Documentary Credit - Appendix C (Definitions)

Transcription

1. Shari ’ah Standard No. (14): Documentary Credit Appendix (C) Definitions Credit Documents These are the documents relating to goods detailed in the credit. The documents are divided into two types: basic and additional documents. Basic documents include: Shipping documents, commercial invoice, marine insurance policy, certificate of origin, consulate invoice and promissory note. Additional documents include: Weights certificate, analysis certificate, review and inspection certificate, warehouse receipts, delivery orders, packing review/supervision certificate, test certificate, medical certificate and non-infection certificate. Such certificates are requested to verify certain attributes and characteristics of the commodity and to make sure that it is free of defects and infection. The certificates are required by the authorities of the importing or exporting country. Bill of Lading A bill of lading is the traditional source of shipping documents. It indicates the party authorized to receive the goods, whether it is the original beneficiary, a party in whose name the bill is backed as a collateral arrangement or an agent assigned to receive the goods. A bill of lading constitutes the practical execution of the shipping contract signed between the shipper and the marine carrier. Shipping is the responsibility of either the buyer or of the seller according to the type of International Sale Contract (Commercial Terms) adopted. A bill of lading is the only shipping document that can be backed. Examination of Documents It is the process of ensuring that the documents comply with the specifications indicated in the letter of credit. The general conditions for the integrity of documents are detailed through the following four conditions: 415
2. Shari ’ah Standard No. (14): Documentary Credit ■ That the documents are submitted during the validity of the credit. ■ That they are complete in number. ■ That they are complimentary and one document does not contradict another and that each contains the required information or each serves its function. ■ That they conform to the conditions of the letter of credit. In case any of these conditions is missing, for any one of these documents, it is obligatory upon the bank to reject the documents as a whole, even those that are not defective. At Sight Credit It is credit that has to be paid promptly at sight according to the value of the documents, by the issuing bank, the confirming bank or the paying bank, if the documents conform to the conditions of the credit. Deferred Payment Credit It is an undertaking given by the issuing, or confirming bank to pay at a future date, being the date fixed in the credit, the value of the documents if they conform to the conditions of the credit. It differs from acceptance credit insofar as the beneficiary does not present a promissory note with the documents. Acceptance Credit It is the acceptance of the bill of exchange attached to the documents or is signed on behalf of the bank; that is, the bank accepts the obligation of paying the nominal value on the date of maturity. Negotiation of Documents It is the payment of the value of the documents, or the purchase of the bill of exchange attached to them; that is, its discounting, whether it is to be paid at sight or after a known specified period. Acceptance of Documents ‘Under Reserve’ It occurs when the bank chooses to accept the documents at its own risk despite their non-conformance with the conditions of the credit, paying their value or accepting the bill of exchange attached to them, on the condition that 416
3. Shari ’ah Standard No. (14): Documentary Credit it reserves the right of recourse to the beneficiary if the issuing bank does not accept the discrepancies in the documents. The paying bank usually reserves this right by way of obtaining a letter of guarantee, covering the value of the documents, from the bank of the beneficiary. Marine Letter of Guarantee It is an undertaking given by the issuing bank to place the original bill of lading, when received, at the disposal of the carrier in lieu of receiving back a letter from him. The carrier in this case is relieved from all responsibility that may arise from the delivery of the goods to the importer, who gives an undertaking to the issuing bank for the acceptance of the documents regardless of any discrepancies in them. This type of letter is usually issued upon arrival of the goods when the documents are to follow or are delayed. Correspondent Bank It is the bank assigned by the issuing bank to notify the beneficiary of the credit. As a rule, the correspondent bank is under no obligation to pay the value of the credit; its role is confined to that of an intermediary. Correspondent banks are banks with which the institution makes certain arrangements for accepting or covering the value of the credits that it issues or confirms. In case the beneficiary requests notification through a non-correspondent bank, the issuing bank sends its instructions to one of its correspondent banks asking it to process the notification through the bank nominated by the beneficiary. Confirmation of Credit It is the merging of the liability of the confirming bank with the liability of the issuing bank making both banks liable for fulfilling the conditions of payment of credit, when the beneficiary presents documents that meet the terms of the credit. The beneficiary has the right to claim payment severally from either bank or jointly from both banks. The Paying Bank It is a correspondent bank of the issuing bank in the currency of the credit to whom the issuing bank entrusts the payment of the value of the 417
4. Shari ’ah Standard No. (14): Documentary Credit credit on its behalf, but the paying bank is under no obligation for executing this trust. The Covering Bank Covering banks are types of correspondent banks with which the bank maintains an account and to whom it delegates the authority to cover disbursement and negotiation payments upon the first presentation. Transferable Credit It is irrevocable credit by means of which the beneficiary (first beneficiary) requests the bank assigned, or any other licensed institution, to make payment or to undertake to pay in the future or to accept or to negotiate so as to make the credit available, in whole or in part, to the beneficiary or beneficiaries. Back to Back Credit It is irrevocable credit issued for the same purpose as that of transferable credit whenever a credit is not transferable. Revolving Credit It is credit that is opened for a fixed value and duration, except that its value is renewed automatically when it is executed or utilised so as to enable the beneficiary to present documents for a new operation within the value of the credit, during the period of its validity, and for the number of times fixed for the credit. Advance Credit or Red Clause Credit It is credit bearing a paragraph written in red ink to invite attention to its instructions. In this credit, the authorised bank is assigned to pay certain amount according to percentage of the value of the credit to the beneficiary in advance before the goods are shipped and before the documents that necessitate payment are presented. Credit Available for Negotiation This is credit by which the issuing bank grants to the correspondent bank the legal authority to buy bills of exchange drawn on the basis of documentary 418
5. Shari ’ah Standard No. (14): Documentary Credit credit upon presentation of bills of exchange that are payable at sight by the issuing bank or are payable in the future to the issuer of documentary credit. Accordingly, the seller is able to receive the value of the credit (bills of exchange) upon presentation of required complete documents that obligate payment of the value of the credit. 419