Documentary Credit is known as financial instruments which are used heavily by traders, especially international traders. These are predominantly put to usage as debt supporting instruments by industries. These debt supporting instruments have emerged and increased in usage because of the nature of the current economic order which possesses characteristics such as liberalization and globalization. Usually, documentary credit is based on policy and efficacy considerations that require the prompt honour of the instrument by banks. The transactions for which these instruments are used are huge and are based on documents by the banks, hence, banking institutions occupy a vital role in facilitating these transactions between parties. These transactions carry huge goodwill value and can impact a country’s status in international trade. There are also chances of international frauds happening, either by the exercise of fraud in concoction with banks or shipping agents. Increases in frauds of such category can harm a country and its economic growth. Government intervention in the above-mentioned field is very limited.

What makes these instruments stand out is how the bank pays the required amount in a process where the bank does so trusting the documents provided by the party whose name is mentioned in the credit. The bank issuing such documentary credit carries an obligation to complete the transaction by paying the parties, regardless of any inconsistency in the facts of the basic sale. This is so because the bank is not a party to the basic contract of sale that binds the two parties and therefore, has no obligation to check the veracity of the facts of the sale transaction. What they are bound to do is to verify the genuineness of the documents submitted to them as ‘Letters of Credit’. This core principle that drives these transactions is that of quick payments. As the banks are not bothered with the authenticity of basic sale transactions, it keeps them away from investigating for any element of fraud. This has encouraged quite a few people to take advantage of this system and lead luxurious lives.

Trust and faith are what commercial transactions run on in this world. Corporate relationships stand on these foundations. The presence of trust between investors of capital and the managers of that capital is necessary for the success of a corporation. It is also known by us that wherever there are transaction systems, there always exist people who would attempt to manipulate them to their advantage. Even though this is a well-known fact the willingness to deal with these banking fraudsters seems to be absent. More often than not these fraudsters victimize companies which fail to employ legal measures to protect themselves from loopholes. If it is to be put in very simple words, commercial distrust is spread among financial institutions because of dishonest employers, weak legislation, weak authority over the corporation’s structure and absence of clear vision.