---
title: "What is Documentary credit? | IslamicOpenFinance™"
description: "A bank's written undertaking to pay a seller, on the buyer's instruction, against presentation of stipulated documents."
url: https://islamicopenfinance.com/glossary/documentary-credit/
lang: en-GB
source: "IslamicOpenFinance"
---

[Glossary](https://islamicopenfinance.com/glossary/) / [Lease, agency and service contracts](https://islamicopenfinance.com/glossary/#lease)

Lease, agency and service contracts

# 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.

## Sources

- [AAOIFI Shari'ah Standards, English edition (full text, PDF): Shari'ah Standard No. 14, Documentary Credit, items 2/1 and 3/3/1](https://aaoifi.com/wp-content/uploads/2017/12/Shariaa-Standards-ENG.pdf)

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

## Related terms

[**Letter of guarantee** A bank's written guarantee to a beneficiary; AAOIFI and Bank Negara Malaysia take different positions on charging for it.](https://islamicopenfinance.com/glossary/letter-of-guarantee/) [**Kafalah** A guarantee: a guarantor joins the guaranteed party in assuming a specified liability.](https://islamicopenfinance.com/glossary/kafalah/) [**Murabaha** A sale at cost plus an agreed, disclosed profit; the seller must own the asset first. Payment is often deferred in instalments.](https://islamicopenfinance.com/glossary/murabaha/) [**Wakalah** Agency: one party appoints another to act on its behalf, with or without a fee.](https://islamicopenfinance.com/glossary/wakalah/)

**Lease, agency and service contracts**

1. [Ijarah](https://islamicopenfinance.com/glossary/ijarah/)
2. [Ijarah muntahia bittamleek](https://islamicopenfinance.com/glossary/ijarah-muntahia-bittamleek/)
3. [Wakalah](https://islamicopenfinance.com/glossary/wakalah/)
4. [Kafalah](https://islamicopenfinance.com/glossary/kafalah/)
5. [Hawalah](https://islamicopenfinance.com/glossary/hawalah/)
6. [Ju'alah](https://islamicopenfinance.com/glossary/jualah/)
7. [Rahn](https://islamicopenfinance.com/glossary/rahn/)
8. [Ijarah mawsufah fi al-dhimmah (forward lease)](https://islamicopenfinance.com/glossary/ijarah-mawsufah-fi-dhimmah/)

[All 221 terms](https://islamicopenfinance.com/glossary/)