The Nature of the Authentication of Letter of Credit in Islamic banking

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@Meisam Khazaee / Assistant Professor, Law Department, Ayatollah Boroujerdi University

Saeed Nazari Tavakoli / Professor, Department of Jurisprudence and Fundamentals of Islamic Law,
Tehran University                                                                                            

Seyed Abbas Mosaviyan / Professor, Department of Islamic Economics, Research Institute for Islamic Culture and Thought                                                                                                                  

Received: 2020/10/01 - Accepted: 2021/02/17


Letter of credit is one of the most common and secure methods of payment for goods in international trade, which is done through the seller and buyer's banks. In the process of letter of credit, sometimes, to ensure payment of the goods by the buyer and the bank opening the credit, the beneficiary asks the buyer that another bank, as the confirming bank, approves the letter of credit or the beneficiary requests authentication directly from a bank other than the credit opening bank. In these circumstances, the confirming bank, in return for the commission, undertakes to pay the letter to the beneficiary if the issuing bank refuses or fails to pay the credit. Using a descriptive-analytical method and given the necessity of concluding banking contracts in the form of sharia contracts, this paper studies the nature of the authentication of letter of credit from a jurisprudential and legal point of view, and with the new approach to contract guarantee, this paper has considered it as an example of a guarantee of payment obligation in the banking system.

Keywords: Letter of credit, Issuing bank, Confirming bank, Authentication, Bank guarantee, Guarantee contract.

JEL: E51, G20, G21, G29, K22.

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