Financing of International Trade

Presented by: Upendra Raj Dulal

 Trade Financing

• Finance is a key determinant of international trade, as trade

financing is the answer to the question “Who’s going to pay for
the goods and shipping?”
• therefore, Trade financing plays an important role in the
fulfillment of a trade-related transaction when the import and
export activities are not undertaken with a hundred percent
upfront cash payment before the delivery of goods is undertaken.
• Trade financing refers to short-term credit offered to importer or
exporter to facilitate them with working capital while helping in
risk mitigation.
• Trade finance refers to the funds that help fill the payment gap
created between the supply of the goods and the receipt of the
same by customers. Offering such funds makes sure the
movement of goods and services from one end to the other
remains smooth and free of financial struggles.
• Trade finance is about financing a trade where the
exchange of goods, products, commodities, and
different financial instruments occurs between
sellers/exporters and buyers/importers.
• Trade financing is a mechanism through which the
gap between the shipment of a product or
commodity from one market to its arrival in another
is efficiently bridged.
• It helps mitigate various risks related to products,
manufacturing, transport, and currency.
• Letter of Credit, supply chain financing, receivables
financing, export contract, etc., are some methods
adopted for effective trade financing.
• There are two players in a trade transaction:
• (1)an exporter, who requires payment for
their goods or services, and
• (2)an importer who wants to make sure they
are paying for the correct quality and quantity
of goods.
• As international trade takes place across
borders, with companies that are unlikely to
be familiar with one another, there are various
risks to deal with.
• Some of the risks associated are:
• Payment risk: Will the exporter be paid in full and on
time? Will the importer get the goods they wanted?
• Country risk: A collection of risks associated with doing
business with a foreign country, such as exchange rate
risk, political risk and sovereign risk. For example, a
company may not like exporting goods to certain
countries because of the political situation, a
deteriorating economy, the lack of legal structures, etc.
• Corporate risk: The risks associated with the company
(exporter/importer): what is their credit rating? Do
they have a history of non-payment?
• To reduce these risks, banks – and other financiers –
have stepped in to provide trade finance products.
 Trade Financing
• In Nepal, class ‘A’ commercial banks are allowed
to undertake trade financing activities.
• For example, the importer's bank may provide
a letter of credit to the exporter (or the exporter's
bank) providing for payment upon presentation
of certain documents, such as a bill of lading.
• The exporter's bank may make a loan (by
advancing funds) to the exporter on the basis of
the export contract.
 Key Points
• International trade presents a spectrum of risk, which causes
uncertainty over the timing of payments between the exporter
(seller) and importer (foreign buyer).
• For exporters, any sale is a gift until payment is received.
• Therefore, exporters want to receive payment as soon as possible,
preferably as soon as an order is placed or before the goods are
sent to the importer.
• For importers, any payment is a donation until the goods are
received.
• Therefore, importers want to receive the goods as soon as possible
but to delay payment as long as possible, preferably until after the
goods are resold to generate enough income to pay the exporter.
• In international trade, mainly four payment
methods are used, which are
• (i) open account (cash against goods),
• (ii) advance payment (prepayment),
• (iii) bills for collection (documentary
collection), and
• (iv) letters of credit (documentary credit).
 Bill of Exchange:

• Bill of Exchange, can be understood as a written negotiable instrument, that

carries an unconditional order to pay a specified sum of money to a
designated person or the holder of the instrument, as directed in the
instrument by the maker.
• The bill of exchange is either payable on demand, or after a specified term.
• In a business transaction, when the goods are sold on credit to the buyer, the
seller can make the bill and send it to the buyer for acceptance, which
contains the details such as name and address of the seller and buyer,
amount of bill, maturity date, signature, and so forth.
• A bill of exchange is generally drawn by the creditor upon his debtor. It has to
be accepted by the drawee (debtor) or someone on his behalf. It is just a
draft till its acceptance is made.
• For example, Ram sold goods to Shyam on credit for ` 10,000 for three
months. To ensure payment on due date Ram draws a bill of exchange upon
Shyam for ` 10,000 payable after three months. Before it is accepted by
Shyam it will be called a draft. It will become a bill of exchange only when
Shyam writes the word “accepted” on it and append his signature thereto
communicate his acceptance
• As per Negotiable Instrument Act 2034, section 2(g), "Bill of
Exchange" means an instrument in writing containing an
unconditional order, signed by the maker, directing a certain
person to pay a certain sum of money to, or to the order of a certain
person or to the bearer of the instrument in a certain date or after
certain period of time or at the demand.
• "Bill of Exchange" means an unconditional order in writing,
addressed by one person to another, signed by the person giving
it, requiring the person to whom it is addressed to pay on
demand, or at a fixed or determinable future time, a sum certain
in money to or to the order of a specified person or to bearer.
(Section 2(t) Nepal Rastra Bank Act, 2058 (2002)
• A bill of exchange is a written order used primarily in international
trade that binds one party to pay a fixed sum of money to another
party on demand or at a predetermined date.
• A bill of exchange is an order to pay, not a promise to pay. The
drawer directs its bank and person to pay the payee.
Parties of Bill of Exchange
• A bill of exchange has three parties, in general:
(1) Drawer:
• The drawer is the maker of a bill of exchange.
• The bill is signed by Drawer.
• A creditor who is entitled to receive payment from the debtor can
draw a bill of exchange.

(2) Drawee:
• Drawee is the person upon whom the bill of exchange is drawn.
• Drawee is the debtor who has to pay the money to the drawer.
• He is also known as ‘Acceptor’.

(3) Payee:
• The payee is the person to whom payment has to be made.
• The payee may be the drawer himself or a third party.
• Drawee, in case of need: If in any bill of exchange, a
person’s name is mentioned in addition to the original
drawee, who can be resorted for payment. Then, that
person will be called as drawee.
• Holder: The holder of the bill of exchange, is the person
who possesses the bill and who has the right to recover the
amount from the parties.
• Acceptor: The person who accepts the bill is called
acceptor. Usually, a debtor or drawee is the acceptor.
However, it can be accepted by some other person also, on
behalf of the debtor/drawee.
• Endorser: If the holder of the bill, endorses it to another
person, then the person will be called as the endorser.
• Endorsee: The person to whom the bill of exchange is
endorsed, is called as an endorsee.
Ex:
• Let's say Company ABC purchases Laptops from
Computer Supply XYZ for $50,000. Computer
Supply XYZ draws a bill of exchange, becoming
the drawer and payee in this case. The bill of
exchange stipulates that Company ABC will pay
Computer Supply XYZ $50,000 in 60 days.
Company ABC becomes the drawee and accepts
the bill of exchange and the goods are shipped.
In 60 days, Computer Supply XYZ will present
the bill of exchange to Company ABC for
payment
• A bill of exchange issued by a bank is referred to as a bank draft.
The issuing bank guarantees payment on the transaction.
• A bills of exchange issued by individuals is referred to as a trade
draft.
• If the funds are to be paid immediately or on-demand, the bill of
exchange is known as a sight draft.
• In international trade, a sight draft allows an exporter to hold
title to the exported goods until the importer takes delivery and
immediately pays for them.
• However, if the funds are to be paid at a set date in the future, it
is known as a time draft which gives the importer a short amount
of time to pay the exporter for the goods after receiving them.
 Essential elements of Bills of Exchange
• The Bills of Exchange have to be in writing.
• The Bill must be signed by the drawer.
• The instrument needs to have an order to pay; the order should be:
– Express
– Unconditional
• All three entities payee, drawer and drawee must be definite individuals.
• The amount of money due should be certain.
• The payment must be made in the legal tender currency of that specific country.
• The instrument must be properly stamped.
• The money should be payable to a certain and definite person or as per his order.
• The drawer and payee, in most cases, are the same person as the drawer usually
draws the Bill in his or her favor.
• The drawer and the drawee can not be the same person.
 Types of Bill of Exchange
• There are mainly two types of Bills of
Exchange:
• Bills of Exchange Payable at Sight – They are
payable on demand. When the Bill is given to
the drawee, he or she must pay the amount.
• Bills of Exchange After a Certain Period– This
is also called term draft and becomes payable
after a certain time period.
• Others:
• Documentary Bills of Exchange: It is always accompanied by supporting
documents to facilitate the trade or transaction between two parties is called a
documentary bill. There are two types of Documentary Bills of Exchange:
Documents against acceptance Bills and Documents against payment.

• Demand Bill: A Bills of Exchange that is payable on demand or when presented at

the site is called a demand bill and it does not have a due date or time mentioned
for the payment in it, so the transaction between the involved parties can be made
when the bill is presented.

• Usance Bill: Usance bill is also termed as time bill because it specifically mentions
the time period and the due date for the payment on it and it is considered as a
time-bound bill because of the mention of the specific time and period for
payment.

• Inland Bills: An inland bill is a type of bill that is drawn in a country by a resident of
that country and only payable in that country and the same for any other country
is known as an inland bill. This bill is quite the opposite of the Foreign bill.
• Clean Bill: A type of bill that is without documents of proof is called a
Clean Bill. In this bill no documents are present so the charges for this bill
are higher with the higher interest rate in comparison to other
documentaries.
• Foreign Bills: Foreign bill is a type of Bills of Exchange where the charges
to be paid are outside a country. Whichever bill is not Inland is the Foreign
bill. Foreign bills are further divided into Export bills and Import Bills.
• Accommodation Bill: If a bill is accepted or drawn without any conditions
involved are termed as an accommodation bill.
• Trade Bill: A type of Bill that is drawn for the purpose of a trade order
transaction is termed a trade bill. These bills are common in the case of
international trading.
• Supply Bills: Supply bill is a type of bill that is drawn to supply certain
goods by any government department or by a supplier or by a contractor.
To obtain cash for any pending payments from any financial institution for
satisfying the financial requirements, supply bills are used.
• Fictitious Bill: A fictitious bill is a type of bill in which the name drawn is
fictitious that is either of drawer or drawee.
• Hundis: Hundis are the type of bills that are used for agricultural financing
and inland trade and are indigenous in nature.
Example of Hundi Bill of Exchange
 Direct Payment
• Cash Payment / Advance Payment / Prepayment / Cash
Before Delivery
• In advance payment, the importer pays the cost of the
goods to the exporter before the goods are shipped. It is
an accepted view in the doctrine that the cash flow that
occurs before the goods are sent is a credit or an
advance for the exporter.
• The exporter does not assume any risk in the form of
advance payment. Due to the existence of risks such as
delay in shipment, goods not conforming to the order,
all risk in this form of payment is on the importer.
The advance payment process is as follows:
• A sales contract is made between the Importer and the Exporter.
• The importer deposits the contract price in advance through its own
bank to be sent to the exporter.
• The export process begins with the transfer of the contract price to the
exporter's bank.
• The exporter delivers the goods to the customs.
• In this process, documents related to the goods such as invoice,
transport document, certificate of origin, insurance policy issued in favor
of the importer are delivered to the exporter's bank by the exporter in
order to be delivered to the importer through the importer's bank.
• The importer clears the goods from its customs with the documents it
received from its bank.
 Cash Against Goods
• In the cash against goods method, the importer pays the price of the goods to
the exporter after receiving the goods. After the exporter has shipped the goods
on behalf of the buyer, it sends the documents proving that it has delivered the
goods to the importer directly or through the bank as free delivery. This is the
payment method in which the exporter assumes the most risk.

The cash against goods payment process is as follows:

• A contract is established between the Importer and the Exporter.
• The exporter has the contracted goods shipped to the importing country. It also
delivers the relevant documents to its bank in order to be delivered to the
importer.
• The importer clears the goods from customs with the said documents and the
possession and ownership of the goods pass to the importer.
• The importer pays the cost of goods to the Exporter's bank through its bank.
Cash Against Documents / Documentary Collections

• This is the form of payment in which the Importer pays the cost
of the goods against the documents representing the goods.
• After the exporter has shipped the goods in accordance with
the sales contract executed with the importer, the shipping
documents representing the goods are delivered to the
importer through the bank to be delivered against the delivery
of the contract price.
• Therefore, it is a very safe method in terms of receiving the
goods by controlling the same. However, if the importer does
not accept the goods and does not make the payment by not
receiving the documents, the exporter will incur additional
costs due to returning the goods.
The cash against documents payment process is as follows:
• A sales contract is executed by and between the Importer and the
Exporter.
• The goods are loaded onto the ship to be sent to the importer's
country.
• In this process, documents related to the goods such as invoice,
transport document, certificate of origin, insurance policy issued in
favor of the importer are delivered to the exporter's bank in order
to be delivered to the importer. It is important to write the phrase
"against documents" in the documents sent.
• The importer's bank notifies the importer of documents showing
ownership of the goods.
• The importer deposits the cost of goods through its bank to be
sent to the exporter's bank.
• The importer clears the goods from customs with the related
transport documents.
 Documentary Collection
• In a documentary collection process, the seller instructs their
bank to forward documents related to the export of goods to a
buyer’s bank with an instruction to present these documents to
the buyer for payment, pointing when and on what
circumstances these documents can be released to the buyer.
• Funds are received from the importer and transferred to the
exporter through the banks involved in the collection in
exchange for those documents. Documentary Collections involve
using a draft that requires the importer to pay the face amount
either at sight (document against payment) or on a specified
date (document against acceptance).
• The collection letter gives instructions that specify the
documents required for the transfer of title to the goods.
• Although banks do act as facilitators for their clients,
Documentary Collections offer no verification process and
limited recourse in the event of non-payment.
• They do not provide the same level of security as Letters of
Credit, but, as a result, the costs are lower.
• Unlike Letters of Credit, for a Documentary Collection, the
bank acts as a channel for the documents but does not issue
any payment covenants (does not guarantee payment).
• The bank that has received a Documentary Collection may
debit the buyer’s account and make payment only if
authorized by the buyer.
 Documentary Credit
• An arrangement at the request and on the
instruction of a customer
• To make payment/authorize other bank to pay
or negotiate
• Against stipulated documents
• Provided terms and conditions are complied
with
Documentary Credits
Letter of Credit (LC)
• An LC, also referred to as a documentary credit, is a contractual
agreement whereby the issuing bank (importer’s bank), acting on
behalf of its customer (the buyer or importer), authorizes the
nominated bank (exporter’s bank), to make payment to the
beneficiary or exporter against the receipt of stipulated documents.
• The LC is a separate contract from the sales contract on which it is
based; therefore, the bank is not concerned whether each party
fulfills the terms of the sales contract.
• The bank’s obligation to pay is solely conditioned upon the seller’s
compliance with the terms and conditions of the LC. In LC
transactions, banks deal in documents only, not goods.
• LCs can be arranged easily for one-time deals.
• Unless the conditions of the LC state otherwise, it is always
irrevocable, which means the document may not be changed or
cancelled unless the seller agrees.
• As we know that in every countries foreign exchange shall
be regulated by central bank of the country. As well, in
Nepal, Nepal Rastra Bank is an authority to control and
regulate the foreign currency stated in LC. The transaction
of the LC from Nepalese Bank will be directed by NRB.
• As per BAFIA, section 2(aa) “Letter of credit” means a letter
written by one bank or financial institution in the name of
any other bank or financial institution authorizing the latter
thereon to accept cheques, drafts, or bills of exchange of any
specified person within the limit of the amount specified
therein.
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• The above provided definitions indicate three main parties in a process
where payment under which letters of credit is arranged namely;
• The applicant. This is a party on whose request the credit is issued
usually the buyer or importer
• The issuing bank .This is the bank that issues a credit at the request of an
applicant or on its own behalf.
• The beneficiary. This is a party in whose favor a credit is issued usually
the seller or exporter.

• Other parties mentioned in the Uniform commercial Practice (UCP) 600

which facilitate the letter of credit process are:
• The advising bank. This is the bank that advises the credit at the request
of the issuing bank.
• The confirming bank. This is the bank that adds its confirmation to a
credit upon the issuing bank’s authorization or request.
• The nominated bank. This is the bank with which the credit is available
or any bank incase of a credit available at any bank.
• Letters of credit (LCs) are one of the most secure instruments
available to international traders.
• An LC is a commitment by a bank on behalf of the buyer that
payment will be made to the exporter, provided that the
terms and conditions stated in the LC have been met, as
verified through the presentation of all required documents.
• The buyer pays his or her bank to render this service. An LC is
useful when reliable credit information about a foreign buyer
is difficult to obtain, but the exporter is satisfied with the
creditworthiness of the buyer’s foreign bank.
• An LC also protects the buyer because no payment obligation
arises until the goods have been shipped or delivered as
promised.
• Letters of credit (LCs) are one of the most secure instruments
available to international traders.
• An LC is a commitment by a bank on behalf of the buyer that
payment will be made to the exporter, provided that the
terms and conditions stated in the LC have been met, as
verified through the presentation of all required documents.
• The buyer pays his or her bank to render this service. An LC is
useful when reliable credit information about a foreign buyer
is difficult to obtain, but the exporter is satisfied with the
creditworthiness of the buyer’s foreign bank.
• An LC also protects the buyer because no payment obligation
arises until the goods have been shipped or delivered as
promised.
• Letter of credit advising
• When a Letter of Credit (LC) is issued, the LC Issuing Bank
(importer’s bank) sends the LC either to its branch office or
correspondent bank, which is normally located in the seller’s
(beneficiary) country.
• The branch office or correspondent bank that receives the LC
is known as the Advising Bank.
• The roles of the Advising Bank are: –
• To authenticate the LC to ensure that the LC comes from a
genuine source. Authentication is either in the form of
signature verification (for hardcopy LC) or via SWIFT
authentication; and –
• To inform the seller on the arrival of LC in his favor once the
LC is ready for collection
 Letter of credit confirmation
• When an LC is issued, the Issuing Bank may request the Advising
Bank to add its confirmation on the LC.
• By agreeing to add the confirmation, the Advising Bank will become
the Confirming Bank and undertakes to pay the beneficiary (seller)
if all the terms and conditions of the LC are complied with.
• Such undertaking from the Confirming Bank is separate and in
addition to the undertaking given by the Issuing Bank.
• LC Confirmation is usually requested if the seller is not comfortable
with the creditworthiness of the Issuing Bank, and/or is concerned
over the buyer’s country risk.
• In return, the seller is required to pay an LC confirmation fee to the
Confirming Bank.
 Illustrative Letter of Credit Transaction
1. The importer arranges for the issuing bank to open an LC in
favor of the exporter.
2. The issuing bank transmits the LC to the nominated bank,
which forwards it to the exporter.
3. The exporter forwards the goods and documents to a freight
forwarder.
4. The freight forwarder dispatches the goods and submits
documents to the nominated bank.
5. The nominated bank checks documents for compliance with
the LC and collects payment from the issuing bank for the
exporter.
6. The importer’s account at the issuing bank is debited.
7. The issuing bank releases documents to the importer to claim
the goods from the carrier and to clear them at customs.
 Parties Involved
• Applicant (Opener/Importer)
• Issuing Bank
• Beneficiary (Exporter)
• Advising Bank
• Confirming Bank
• Negotiating Bank
• Reimbursing Bank
Characteristics of a Letter of Credit
• Applicability – Recommended for use in new or less-
established trade relationships when the exporter is
satisfied with the creditworthiness of the buyer’s bank.
• Risk – Risk is evenly spread between seller and buyer,
provided that all terms and conditions are adhered to.
• Pros – Payment made after shipment – A variety of
payment, financing, and risk mitigation options available
• Cons – Complex and labor-intensive process – Relatively
expensive method in terms of transaction costs
 Types of Credit
• Import/Export L/C
• Revocable and Irrevocable
• Confirmed and unconfirmed letter of credit
• Sight and Deferred
 Import/Export L/C
• Most letters of credit are import/export
letters of credit, which, as the name implies, are
letters of credit that are used in international
trade.
• The same letter of credit would be termed an
import letter of credit by the importer and an
export letter of credit by the exporter.
• In most cases, the importer is the buyer and
the exporter is the beneficiary.
Confirmed and unconfirmed letter of credit
• A confirmed letter of credit is one where a second bank agrees to pay the
letter of credit at the request of the issuing bank. Here neither the issuing
bank nor the confirming bank can revoke the LC
• As you might guess, an unconfirmed letter of credit is guaranteed only by
the issuing bank. This is the most common form with regard to
confirmation.
• While unconfirmed credits are somewhat cheaper than confirmed credits,
they have the disadvantage that they do not protect the interest of seller
and did not assure the performance of contract in sellers country. It means
that if the advising (advising bank) refuse to pay on the tender of the
documents, the seller (beneficiary) might be compelled to institute
proceedings at the buyers place of business (overseas).
• This is not favorable situation for seller that's what confirmed letter of
credit wish to avoid.
Revocable letter of credit
The revocable letter of credit can be changed at any time
by either the buyer or the issuing bank with no
notification to the beneficiary. The most recent version
of the UCP, UCP 600, did away with this form of letter of
credit for any transaction under their jurisdiction.

Irrevocable letter of credit

The irrevocable letter of credit only allows change or
cancellation of the letter of credit by the issuing bank
after application by the buyer and approval by the
beneficiary. All letters of credit governed by the current
UCP are irrevocable letters of credit.
 Sight and Deferred
• A letter of credit may also be at sight, which is
payable as soon as the documentation has
been presented and verified, or payment may
be deferred.
• Deferred letters of credit are also called a
usance letter of credit and may be put off until
a certain time period has passed or the buyer
has had the opportunity to inspect or even sell
the related goods.
 Other types of Credit
• Standby
• Transferable
• Deferred Payment
• Back to Back
• Red-clause
• Green-clause
• Transit Credit
• Omnibus Credit
 Standby Credit
• Standby letters of credit are often used in
international trade transactions, such as the
purchase of goods from another country.
• The seller will ask for a standby letter of credit,
which can be cashed on demand if the buyer
fails to make payment by the date specified in
the contract.
 Transferable Credit
• A letter of credit that permits the beneficiary of the letter to
make some or all of the credit available to another party,
thereby creating a secondary beneficiary.
• The party that initially accepts the transferable letter of credit
from the bank is referred to as the first beneficiary. The bank
issuing the letter of credit must approve the transfer.
• The transfer of credit must be clearly outlined in the
documentation of the letter. However, the letter of credit
must state expressly that the credit is transferable.
Otherwise, no credit can be transferred regardless of any
other factors.
 Back-to-back Credit
• Back-to-Back Letters of Credit are suitable for triangle
trade. Triangle trade is a trade where a middleman located
between the buyer (importer) and the seller (exporter).
• There are two separate letters of credit exist in a back-to-
back letter of credit transaction. – Buyer issues 1st. letter
of credit in favor of the middleman. – Middleman issues
2nd letter of credit in favor of the ultimate supplier of the
goods.
• As back-to-back letters of credit contain two independent
credits, issuing bank of the 2nd letter of credit has to bear
substantial amount of payment risk. For this reason back-
to- back letters of credit are rarely used in international
trade.
 Red Clause Credit
• A letter of credit which contains a clause (traditionally printed in red)
• In the case of a red clause credit (letter of credit with advance payment), the
seller can request an advance for an agreed amount (defined in the terms and
conditions of the letter of credit) from the correspondent bank.
• This advance is basically intended to finance the manufacture or purchase of the
goods to be delivered under the letter of credit.
• The advance is normally paid against receipt and a written undertaking from the
seller to subsequently deliver the transportation documents before the credit
expires.

• Green Clause Credit

• A letter of credit which contains a clause authorizing the nominated bank to
make advances to the seller against security (such as a payment guarantee from
a third party or the pre-shipment storage of the goods in the name of the
nominated bank or the issuing bank) before shipment /presentation of
documents. If the seller fails to present the documents, the issuing bank’s or
buyer’s reimbursement obligations can be recovered through enforcement of
the security.
• Also known as anticipatory credits. A letter of
credit which contains a clause (traditionally printed
in red) authorizing the nominated bank to make
advances to the seller before shipment/presentation
of documents. It is generally of value to middlemen
and dealers in areas of commerce that require a
form of pre-financing and where the buyer would be
willing to make special concessions of this nature.
 Transit Credit
• An opening bank may ask another bank overseas to advise and
sometimes to open a credit in favor of a beneficiary in another
country.
• Because of high standing of local banks they are often asked by
banks overseas to open a documentary credit in favor of such
beneficiaries outside their country (foreign).
• This type of credit where both beneficiary and applicant are
resident outside their country is known as transit credit.
• Omnibus Credits
• In this type of credit the bank takes a general lien over the goods
and other movable and immovable property of the exporter as
security against the packing credit allowed in terms of an
irrevocable confirmed credit.
• Omnibus credits are opened with the object of enabling the
exporter to obtain funds for further transactions by providing
payment as soon as the goods are shipped.
 Nabil Bank Ltd. (LC Example)
• 1) LETTER OF CREDIT (Documentary Credit):

A "Letter of Credit" is used as an instrument for

settlement of payment from commercial transactions like
sales/purchases in national/international trade.
• A letter of credit is a document that guarantees the
buyer’s payment to the sellers.
• It is issued by a bank and ensures the timely and full
payment to the seller. If the buyer is unable to make such
a payment, the bank covers the full or the remaining
amount on behalf of the buyer.
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0payment%20to%20the%20seller
• A) International LC:
• NBL offer wide range of reliable credit and payment services to facilitate
your imports. It issues all types of LC as per the requirement of our
customers. The common types are as under:
• Sight LC
• Time/Usance LC
• Deffered/Mixed Payment LC
• Revolving LC
• Confirmed LC
• Transferable LC
• Back to Back LC
• Advance Payment LC
• Discounting LC
• 2) Local LC:
NBL also helps its customer issue Local LC when Buyer and Seller both are in the
same country.

• Documents required for issuing a Letter of Credit-

First and foremost customer must fill the LC application form followed by BI.BI.NI
Form No. 3 (Mandatory document as per NRB).
• After this, the other documents required for issuing LC are:
• Proforma Invoice/Sales contract
• Harmonic code of the goods as per the Custom Tariff/NRB and incoterm must be
mentioned in Proforma Invoice
• Certificate of Origin
• Certificate of Analysis
• Transport Documents (Bill of lading/Airway bill/Road Consignment bill)
• Insurance Policy
• How to apply?
• Open a current Account in the bank
• Contact Relationship Managers for different
credit facilities(TR loan, overdraft, LCs,
Guarantees)
• Contact to nearest branch of Nepal bank or
directly to Central Trade Finance Division,
Dharmapath, Kathmandu.