary arrangement for a maximum period of 90 days.
Within this time limit, the importer borrower will release the goods at a time or
gradually after making payment to the bank. In traditional banking this type of
investment is called LIM (Loan against Imported Merchandise) or LAM (Loan Against
Merchandise)
(iv) Murabaha Trust Receipt (MTR): It is a type of investment allowed
by a bank on trust to his experienced, reliable & reputed importer for retirement of
shipping documents and release the imported goods. Under this arrangement the
importer borrower will deposit the sale proceeds of imported goods which are under
his control at a time or gradually within a maximum period of one year. In traditional
banking this type of facility is called Trust Receipt (TR).