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IFC Partners with NIBL to Enhance Trade Finance in Nepal Letter of Credit Letter of credit is a commitment/ undertaking in the form of written instrument by a bank on behalf of its customer (known as buyer/importer) to pay the "counter value" of goods/services within a given date to its supplier (known as seller/exporter) according to agreed stipulations and against presentation of specified documents as specified in the instrument. A "Letter of Credit" is used as an instrument for settlement of payment arising out of commercial transactions like sales/purchases. In such credit, payment obligation arises only upon fulfillment of specified conditions.

Standard Process for LC Transaction 1. Negotiations between buyer and seller and thus finalization of deal & Buyer approach its bank to open import LC. 2. Issuing bank issues the LC through its advising bank & advising bank informs and advises the LC to the exporter. 3. Exporter prepares the goods and makes the shipment through the carrier Exporter prepares the documents demanded in the credit and furnishes to its negotiating bank. 4. Negotiating bank forwards the documents to issuing bank for payment. 5. Issuing bank obtains payment from importer and provides the documents. 6. Importer obtains the goods shipped by exporter through carrier (or its agent). 7. Issuing bank releases the payment to negotiating bank through reimbursing bank. 8. Exporter receives payment through negotiating bank. Import by LC A letter of credit is a very common and familiar instrument in settling trade between nations Buyers and sellers negotiate for purchase and sale of goods, sellers demanding cash or the buyers bankers letter of credit as guarantee for payment before they undertake shipment. A letter of credit reinforces the buyers integrity by adding to it his bankers undertaking. In Nepal, letter of credit is a widely used instrument in the field of international trade. Import by LC in Nepal is regulated by many directives and rules of Nepal Rastra Bank, and other Nepal Government Agencies. As per rules and regulations of NRB and other restrictions, L/C can be opened only for unrestricted buyer & unrestricted seller for import of unrestricted type of goods and or services. However, import by any other mode than LC is also allowed, which are dealt separately. Export by LC Except export to India, the most commonly used mode of export is Export by Letter of Credit. An import LC opened by an importer is known as an export LC in for the exporter. When an import LC is established for a particular deal, there is no separate letter of credit established for the export for the same deal.

An exporter makes shipment of merchandise spelled in the LC once the LC is received by it. The entire process of export follows the same process as it is in the import. Please refer 2.5 Standard Process of LC Transaction and its Flow Chart A letter of credit is normally opened by the bank of the importer and not the exporter, hence it is known as import letter of credit. However, the same import L/C is known as export L/C for the bank of exporter and the exporter himself. This should be understood that importer as well exporter both do not open separate L/Cs for the trade of same commodity under one transaction. For more details click here Guarantee A guarantee is an irrevocable promise made in writing by one person (guarantor or surety ) to another party( the beneficiary) to answer for the debt or default of a third party (principal debtor). Guarantee may be issued, if it is customary to do so, on behalf of customers with approval guarantees lines. Guarantee issued on a one-off basis will need the specific approval of the lending authority concerned. Commission will be charged on guarantees issued in terms of the schedule of charges. Commission will be charged for the full period of validity plus the period during which claims may be made at the time of issue of the guarantee. All commissions charged will be credited to commission and fee income- Guarantees. NOTE FROM MEGA BANKS WEBSITE
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. 2. 3. 4. 5. 6. 7. 8.

Sight LC Time/Usance LC Differed/Mixed Payment LC Revolving LC Confirmed LC Transferable LC Back to Back LC Advance Payment LC Documents required for issuing a Letter of CreditBefore 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

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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: o o o o o o o Proforma Invoice/Sales contract/Indent containing at leastHarmonic code (in eight digits) of the goods to be imported, Country of Origin Delivery and Payment terms and various other details like rate, quantity, total value, shipment country etc. (wherever applicable) Bi.Bi.Ni. Form No. 3 (Mandatory as per NRB) Other documents required arePAN Certificate Firm/Company Registration Certificate 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.

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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: Title Deed (Lalpurja) Blue print of cadastral map (Napi Naksa) certified by Napi Office Recent land tax payment receipt from malpot office (Tiro tireko rashid) Wealth tax payment receipt of the borrower 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) Citizenship certificate of landlord pproved/Certified building drawing along with the approval (Naksha & Pass Certificate) "No objection Letter"(NOC) in case of collateral owned by third party (Manjurinama) NOC from legal hires of owner of the company/Institution mortgage of the property(ies) 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

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Stock report, receivables report, payables report and bank outstanding report in case of existing firm.