Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective

Letter of credit (LC) is a payment mechanism which is used to facilitate trade. One of the fundamental principles that govern the LC operation is principle of strict compliance. This principle indicates that in order to be paid; seller’s documents must strictly comply with the LCs’ requirement. Th...

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Main Authors:	Othman, Ahmad Azam, Che Hashim, Rosmawani
Format:	Conference or Workshop Item
Language:	English English
Published:	2012
Subjects:	K Law (General)
Online Access:	http://irep.iium.edu.my/38356/ http://irep.iium.edu.my/38356/ http://irep.iium.edu.my/38356/1/3rdICBER2012_Proceeding_Strict_Compliance.pdf http://irep.iium.edu.my/38356/4/000_000_3rdICBER2012_Proceeding_Content.pdf

id	iium-38356
recordtype	eprints
spelling	iium-383562015-01-08T09:35:21Z http://irep.iium.edu.my/38356/ Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective Othman, Ahmad Azam Che Hashim, Rosmawani K Law (General) Letter of credit (LC) is a payment mechanism which is used to facilitate trade. One of the fundamental principles that govern the LC operation is principle of strict compliance. This principle indicates that in order to be paid; seller’s documents must strictly comply with the LCs’ requirement. This practice seems peculiar to the inherent nature of the contract of sale where the goods are customarily considered to be the only “factor” in making a payment. On the other hand, in LC transaction, banks are confined to handling financial and papers only, as provided by the UCP, “Bank deals with documents only”. Accordingly, payment for the goods is not honored upon compliance of the goods sold but it is paid on compliance of seller’s documents. Likewise, it is established that commercial banks worldwide, including Malaysian banks, adopt the same approach in dealing with documents in Islamic LC. The aim of this paper is to look at this practice which is originally conventional, from Shariah’s perspective. In order to determine the permissibility of stipulating such condition (a condition that payment in LC is honoured only upon compliance of documents) from Shariah’s point of view, it is imperative to study the position of Islamic law relating to freedom of stipulating condition in sale contracts. Among other things, this paper discusses the origin of the principle of strict compliance in LC transactions and the rationale of its application. Furthermore, it highlights Shariah issues in the principle of strict compliance in LC. Last but not least, it focuses on the views of the Muslim jurists in the issue of freedom of stipulating condition in sales contract. It is only by looking into the basic principles highlighted by the Muslim jurists on this issue; the permissibility of strict compliance principle can be ascertained. 2012-03 Conference or Workshop Item PeerReviewed application/pdf en http://irep.iium.edu.my/38356/1/3rdICBER2012_Proceeding_Strict_Compliance.pdf application/pdf en http://irep.iium.edu.my/38356/4/000_000_3rdICBER2012_Proceeding_Content.pdf Othman, Ahmad Azam and Che Hashim, Rosmawani (2012) Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective. In: 3rd International Conference on Business and Economic Research (3rd ICBER 2012, 12 - 13 March 2012, Bandung, Indonesia. http://www.internationalconference.com.my/proceeding/icber2012_proceeding/icber2012_proceeding.html
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English English
topic	K Law (General)
spellingShingle	K Law (General) Othman, Ahmad Azam Che Hashim, Rosmawani Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective
description	Letter of credit (LC) is a payment mechanism which is used to facilitate trade. One of the fundamental principles that govern the LC operation is principle of strict compliance. This principle indicates that in order to be paid; seller’s documents must strictly comply with the LCs’ requirement. This practice seems peculiar to the inherent nature of the contract of sale where the goods are customarily considered to be the only “factor” in making a payment. On the other hand, in LC transaction, banks are confined to handling financial and papers only, as provided by the UCP, “Bank deals with documents only”. Accordingly, payment for the goods is not honored upon compliance of the goods sold but it is paid on compliance of seller’s documents. Likewise, it is established that commercial banks worldwide, including Malaysian banks, adopt the same approach in dealing with documents in Islamic LC. The aim of this paper is to look at this practice which is originally conventional, from Shariah’s perspective. In order to determine the permissibility of stipulating such condition (a condition that payment in LC is honoured only upon compliance of documents) from Shariah’s point of view, it is imperative to study the position of Islamic law relating to freedom of stipulating condition in sale contracts. Among other things, this paper discusses the origin of the principle of strict compliance in LC transactions and the rationale of its application. Furthermore, it highlights Shariah issues in the principle of strict compliance in LC. Last but not least, it focuses on the views of the Muslim jurists in the issue of freedom of stipulating condition in sales contract. It is only by looking into the basic principles highlighted by the Muslim jurists on this issue; the permissibility of strict compliance principle can be ascertained.
format	Conference or Workshop Item
author	Othman, Ahmad Azam Che Hashim, Rosmawani
author_facet	Othman, Ahmad Azam Che Hashim, Rosmawani
author_sort	Othman, Ahmad Azam
title	Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective
title_short	Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective
title_full	Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective
title_fullStr	Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective
title_full_unstemmed	Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective
title_sort	principle of strict compliance in letter of credit: a comparative study from legal and shariah perspective
publishDate	2012
url	http://irep.iium.edu.my/38356/ http://irep.iium.edu.my/38356/ http://irep.iium.edu.my/38356/1/3rdICBER2012_Proceeding_Strict_Compliance.pdf http://irep.iium.edu.my/38356/4/000_000_3rdICBER2012_Proceeding_Content.pdf
first_indexed	2023-09-18T20:55:06Z
last_indexed	2023-09-18T20:55:06Z
_version_	1777410251047305216

Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective

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