As the import and export activities are not undertaken with a hundred percent upfront cash payment before the delivery of goods is undertaken, trade financing plays an important role in the fulfillment of a trade-related transaction. Trade financing refers to short-term credit offered to importer or exporter to facilitate them with working capital while helping in risk mitigation. 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.
Letter of Credit (L/C)
LC is a commitment 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, a payment obligation arises only upon the fulfillment of specified conditions.
Advance Payment Certificate
In case of advance payment for the purchase made by buyers in the foreign country for the goods produced in Nepal, this mode of payment is used. In this case, the importer pays the actual amount stipulated in the invoice before having received any delivery.
Based on the contract terms for purchase between the exporting and importing parties, importers in the destination countries can transfer the money through authorized banks to the account of exporter in the class ’A’ commercial bank. The Nepali bank then issues the advanced payment certificate to the exporter. The certificate then can be used for further export procedures, which include obtaining an export license for certain products, customs declaration, and ordering freight-clearance services.
Bank Guarantee is an unconditional undertaking issued to back up performance and payment obligations on a wide range of international as well as domestic transactions. Most of these instruments place an obligation on the issuer to pay a specified sum of money either on simple written demand or a demand accompanied by stipulated documents in the event of default by the principal debtor.
Trust Receipt/ Importers Loan
Trust Receipt loans (TR) are granted to importers of goods as a payment to settle the outstanding letter of credit related to the goods being imported. TR Loan is a short term loan provided to the importer on trust to clear the consignment from the port whereby the borrower agrees to provide the legal title of the goods to the bank though under its possession. We provide a very competitive rate of interest for TR loans.
Packing Credit / Pre-Shipment Loan
Packing Credit / Pre-Shipment loan are offered to the exporters to finance purchase of raw materials, manufacturing, processing, packing and shipping of the goods meant for exports against irrevocable Letter of Credit established in favor of the exporter by the buyers for exports through the bank and a confirmed order/export contracts placed by the buyer for exports from Nepal.
A post-shipment loan is offered to the exporters in the form of export document negotiation/purchase/discount of export bills drawn under letter of credit, confirmed orders/export contracts. The loan is offered to exporters to finance export receivables after the date of shipment of goods till the date of realization of export proceeds.