Islamic Trade Finance – Chronology Where Bill of Lading Is Sent Directly to Customer (Bank Has No Control)

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:

• industrial equipment from Germany.

Equipment Price
RM1,000,000
The customer obtains:

• Islamic trade financing facility.

In this structure:
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.

The customer agrees to buy:

• industrial equipment.

STEP 2 — Customer Requests Financing From Islamic Bank
The customer asks:

• Islamic bank for import financing facility.

The Islamic bank agrees:

• 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.”

Thus:
❌ bank does not control shipment documents.


STEP 4 — Exporter Ships Goods
The exporter loads:

• industrial equipment onto ship.

The shipping company then issues:
Bill of Lading (B/L).


STEP 5 — Bill of Lading Names Customer
The B/L states:
Consignee
➡ Customer/importer directly.
NOT:

• Islamic bank.

Thus:
✅ customer directly controls release of goods.


IMPORTANT CONSEQUENCE
Because customer is consignee:

• customer can directly claim goods from shipping company.

The bank:
❌ 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

to bank for payment under LC.
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.

Since:

• customer already named consignee in B/L,

the customer:
✅ 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.

Therefore:

• Sharī‘ah structuring becomes more sensitive.

Islamic banks must ensure:

• financing does not become merely cash lending with profit.

This is why:

• 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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