Documentary credit
A bank's written undertaking to pay a seller, on the buyer's instruction, against presentation of stipulated documents.
A documentary credit is a written undertaking by a bank, issued on a buyer's instruction, to pay a seller up to a specified amount within a set period when the seller presents the documents the credit stipulates. AAOIFI's documentary credit standard allows the bank to charge actual expenses and a fee for its services, as a lump sum or a percentage, provided the duration of the credit is not taken into account and the guarantee element itself is not priced. Where the bank also finances the purchase, the standard sets out how this can be done through murabaha or musharakah.
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This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.