Letter of Credit (LC)

• A trade finance facility offered by a commercial bank to the buyer / importer
• A written undertaking by a bank (issuing bank) to pay a seller (beneficiary) against the stipulated documents provided that the terms and conditions of the credit have been complied with
• The Letter of Credit is used to:

» translate the agreement between the buyer and seller intoLC as stipulated terms and conditions
» facilitate and settle international trade
» minimise risk in international trade
» provide a form of security to the parties involved
» ensure payment to the seller upon compliance of terms andconditions of the LC
» determine the commercial and shipping documents required

• The LC issued at sight or usance 
• Bank charges LC issuance commission 
• Subject to the Uniform Customs and Practice for DocumentaryCredits (UCP 600) and Uniform Rules for Reimbursement (URR 525).

Foreign Bill Negotiation (FBN)

• A trade finance facility offered by a commercial bank to the seller / exporter
• Advance given to the exporter upon presentation of documents in compliance with the terms and conditions of the LC
• Has to be a foreign LC 
• Applicable for both sight and usance LC 
• The bank will charge commission based on the Foreign BankCentre Rate of the particular currency denominated in the LC 
• Subject to the Uniform Customs and Practice for DocumentaryCredits (UCP600).

Foreign Bills Purchased (FBP)

• A trade finance facility offered by a commercial bank to the seller / exporter
• The bank purchases the exporter’s export documents and advances the export bill amount to the exporter
• Advance is given against export documents under a collection 
• Subject to the Uniform Rules for Documentary Collection (URC 522).

Bankers Acceptance (BA)

• A trade finance facility offered by a commercial bank to the seller/ exporter or buyer / importer
• Usance Bill of exchange drawn by the customer and accepted by the Bank in Malaysia for the financing of:-

» Sales to Residents / Non-Residents (Buyer / Importer)
» Purchases from Residents / Non- Residents (Seller /Exporter)
» The BA is drawn in Ringgit, subject to a minimum denominations of RM50,000 and in multiples of RM1,000
» The minimum tenure is 21 days and maximum is 365 days.

• The BA financing will be based on the followings:

» The underlying international trade transaction may be eitheron sight (cash sales) or usance basis (credit sales) for BAPurchase Financing
» The underlying international trade transaction should only beusance basis (credit sales) for BA Sales Financing
» BA acts as a discounting tool to finance the Sales andPurchases of trade transactions. BA is a financial instrument traded in the secondary market by the Treasury Dealers.

Trust Receipt (TR)

• A trade finance facility offered by a commercial bank to the buyer / importer
• It is given to the importer when the letter of credit (LC) payment has to be made to the exporter
• The LC will be converted to TR 
• The Bank releases the shipping documents to the Importer basedon the signed TR 
• The Bank retains legal title to the shipping documents 
• The Bank relinquishes physical possession of the goods to theImporter 
• The Importer acts as the agent of the Bank disposes the goodsprofitably and pay the bank the principal amount plus interest onor before due date of the TR 
• Maximum tenure allowed is 180 days.

Export Credit Refinancing (ECR)

• A trade finance facility offered by a commercial bank to the seller / exporter
• For financing export of :

» Manufactured goods
» Approved agricultural products
» Selected primary commodities

• Eligibility criteria:

» Minimum value-added of 20% and a minimum domesticcontent of 30% for the products
» Products are not in the Negative list as per EXIM BankECR guidelines
» Products listed in the exemption list for value addedand domestic content.

Pre-Shipment and Post-Shipment Credit Facility

This is the financing option for the export of goods with or without Letters of Credit:

• Pre-shipment margin of financing is up to 85% of export order with a tenure of payment up to 120 days (maximum)
• Post-shipment margin of financing is up to maximum of 100% of export invoice value with tenure of payment up to 180 days (maximum).

Pre and Post Shipment Export Credit Refinancing Scheme

Exporters have two options under the scheme:

Pre-Shipment ECR

(a) Order Based Pre-Shipment ECR

• Financing on the export order received by overseas buyers ordirect exporters 
• Margin of financing is up to a maximum 95% of export order orECR domestic letter of credit or ECR domestic purchase order 
• Tenure of payment is up to a maximum of 4 months.

(b) Certificate of Performance (CP) Pre-Shipment ECR

• Financing is against the certificate of performance issued by EXIM Bank
• Tenure of payment fixed at 4 months.

Post-Shipment ECR

Finance against export document (Bill Discounting)

• Margin of financing is 100% of export bill 
• Subject to the availability of ECR credit limit with the commercial bank and EXIM Bank’s administrative limit 
• Tenure of payment is up to the maximum of 6 months.(Please refer to Appendix 2)

Shipping Guarantee

• A trade finance facility offered by a commercial bank to the buyer / importer
• ALetterofIndemnity(LOI)signed by the Importer as the consignee and countersigned by the Bank favouring the shipping company or Agent
• Enables the Importer to take delivery of goods at the Port without the document of title to goods i.e. Original Bill of Lading 
• Required when the Vessel arrives in the Country of Importer before the shipping documents are received by the Collecting Bank or Letter of Credit Issuing Bank.

L/C - Confirmation

• A trade finance service offered by a commercial bank to the seller / exporter
• An undertaking and commitment to pay the letter of credit when the issuance fails to honour its obligation under the LC
• The advising bank who is the correspondent bank of issuing bank will add the confirmation to the LC
• The seller / beneficiary relies on the credit worthiness of the confirming bank for payment assurance
• The confirmation charges is for the account of the seller / beneficiary

Bank Guarantees

Concept

• A trade finance facility offered by a commercial bank to the seller /exporter
• An undertaking by the bank to pay the beneficiary the amount specified in the guarantee if the events stated therein (usually a default) has occurred• Has to be routed to a local correspondent bank in the particular country for reissuance to the beneficiary
• The types of BG in international trade are as follows: 

» Tender Guarantee
» Performance Guarantee
» Advanced Payment Guarantee.

Tender Guarantee / Bid Bond

• Issued in support of a principal’s tender for contract 
• An undertaking from the issuing bank to the reissuing bank 
• Act as a deterrent against unrealistic tenders 
• Substitutes against tender deposits
• Prevents the contractors from refusing the contract after it has been awarded
• Issued to assure the beneficiary that the tenderer / bidder can comply and complete the project in accordance with the terms of the contract
• To show the contractor and/or supplier’s ability and capability in performing the contract.

Performance Guarantee / Bond

• Issued when the tenderer / bidder is successful in the tender / bid
• An assurance to the beneficiary that the contractor / supplier complete the project in accordance with the terms of the contract
• To show the contractor and /or supplier ability and capability in performing the contract.

Advance Payment Guarantee (APG)

• Issued to cover the advanced payment made by the beneficiary to the contractor / supplier
• The advanced payment will be refunded by the issuing bank if the contractor / supplier to perform the contract
• The APG amount from time to time can be reduced against the progress payment made by beneficiary to the contractor / supplier.