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Fatwa CenterCredit letters vs. Suftajah
Question
Is letters of credit similar to suftajah?
Answer
All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad 
is His slave and Messenger.
Suftajah means that someone takes a loan from someone else and asks his representative/ deputy in the country of the lender to pay him there from his money. This is viewed as permissible by a group of scholars.
As for the letter of credit, it is a kind of guarantee issued by the bank that it pays a sum of money to another party upon the request one of its clients in case of entering in a tender or implementing a project. This is for the beneficiary of this guarantee to take his rights in full in case of any delay or failure on the part of the client to fulfill his obligations.
The credit letter issued by banks is lawful, because it is either a guarantee or authorization, which are both lawful unless they involve anything which invalidates them (makes them prohibited). Hence, not all cases can be ruled as lawful or unlawful; rather, each case has its own ruling in light of its conditions. For more details, please refer to Fataawa 97244 and 82739.
Allaah Knows best.
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