Musharaka Letter of Credit

Product Definition

Musharaka LC is a letter of credit issued by Al Rajhi Bank in favor of a beneficiary (exporter) on behalf of the applicant (importer).  Al Rajhi Bank  commits and accepts to pay against trade documents drawn in compliance with the letter of credit terms.  In turn, Al Rajhi Bank’s credit worthiness replaces that of the applicant.

Musharaka works like a limited partnership between Al Rajhi Bank and customers who need to import goods and equipment but do not have the sufficient resources to fund the transaction.

In this type of transaction, the customer would provide a defined portion of the funds required and Al Rajhi Bank would provide the remaining funds and issue LCs to facilitate the import of the goods.

Features and Benefits

• Importer needs to contribute only a portion of the funds required for import
• Importer is assured that payment will only be made to the exporter only when he complies with the terms and conditions of the letter of credit
• Importer can defer payment to the bank on arrival of the goods as per prior agreement with the bank
• Immediate notification to Importer upon receipt of documentation
• Importer improves his negotiating position through Al Rajhi Bank payment guarantee

Transaction Mechanism

After the Musharaka LC is opened, when the goods arrive, there are three options available to the importer:

• Al Rajhi sells its share in Musharaka to the customer on cash payment or deferred basis at an agreed margin
• The customer sells its share to Al Rajhi Bank on a cash payment or deferred basis
• Both sell their shares in the market together

Al Rajhi issues, amends, confirms and pays both sight and acceptance letters of credit through its extensive network of correspondent bank relationships.