What Is Letter of Credit?

Participation Finance Concepts 12.03.2021, 23:36
What Is Letter of Credit?

Letter of Credit: A type of payment in international trade that includes the issuing bank's commitment to pay a certain amount of money to the seller (exporter) in return for a fee in the event that documents for the imported goods (letter of credit documents) are submitted upon the instructions of the buyer (importer). If the letter of credit is given without the condition of submitting certain documents to the bank, it is called a "simple letter of credit", if it is made under these conditions, it is called a "documentary letter of credit" (el-İ‘timâdu'l-mustenedî). It is a document issued by a financial institution to make a specified amount of payment to the named beneficiary in exchange for submitting the specified documents. It is also a conditional bank credit.

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