A standby letter of credit (L/C) is a key feature in an innovative Shar'iah-compliant facility arranged for Globexbank in Moscow.

The deal arranged by UK-based global trade finance group CCH International, through its German subsidiary, CCH Europe GmbH, is a US$20 million Murabaha facility financed by an unnamed Gulf-based Islamic bank.

Innovative

This is the first Murabaha facility extended to a Russian institution by an Islamic bank, according to a report in the Arab News.

"Islamic financial institutions have virtually no exposure to Russian risk and therefore the market is of great interest to CCH. Given the size of the Russian market and its need for liquidity, we are confident of arranging further Shar'iah-compliant transactions for Russian institutions in the future," managing director of CCH International Eren Nil told the English language daily.

Guarantee function

CCH Europe acted as the agent for the Gulf-based Islamic bank, and issued the amount of the Murabaha facility and is the beneficiary under a standby L/C issued by Globexbank.

Under the Murabaha facility, the bank purchases the goods for its customer, and re-sells them to the customer on a deferred basis, adding an agreed profit margin. The customer then pays the sale price for the goods over instalments, effectively obtaining credit without paying interest.

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