Reimbursement And Issuing Bank Obligation In Islamic Financing Using LC's
Posted: Wed May 20, 2015 5:34 pm
I saw a pamphlet today on islamic financing using lc's. One of the description was of a Murabaha transaction using LC. But there was a comment that i didn't understand. "The LC must mention the standard reimbursement clause, which eliminates the obligation of the Issuing Bank to make payments under the LC and is the first step towards transferring this obligation completely and irrevocably to us without recourse to the Issuing Bank."
In context:
"I. Letter of Credit (LC): a. Direct Financing Issuance Process
1. The Importer (as the Beneficiary of our financing) arranges with his bank (Issuing Bank) to issue an LC in favor of an Exporter. The LC must mention the standard reimbursement clause, which eliminates the obligation of the Issuing Bank to make payments under the LC and is the first step towards transferring this obligation completely and irrevocably to us without recourse to the Issuing Bank."
Can someone explain to me how a reimbursement clause would remove the issuing banks payment obligation? What am i missing?
In context:
"I. Letter of Credit (LC): a. Direct Financing Issuance Process
1. The Importer (as the Beneficiary of our financing) arranges with his bank (Issuing Bank) to issue an LC in favor of an Exporter. The LC must mention the standard reimbursement clause, which eliminates the obligation of the Issuing Bank to make payments under the LC and is the first step towards transferring this obligation completely and irrevocably to us without recourse to the Issuing Bank."
Can someone explain to me how a reimbursement clause would remove the issuing banks payment obligation? What am i missing?