A modern application of guaranties that constitutes a guaranty issued by a bank on behalf of a local merchant, securing payment to a foreign exporter. In other words, a letter of credit guarantees an exporter that an importer will pay the promised price upon providing documentation to evidence delivery of the goods purchased. If the guaranty is fully covered by the bank’s customer, the letter of credit is, in shari’a nomination, an agency (wakalah): the bank acts as an agent (wakeel) and the customer is a principal (muwakkel). The bank may collect a fee in return for this agency. However, if the guaranty is fully uncovered, then the letter of credit is nominated as a pure guaranty: the bank is only a guarantor, and may not charge any amounts for this guaranty (of course, the bank is permitted to collect administrative fees/costs). If the guaranty is partially covered (the contract is not a pure guaranty), then the relationship between the bank and the customer is a partnership in profits and losses. The bank will receive a specified percentage (2%, 3%, etc).
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