Islamic trade financing for exporters and importers

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Hello readers, today I will be looking at Islamic trade financing. Individuals that do import and export goods can benefit from this article. Today I will be talking about letter of credit.

Letter of credit

This is perceived as a fee based service provided by the bank to promote a trade between a buyer and a seller. The letter is issued by the bank to assure the seller that a payment will be made to him/her on behalf of the buyer after the seller must have provided some documents and of course delivered the goods. The bank can make payments using this form, the form is discussed below:

-The buyer will depositing the full amount of the transaction into the bank assuring the seller. After the goods must have been delivered and the documents needed has been provided by the seller, then the bank will make payments to the seller using the money of the buyer. In other words the bank acts as an agent of the buyer. However, the buyer will be charged a fee for the service.

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