Al murabahah letter of credit refer to a joint venture on profit and loss sharing between a bank and customer whereby customer has to contribute part of capital in joint project.

BANKING GENERAL KNOWLEDGE

Please wait while the activity loads.
If this activity does not load, try refreshing your browser. Also, this page requires javascript. Please visit using a browser with javascript enabled.

If loading fails, click here to try again

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A	True
B	False

Explanation:

Detailed explanation-1: -A murabaha letter of credit is issued on behalf of an applicant (importer). The bank issuing the letter of credit agrees to pay an amount of money in compliance with the terms described in the letter of credit.

Detailed explanation-2: -The division of profits between the two parties is on a proportional basis and cannot be a guaranteed return. The investor is not liable for losses beyond the capital it has contributed. The Mudareb does not share in the losses except for the loss of its time and efforts.

Detailed explanation-3: -Murabaha financing is similar to a rent-to-own arrangement in the non-Muslim world, with the intermediary (e.g., the lending bank) retaining ownership of the item being sold until the loan is paid in full. There are also Islamic investment funds and sukuk (Islamic bonds) that use murabahah contracts.

Detailed explanation-4: -Profit and Loss Sharing (also called PLS or participatory banking) refers to Sharia-compliant forms of equity financing such as mudarabah and musharakah. These mechanisms comply with the religious prohibition on interest on loans that most Muslims subscribe to.

There is 1 question to complete.