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    Letter of Credit and Bank Guarantee

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    Sojan Maharjan
    A Letter of Credit is a written guarantee by a bank that it will pay an exporter if the importer meets the terms outlined in the letter. The letter protects the exporter by ensuring payment for goods shipped. There are different types of letters of credit, including sight credits paid immediately and time credits paid at a later date. Banks require documents like proforma invoices and certificates when issuing a letter of credit to facilitate international trade.

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    Letter of Credit and Bank Guarantee

    Uploaded by

    Sojan Maharjan
    1K views3 pages
    A Letter of Credit is a written guarantee by a bank that it will pay an exporter if the importer meets the terms outlined in the letter. The letter protects the exporter by ensuring payment for goods shipped. There are different types of letters of credit, including sight credits paid immediately and time credits paid at a later date. Banks require documents like proforma invoices and certificates when issuing a letter of credit to facilitate international trade.

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    Letter of Credit and bank guarantee

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    A Letter of Credit is a written guarantee by a bank that it will pay an exporter if the importer meets the terms outlined in the letter. The letter protects the exporter by ensuring payment for goods shipped. There are different types of letters of credit, including sight credits paid immediately and time credits paid at a later date. Banks require documents like proforma invoices and certificates when issuing a letter of credit to facilitate international trade.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    1K views3 pages

    Letter of Credit and Bank Guarantee

    Uploaded by

    Sojan Maharjan
    A Letter of Credit is a written guarantee by a bank that it will pay an exporter if the importer meets the terms outlined in the letter. The letter protects the exporter by ensuring payment for goods shipped. There are different types of letters of credit, including sight credits paid immediately and time credits paid at a later date. Banks require documents like proforma invoices and certificates when issuing a letter of credit to facilitate international trade.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Letter of Credit

    A Letter of Credit, simply defined, is a written instrument issued by a bank at the request of its customer,
    the Importer (Buyer), whereby the bank promises to pay the Exporter (Beneficiary) for goods or services,
    provided that the Exporter presents all documents called for, exactly as stipulated in the Letter of Credit,
    and meet all other terms and conditions set out in the letter of Credit. A Letter of Credit is also commonly
    referred to as a Documentary Credit.  

    A "Letter of Credit" is used as an instrument for settlement of payment arising out of commercial
    transactions like sales/purchases in national/international trade. We issue every types of LC as per the
    requirement of our customers. The common types are as under:

    1. Sight LC
    2. Time/Usance LC
    3. Differed/Mixed Payment LC
    4. Revolving LC
    5. Confirmed LC
    6. Transferable LC
    7. Back to Back LC
    8. Advance Payment LC  

    Documents required for issuing a Letter of Credit-


     
    Before issuing a LC, you will require to have approved credit limits sanctioned by the bank. Moreover,
    imports and exports transactions that involve foreign currencies are subject to Central Bank (NRB)'s
    foreign exchange regulations and other International rules like UCPDC 600, URR etc. We will require you
    to submit the following documents along with the LC Application form for issuing a Letter of Credit:  

     Proforma Invoice/Sales contract/Indent containing at least-


    o Harmonic code (in eight digits) of the goods to be imported,
    o Country of Origin
    o Delivery and Payment terms and various other details like rate, quantity, total value,
    shipment country etc. (wherever applicable)
    o Bi.Bi.Ni. Form No. 3 (Mandatory as per NRB)
      Other documents required are-
    o PAN Certificate
    o Firm/Company Registration Certificate
    o Board minute (if applicable) 

    There are various other NRB provisions regarding import/export of goods from India and other third
    countries. We will help you to know these provisions so as to make you feel at ease while conducting
    import/export business.

    Bank Guarantee

    Banks guarantees are written obligations of the issuing bank (MBNL) to pay a sum on to a beneficiary on
    behalf of its customers in the event that the customers themselves do not pay the beneficiary. Through
    such guarantee letters, MBNL undertakes responsibilities to provide fund (guarantee amount), following a
    default by you of your contractual or other obligations.

    Letters of Guarantee can be in the form of Bank Guarantees, Performance Bonds, Bid Bonds, Shipping
    Guarantees, Advance Payment Guarantees, Counter uarantees etc.
    Features and Benefits 

     Secure customers entering into bids, sales contracts, and tenders.


     Fulfillment of contracts with counterparties, based on the guarantee terms.

     
    Transaction Mechanism
     

     MBNL issues, amends, extends, and liquidates guarantees, all based on customer's requests.

     
    We issue every type of guarantees as per your requirements. The most commonly used guarantees are
    as under:
     

    1. Bid Bond (tender bond)

    Its purpose is to secure any claims by the party inviting the tender on the tenderer in the event of
    withdrawal of the bid before its expiry date or if the bid is modified unilaterally. It is also used if the
    tenderer, upon being awarded the contract, refuses to sign the contract or provide further guarantees on
    request.
    For issuance of bid bonds, customers need credit line from the bank.
     
    2. Performance Bond Guarantee

    As the name implies, performance bonds are a means of guaranteeing the performance of a company to
    live up to what it is promising to do. This also applies to any subcontractors or material suppliers that
    company may employ. All parties must adhere to certain cost, time, and quality criteria based on what
    they've been contracted to produce.     

    This guarantee is asked for by the beneficiary once it has elected a party to perform a certain task. In
    case the terms and conditions are violated by the customer, the beneficiary will invoke the guarantee and
    will obtain compensation for his loss.

     
    3. Advance Payment Guarantees

    Some contracts require that some percentage of Advance payment be made against the contract
    awarded. In such cases the Buyer or the employer may seek an advance payment guarantee from the
    bank with an undertaking to pay the guaranteed sum to the buyer if the contractor has failed to comply
    with the terms and conditions of the contract.

     
    4. Counter Guarantee

    For foreign bidders, who intend to participate in tenders or intend to enter into a contract in a project of
    Nepal must submit a guarantee acceptable to the beneficiary. In that case, the foreign party obtains a
    guarantee from the bank (acceptable to MBNL) in favor of MBNL, which in turn will issue a guarantee on
    behalf of the foreign party.

    Such guarantees issued on the backing or against the security of a foreign bank acceptable to local banks
    are called Counter Guarantee. A counter guarantee may either be a Bid Bond, Performance bond or an
    Advance Payment Guarantee.
     
    5. Deferred Payment /Supplier Credit Guarantee
    Generally this type of guarantee is used in import of merchandise or purchases on credit. By issuing the
    guarantee, MBNL agrees to pay the beneficiary up to the amount of the guarantee, in full or installment
    due, which otherwise was not paid by the buyer under the purchase agreement guaranteed by the bank.
      
    6. Shipping Indemnity

    Sometimes under an import LC, if the transport document (bills of lading) and other related documents do
    not arrive on the due time at the issuing bank's counter even after the goods have reached to the
    destined entry point, this type of guarantee is issued in favor of the shipping company/port authority to
    release the imported goods.

    Once the original documents arrive at the LC issuing bank and are submitted to the shipping company,
    guarantee will be released.

     
    Documents Required
     
    The list below is a very comprehensive list of paper; however some of the documents listed below may
    not be relevant in some cases.

     Basic Information Sheet to be filled up and submitted by the customer.


     Citizenship and/or valid permanent ID of the borrower/authorized persons and guarantors.
     Company Registration Certificate
     Copy of PAN/VAT registration with tax payment receipt.
     Copy of partnership deed in case of partnership firm.
     Copies of Articles and Memorandum of Association and certificates of incorporation of
    companies.
     Board minute in case of private limited company.
     Audited, Mangament prepared or provisional financial statements of last 2 years for the running
    company and projected financial statement for the new company for the next 5 years.
     Authenticated copy documents relating to security offered/ applies to valuation report:
    o Title Deed (Lalpurja)
    o Blue print of cadastral map (Napi Naksa) certified by Napi Office
    o Recent land tax payment receipt from malpot office (Tiro tireko rashid)
    o Wealth tax payment receipt of the borrower
    o Copy of property transfer deed Certificate from municipality stating the name of land
    owners of four corners along with kitta no. (Char-Killa Pramanit Gareko)
    o Citizenship certificate of landlord
    o pproved/Certified building drawing along with the approval (Naksha & Pass Certificate)
    o "No objection Letter"(NOC) in case of collateral owned by third party (Manjurinama)
    o NOC from legal hires of owner of the company/Institution mortgage of the property(ies)
    o Relation certificate issued by local authority
     Resume of the major promoters with highlighting of his technical qualification business
    experience and expertise.
     Business plan/proposal report
     Stock report, receivables report, payables report and bank outstanding report in case of existing
    firm.

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