Relationships between Islamic banks and conventional banks in letter of credit (L/C) transactions are discussed in some detail on the Greater Kashmir web site.

A report posted to the site deals in particular with relationships between Islamic banks and their non-Islamic counterparts in correspondence services, documentary credits and exchange of funds.

Relationships

The report looks at the frequent instances when Islamic banks are required to strike up relationships with conventional banks when, for example, a customer of an Islamic bank wants to import goods from a territory where only conventional banking exists or when a supplier wants to deal with a specified non-Islamic bank.

In such instances the Islamic bank could open a credit account with the conventional bank in the exporter's territory, the report suggests.

Credit account

The lead point in the report is that the Islamic bank may ask the correspondent bank to add its confirmation to L/Cs opened on behalf of the supplier to importers while keeping a surplus in the credit account to cover its expected obligation to the supplier.

Thus facilities for documentary credits can be extended according to the report.

The full report can be found at:

http://www.greaterkashmir.com/full_story.asp?Date=2_10_2006&ItemID=4&cat=12

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.