Module-15(LC) international Trade

Presented by

M M Saiful Islam
MBA(IBA, DU) CFP(Canada), CSC(Canada)

SVP & Head of Corporate Investment

Al-Arafah Islami Bank Limited
Head Office, Dhaka
Module-15(LC) international Trade
• Contents:
• LC-Letter of Credit
• Types of LC
• Advising & Confirming Export LC
• Back to Back LC
• Master LC
• Advance TT against sales contract.
• Import without LC
• CAD
Module-15(LC) international Trade
• LC-Letter of Credit: A letter of credit, or "credit
letter" is a letter from a bank guaranteeing that a
buyer's payment to a seller will be received on
time and for the correct amount. In the event
that the buyer is unable to make a payment on
the purchase, the bank will be required to cover
the full or remaining amount of the purchase.
Module-15(LC) international Trade
• Types of LC:
• rrevocable LC. This LC cannot be cancelled or modified without consent of the beneficiary
(Seller). ...
• Revocable LC. ...
• Stand-by LC. ...
• Confirmed LC. ...
• Unconfirmed LC. ...
• Transferable LC. ...
• Back-to-Back LC. ...
• Payment at Sight LC
• UPAS LC
• Deferred LC
Module-15(LC) international Trade
• In an unconfirmed letter of credit, the seller
requests the payment from issuing bank where
there is a second bank as a mediator. In
a confirmed letter of credit, the seller requests
the payment from
the confirming bank. Confirming bank makes
the payment to the seller and in turn requests
the payment from issuing bank.
Module-15(LC) international Trade
• Advising and Confirming Export LC:
• Buyer sends you LC through buyer's bank. CB
Bank receives the LC and advises
the LC. Exporter ships the goods and submit
documents to CB Bank. CB Bank checks the
documents under LC and send the documents to
issuing bank once LC terms are complied with.
Module-15(LC) international Trade
• Various Guarantee:
• APG(Advance Payment Guarantee): An advance payment
guarantee or bond is typically used to underpin or guarantee the
performance of a commercial contract, such as a contract for the sale
of goods (where the buyer is the beneficiary) or a construction
contract (where the employer is the beneficiary). For example, a
buyer or employer may make down or advance payments to a seller
or contractor to provide it with funds to purchase necessary materials
or machinery or otherwise prepare itself to perform the contract.
Module-15(LC) international Trade
• The buyer or employer will wish to ensure that if the seller or
contractor fails (perhaps because of insolvency) to deliver the goods
or perform the services in accordance with the contract then, at the
very least, it can recover the payments made to the seller or
contractor. The buyer or employer will, therefore, require the seller or
contractor to provide an advance payment guarantee or bond for
these payments. The guarantee or bond will provide that if the seller
or contractor fails to meet its contractual obligations, the issuer will
refund the advance payments made by the buyer or employer.
Module-15(LC) international Trade
• BG (Bid Guarantee):
A Bid Guarantee is usually provided before/ during the bidding process to
the project owner. A bid bond gives the owner assurance that the bidder
has the financial means to accept the job for the price quoted in the bid.

• PG (Performance Guarantee): A performance bond is issued to

one party of a contract as a guarantee against the failure of the other
party to meet obligations specified in the contract. ... A performance bond
is usually provided by a bank or an insurance company to make sure a
contractor completes designated projects
Module-15(LC) international Trade
• SBLC(: Stand by Letter of Credit ):
A standby letter of credit (SLOC) is a legal document
that guarantees a bank's commitment of payment to a
seller in the event that the buyer–or the bank's client–
defaults on the agreement. A standby letter of
credit can also be abbreviated SBLC.
Module-15(LC) international Trade
• UPAS: Usance but payment at sight
Module-15(LC) international Trade
• Discounting: Bill discounting, or invoice discounting is the act of
sourcing working capital from future receivables. Bill discounting can
be defined as the advance selling of a bill to an intermediary (an
invoice discounting business) before it is due to be paid.
• For example: You have sold goods to Mr. X, he has given you letter of
credit from bank of 30 days, if you want to get money from bank
before 30 days, the bank will charge some interest rate from you,
which in return will be called as discount for the seller.
Module-15(LC) international Trade
• LATR (Loan Against Trust Receipt):
Loan Against Trust Receipt (LATR) is a short
term loan provides to the importer to settle the
payment of imported goods. The title of the goods is
held by the bank until the importer settle the payment
but the buyer can take possession of the goods
on trust for resale before paying the bank on LATR due
date. In Islamic banking concept it is called MPI-TR
( Murabaha Post Import-TR)
Module-15(LC) international Trade.
• A trust receipt is a financial document attended
to by a bank and a business that has received
delivery of goods but cannot pay for the
purchase until after the inventory is sold.
The trust receipt serves as a promissory note to
the bank that the loan amount will be repaid
upon sale of the goods.
Module-15(LC) international Trade
• Credit Report:
A credit report can act as a shining light into your financial
background, helping reveal personal payment history and
lending and credit worthiness.
Credit bureaus collect financial information about individuals
and create credit reports based on that information, and
lenders use the reports along with other details to determine
loan applicants' creditworthiness
Module-15(LC) international Trade
• OBU(Offshore Banking Unit): An offshore banking unit (OBU) is a
bank shell branch that conducts regular banking activities but in
foreign currency.
• Offshore Banking Unit mainly deals with non-residents Bangladeshi
citizens, maintaining exclusively foreign currency transactions, can
borrow and lend in Foreign Currency with any other local and global
Banks, being treated its operation as a country within a country,
commissioned by a separate Banking License from Bangladesh Bank.
and free from minimum reserve requirement.
Module-15(LC) international Trade
• Bank Charge Calculation:
• Interest/Profit:
• LC Commission: Quarterly basis charged
• Acceptance Commission: Quarterly basis charged
• BG commission: Quarterly basis charged
• Swift Charge: One time charged
• Credit Report Collection Charge: One time charged.