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Islamic Trade Finance – Chronology Where Bill of Lading Is Sent Directly to Customer (Bank Has No Control)
Example Scenario
A Malaysian importer/customer wants to import:
RM1,000,000
The customer obtains:
the Bill of Lading (B/L) is sent directly to the customer,
so:
❌ the Islamic bank does NOT control the goods through the B/L.
This is one of the arrangements mentioned in:
STEP 1 — Customer Wants to Import Goods
The customer contacts:
STEP 2 — Customer Requests Financing From Islamic Bank
The customer asks:
STEP 3 — Islamic Bank Issues Letter of Credit (LC)
The Islamic bank issues:
a Letter of Credit (LC)
to the exporter.
The LC guarantees:
✅ payment to exporter
if:
IMPORTANT DIFFERENCE IN THIS STRUCTURE
The LC instructions provide that:
the Bill of Lading will be issued directly to customer/importer,
NOT:
❌ bank does not control shipment documents.
STEP 4 — Exporter Ships Goods
The exporter loads:
Bill of Lading (B/L).
STEP 5 — Bill of Lading Names Customer
The B/L states:
Consignee
➡ Customer/importer directly.
NOT:
✅ customer directly controls release of goods.
IMPORTANT CONSEQUENCE
Because customer is consignee:
❌ does not possess constructive control over goods through B/L.
STEP 6 — Exporter Receives Original B/L
The exporter physically receives:
STEP 7 — Exporter Submits Documents to Bank
The exporter still submits:
Why?
Because:
STEP 8 — Islamic Bank Pays Exporter
After checking documents:
✅ bank pays exporter.
STEP 9 — Ship Arrives in Malaysia
The ship reaches:
✅ can directly collect goods from port.
STEP 10 — Customer Repays Bank
The customer later settles:
IMPORTANT DIFFERENCE FROM BANK-CONTROLLED B/L
In Bank-Controlled Structure
B/L Names
➡ bank.
Result
✅ bank controls goods.
In Direct-to-Customer Structure
B/L Names
➡ customer.
Result
❌ bank does not control goods through B/L.
Ownership and Control in This Structure
During Shipment
Usually:
✅ customer may already have direct control rights through B/L.
The bank’s role mainly becomes:
Why Would This Structure Be Used?
It may be used:
Islamic Finance Perspective
This structure creates:
Chronological Summary
Step 1
Customer wants to import goods.
⬇
Step 2
Customer requests Islamic financing.
⬇
Step 3
Islamic bank issues LC.
⬇
Step 4
Exporter ships goods.
⬇
Step 5
Shipping company issues B/L directly to customer.
⬇
Step 6
Exporter submits documents to bank.
⬇
Step 7
Bank pays exporter.
⬇
Step 8
Ship arrives Malaysia.
⬇
Step 9
Customer directly collects goods.
⬇
Step 10
Customer repays financing to bank.
Important Principle
If B/L Names Bank
➡ bank controls goods.
If B/L Names Customer
➡ customer controls goods directly.
The:
Bill of Lading determines practical control and right to claim the shipment from the carrier.
Example Scenario
A Malaysian importer/customer wants to import:
- industrial equipment from Germany.
RM1,000,000
The customer obtains:
- Islamic trade financing facility.
the Bill of Lading (B/L) is sent directly to the customer,
so:
❌ the Islamic bank does NOT control the goods through the B/L.
This is one of the arrangements mentioned in:
- istijrār;
- certain import financing facilities.
STEP 1 — Customer Wants to Import Goods
The customer contacts:
- German exporter/supplier.
- industrial equipment.
STEP 2 — Customer Requests Financing From Islamic Bank
The customer asks:
- Islamic bank for import financing facility.
- subject to financing terms.
STEP 3 — Islamic Bank Issues Letter of Credit (LC)
The Islamic bank issues:
a Letter of Credit (LC)
to the exporter.
The LC guarantees:
✅ payment to exporter
if:
- exporter ships goods properly;
- exporter submits required documents.
IMPORTANT DIFFERENCE IN THIS STRUCTURE
The LC instructions provide that:
the Bill of Lading will be issued directly to customer/importer,
NOT:
- to the bank;
- not “to the order of the bank.”
❌ bank does not control shipment documents.
STEP 4 — Exporter Ships Goods
The exporter loads:
- industrial equipment onto ship.
Bill of Lading (B/L).
STEP 5 — Bill of Lading Names Customer
The B/L states:
Consignee
➡ Customer/importer directly.
NOT:
- Islamic bank.
✅ customer directly controls release of goods.
IMPORTANT CONSEQUENCE
Because customer is consignee:
- customer can directly claim goods from shipping company.
❌ does not possess constructive control over goods through B/L.
STEP 6 — Exporter Receives Original B/L
The exporter physically receives:
- original shipping documents.
STEP 7 — Exporter Submits Documents to Bank
The exporter still submits:
- invoice;
- B/L copy/original;
- shipping documents
Why?
Because:
- bank promised payment through LC.
STEP 8 — Islamic Bank Pays Exporter
After checking documents:
✅ bank pays exporter.
STEP 9 — Ship Arrives in Malaysia
The ship reaches:
- Malaysian port.
- customer already named consignee in B/L,
✅ can directly collect goods from port.
STEP 10 — Customer Repays Bank
The customer later settles:
- financing obligation with Islamic bank,
according to financing arrangement.
IMPORTANT DIFFERENCE FROM BANK-CONTROLLED B/L
In Bank-Controlled Structure
B/L Names
➡ bank.
Result
✅ bank controls goods.
In Direct-to-Customer Structure
B/L Names
➡ customer.
Result
❌ bank does not control goods through B/L.
Ownership and Control in This Structure
During Shipment
Usually:
✅ customer may already have direct control rights through B/L.
The bank’s role mainly becomes:
- payment financier;
- LC issuer.
Why Would This Structure Be Used?
It may be used:
- for commercial convenience;
- where importer has strong creditworthiness;
- where bank accepts lower documentary control.
Islamic Finance Perspective
This structure creates:
- less direct ownership/control by bank.
- Sharī‘ah structuring becomes more sensitive.
- financing does not become merely cash lending with profit.
- bank-controlled B/L structures are often preferred in murābahah trade financing.
Chronological Summary
Step 1
Customer wants to import goods.
⬇
Step 2
Customer requests Islamic financing.
⬇
Step 3
Islamic bank issues LC.
⬇
Step 4
Exporter ships goods.
⬇
Step 5
Shipping company issues B/L directly to customer.
⬇
Step 6
Exporter submits documents to bank.
⬇
Step 7
Bank pays exporter.
⬇
Step 8
Ship arrives Malaysia.
⬇
Step 9
Customer directly collects goods.
⬇
Step 10
Customer repays financing to bank.
Important Principle
If B/L Names Bank
➡ bank controls goods.
If B/L Names Customer
➡ customer controls goods directly.
The:
Bill of Lading determines practical control and right to claim the shipment from the carrier.
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