Issues of Letter of Credit in Malaysian Islamic Banks
This paper discussed the prevailing issues currently faced by Islamic banks on the offering of Letter of Credit (LC), originally brought forward by the International Chamber of Commerce, using Shariah contracts and puts forth recommendations on practical solutions to solve the issues. The study adop...
Published in: | Journal of Risk and Financial Management |
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2022
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2-s2.0-85138644794 Syed Alwi S.F.; Osman I.; Badri M.B.; Muhamat A.A.; Muda R.; Ibrahim U. Issues of Letter of Credit in Malaysian Islamic Banks 2022 Journal of Risk and Financial Management 15 9 10.3390/jrfm15090373 https://www.scopus.com/inward/record.uri?eid=2-s2.0-85138644794&doi=10.3390%2fjrfm15090373&partnerID=40&md5=ed48680851490959884bcc0cbf51357f This paper discussed the prevailing issues currently faced by Islamic banks on the offering of Letter of Credit (LC), originally brought forward by the International Chamber of Commerce, using Shariah contracts and puts forth recommendations on practical solutions to solve the issues. The study adopted a qualitative method where the information on the issues of Islamic LCs was gathered throughout interviews with different bankers closely involved in LC issuance from 12 Islamic banks in Malaysia. The results indicate that there are three vital issues related to LCs offered by Islamic banks which lead to Shariah non-compliance issues. The issues revolve around the conversion of LC Wakalah (agency) to LC Murabahah (cost-plus), the existence of a sale contract between the customer and exporter and lastly the title of goods stated in the bill of lading. The findings recommend several solutions in relation to LCs within the underlying Shariah contracts to ensure that their operation complies with the Shariah requirements and Malaysian laws, standards and regulations. This paper highlights the issues of Islamic LC yet to be discussed thoroughly based on the views of a panel of experts and Islamic bankers. © 2022 by the authors. MDPI 19118074 English Article All Open Access; Gold Open Access |
author |
Syed Alwi S.F.; Osman I.; Badri M.B.; Muhamat A.A.; Muda R.; Ibrahim U. |
spellingShingle |
Syed Alwi S.F.; Osman I.; Badri M.B.; Muhamat A.A.; Muda R.; Ibrahim U. Issues of Letter of Credit in Malaysian Islamic Banks |
author_facet |
Syed Alwi S.F.; Osman I.; Badri M.B.; Muhamat A.A.; Muda R.; Ibrahim U. |
author_sort |
Syed Alwi S.F.; Osman I.; Badri M.B.; Muhamat A.A.; Muda R.; Ibrahim U. |
title |
Issues of Letter of Credit in Malaysian Islamic Banks |
title_short |
Issues of Letter of Credit in Malaysian Islamic Banks |
title_full |
Issues of Letter of Credit in Malaysian Islamic Banks |
title_fullStr |
Issues of Letter of Credit in Malaysian Islamic Banks |
title_full_unstemmed |
Issues of Letter of Credit in Malaysian Islamic Banks |
title_sort |
Issues of Letter of Credit in Malaysian Islamic Banks |
publishDate |
2022 |
container_title |
Journal of Risk and Financial Management |
container_volume |
15 |
container_issue |
9 |
doi_str_mv |
10.3390/jrfm15090373 |
url |
https://www.scopus.com/inward/record.uri?eid=2-s2.0-85138644794&doi=10.3390%2fjrfm15090373&partnerID=40&md5=ed48680851490959884bcc0cbf51357f |
description |
This paper discussed the prevailing issues currently faced by Islamic banks on the offering of Letter of Credit (LC), originally brought forward by the International Chamber of Commerce, using Shariah contracts and puts forth recommendations on practical solutions to solve the issues. The study adopted a qualitative method where the information on the issues of Islamic LCs was gathered throughout interviews with different bankers closely involved in LC issuance from 12 Islamic banks in Malaysia. The results indicate that there are three vital issues related to LCs offered by Islamic banks which lead to Shariah non-compliance issues. The issues revolve around the conversion of LC Wakalah (agency) to LC Murabahah (cost-plus), the existence of a sale contract between the customer and exporter and lastly the title of goods stated in the bill of lading. The findings recommend several solutions in relation to LCs within the underlying Shariah contracts to ensure that their operation complies with the Shariah requirements and Malaysian laws, standards and regulations. This paper highlights the issues of Islamic LC yet to be discussed thoroughly based on the views of a panel of experts and Islamic bankers. © 2022 by the authors. |
publisher |
MDPI |
issn |
19118074 |
language |
English |
format |
Article |
accesstype |
All Open Access; Gold Open Access |
record_format |
scopus |
collection |
Scopus |
_version_ |
1814778504274771968 |