INTERNATIONAL TRADE FINANCE

Chapter outline:
Term Loan Letter of Credit Trust Receipts Banker Acceptance Shipping Guarantee Export Credit Refinancing

(ECR

TERM LOAN

Term Loan
A loan with a regular repayment date Medium to long term in duration Risk is greater; interest charged is higher Purpose: to finance expenditure of a capital nature Borrowers past performance will be e aluated

Term Loan
!nterest: depends on the repayment schedule

Monthly repayment; monthly rest interest will be charged "uarterly repayment; #uarterly rest interest will be charged
$alculated using simple interest formula

Principle %P& x Rate #uoted %R& x 'ime %'&

(ebited to loan account rele ant to repayment inter al

LETTER OF CREDIT

INTRODUCTION
(ocumentary letters of credit %)$& is a written document undertaking given by a

banker at its customers request to an exporter/seller of goods to the effect that the exporter/seller would be paid for his consignment of goods to the importer/buyer providing the stated terms and conditions of the credit have been compiled with

Most acceptable instruments of payment *i es protection to both buyer + seller *o erned by the rules contained in the Uniform Customs and Practice for

Documentary Credits

PARTIES INVOLVED
1.

Applicant
'he importer who asks the bank to open the credit

2.

Beneficiary
'he exporter who is entitled to recei e payment under the credit

3.

Issuing bank
'he bank, also known as the opening bank which established the

credit on behalf of the applicant

PARTIES INVOLVED
4.

Advising bank
'he bank which credit is sent by the issuing bank for deli ery to the beneficiary

5.

Reimbursing bank
'he paying bank, appointed by the issuing bank to pro ide repayment to the

negotiating bank for negotiations effected under the credit

May be the issuing bank, another bank in beneficiarys country or

correspondent bank in a large financial center

PARTIES INVOLVED
6.

eg!tiating bank
'he bank authori-ed to negotiate drawings under the credit + disburse

proceeds to the beneficiary

May or may not be the ad ising bank
".

#!nfirming bank
'he ad ising bank, acting under instructions of the issuing bank may

also confirm the credit thereby guaranteeing to the beneficiary that the bill will be paid accordingly

HOW LC WORKS?
Importers bank Issuing bank/ Reimbursing bank
' Applies !" / .0 ) %&ips goods ( riginal !"

- B E # documents

Exporters bank Advising bank Negotiating bank

* + , $resent !"

Importer Applicant

. Enters agreement

Exporter Beneficiary

TYPES OF LC
1.

Rev!cable
May be amended or cancelled by the issuing bank at any time and without prior

notice to the beneficiary

2.

Irrev!cable
$an only be amended or cancelled if all parties to the credit agree to the

alteration or cancellation
3.

Irrev!cable c!nfirmed
!n addition to %.&, the confirming bank will either promise the payment or act as

a guarantor

PAYMENT PROVISIONS
1.

$ig%t payment

Beneficiary will draw the draft %B/0& payable at sight on a bank 'o obtain payment immediately 'o be paid on presentation to the correspondent bank
&sance payment

2.

Beneficiary will draw the draft %B/0& payable at some future point in time %usually a specified number of days after it has been sighted&

PAYMENT PROVISIONS
3.

'eferred payment
Parties to )$ agree a draft %B/0& need not be drawn After goods ha e been exported, the re#uired documents would

be sent to the nominated bank for inspection

(ocuments would be retained + passed on to the issuing bank 'he issuing bank will issue )$ + the beneficiary would be paid at

the time specified in the )$ %deferred date&

PAYMENT PROVISIONS
4.

(ayments under a neg!tiati!n

A bank will buy the documents that relate to )$ Bank gi es full immediate alue to the beneficiary under the credit Bank has made promise of payment 1a ing purchase the documents, the negotiating bank will attend to

their presentation on the drawee bank

!t would then be paid on sight or on the agreed date

IRREVOCABLE LC
1.

)ransferable *#
*i es the beneficiary the right to pass the credit in whole or in part to a

third party or another beneficiary

2sed in financing a middleman for the purchase of goods from a

supplier
2.

Back+t!+back *#
"uite similar to transferable credit 2sed by a middleman with limited financial resources

IRREVOCABLE LC
2. Back+t!+back *#
3eller + buyer do not know each other, thus allow middleman to

earn profit
Middleman obtains credit in his fa or from the buyer 'he middleman arranges for his bank to issue a new credit in fa or

of the actual supplier with new terms + conditions

4ot go erned by the rules specified in the 2niform $ustoms +

Practice for (ocumentary $redit

IRREVOCABLE LC
. Red clause ,p%rase- *#
$ontains a special clause, printed in red 5 ad ising bank is authori-ed to gi e

ad ance to the beneficiary up to the extent of the total alue of the credit prior to the shipment of goods
A form of o erdraft to the exporter + guaranteed by the importer /nly for exporter who is reliably known by the importer

IRREVOCABLE LC
!. $tandby *#
Re#uires certain performance on part of the applicant Beneficiary is assured of payment only when he performs under the contract (oes not pro ide guarantee to the beneficiary of payment, acceptance or

negotiation of bill
Pro ide guarantee to beneficiary against default by applicant !ssues to co er the non performance situation by the applicant

SPECIAL TYPES OF LC
".

Rev!lving *# 0stablish when the importer has regular shipments to be made o er a period of time

/ne credit to co er all the shipments $an be issued + re ol ed on the basis of time, shipments or alue $an be on cumulati e or non6cumulati e terms $umulati e means credit that is not utili-ed for a particular month or shipment will become a ailable for the following month or shipment

TRUST RECEIPTS

TRUST RECEIPTS #TR$%

!s a document executed "# a customer (the pledge

of the goods or documents of title

$hen the goods are released to him "# the "ank !n order that he ma# sell the goods % pa# the

proceeds to the "ank

&pon receipt of TR document' the "ank (ill lend the

customer the mone# to pa# the seller)exporter for the goods

TRUST RECEIPTS #TR$%

*eeded (hen importer imports on sight term &pon sighting of documents pertaining to the

shipment of his order' he has to make pa#ment

!n the e+ent of insufficient funds' importer (ill

appl# to the "ank to release the documents of title to him

!n return' he (ill execute a TR

TRUST RECEIPTS #TR$%

The "ank (ould then pa# the seller)exporter for

the goods
TRs is an ad+ance)credit gi+en "# a "ank to the

importer
As a trustee' the importer promise to get the

goods from shipping compan#' sell the goods % pa# the proceeds to the "ank

TRUST RECEIPTS #TR$%

The importer need to settle the pa#ment to

the "ank (ithin the period stated in the TR

,eriod for settlement is usuall# "et(een -. to

/0. da#s

BANKER ACCEPTANCE

BANKER&S ACCEPTANCE #BA$%

&sed "# "oth importer % exporter for short1

term financing (-. 2 3.. da#s

!t4s easil# traded in the mone# market 5ore fa+ora"le either "# exporter or importer

due to lo(er interest rate as compared to other t#pes of financing

BANKER&S ACCEPTANCE #BA$%

Being used "# importer (hen he imports the

goods on sight term

!s a usance B6E 7ra(n "# the customer to his order Accepted "# his "anker ,a#a"le on a specified future date

BANKER&S ACCEPTANCE #BA$%

Being used "# exporter (hen he exports the

goods on usance term

After

sending the goods' the exporter (ill

present the usance B6E % BA to his "ank for collection

&pon acceptance' the exporter4s "ank (ill grant

an ad+ance)credit to the exporter

BANKER&S ACCEPTANCE #BA$%

The "ank (ill then present the B6E % BA to

importer4s "ank for reim"ursement

&pon maturit# of the B6E' importer (ill make

pa#ment to his "ank

!mporter4s "ank (ill reim"urse the pa#ment to

the exporter4s "ank

SHIPPIN' 'UARANTEE

SHIPPIN' 'UARANTEE
An

indemnit#

gi+en

"#

the

consignee)importer to a shipping compan#' so that the shipping compan# ma# release the merchandise (ithout the presentation of the rele+ant "ills of lading
Sign "# the importer % the "ank

SHIPPIN' 'UARANTEE
Being used (hen goods arri+ed at the port of

destination "efore the transport document

Shipping

compan#

(ill

not

release

goods

(ithout proper transport documents

5a# result in expensi+e dela#s' una"le to meet

deli+er# schedules or goods ma# "e perisha"les

SHIPPIN' 'UARANTEE
Bank4s role is to ensure that the importer

fulfill his o"ligations

7ue to the high risk exposure' "ank (ill onl#

prepare the shipping guarantee to certain customers

BANK 'UARANTEES

BANK 'UARANTEES
!s an irre+oca"le o"ligation of a "ank to pa# a

sum of mone# in the e+ent of a non1 performance of a contract "# a third part# ("ank4s customer

BANK 'UARANTEES
T#pes of Bank Guarantees
/8 38 -8 98 ;8

Bid or tender guarantee ,erformance guarantee Credit guarantee Guarantee for pa#ment of che:ues Ad+ance pa#ment guarantee

E(PORT CREDIT REFINANCIN' #ECR%

E(PORT CREDIT REFINANCIN'

!s

a scheme to promote the export of

manufactured goods that are resource "ased and +alue added8

A series of re+isions of the eligi"le goods

(ere made such as related to production process' +alue added and local content8

FEATURES
,romotes the export of manufactured products' agricultural products and primar# commodities T(o t#pes of facilities are a+aila"le to exporters: )re* $+,)men- ECR an. )o$-*$+,)men- ECR Co+ers an/ )ro.01- 2or e3)or- 2rom Ma4a/$,a except turtle eggs' rattan and poisonous chemicals Both .,re1- (manufacturing companies' agriculture product producers' trading companies and ,n.,re1e3)or-er$ (suppliers of domestic input are eligi"le under this scheme

TYPES OF ECR
ECR #Po$-*S+,)men-%
To ena"le exporters to o"tain immediate fund upon shipment of

eligi"le goods "eing exported on credit terms or usance terms of minimum of -. da#s8
To promote the export of manufactured and agriculture food

products that ha+e significant +alue added

&nder post1shipment facilit#' exporters can o"tain immediate fund

upon of export documents after shipment of goods8

TYPES OF ECR
ECR #Pre*S+,)men-%
!ts o"<ecti+e is to pro+ide (orking capital and input purchases

to manufacture)exporters for production of eligi"le goods8

This t#pe of ECR is a+aila"le to "oth direct and indirect

exporters8
Can "e dis"ursed through - t#pes of loans =AL'7!L and 76L8 ,eriod of financing for pre shipment is up to 9 months8

REPAYMENT
,a#ment should "e made upon receipt of export proceeds

or in the case of post1shipment ECR' upon maturit# of the post1shipment "ill' (hiche+er is earlier8

E(PORT CREDIT REFINANCIN'

Types of financing Methods of financing Pre-shipment ECR Order Based Certificate of performance Direct exporter whose total exports of eligible goods for the last 12 months is RM 1 million and above Maximum of ! months Post-shipment ECR Bill discounting Direct exporter who exports eligible goods on sight usance terms Minimum of " da#s and maximum of $ months &pon receipt of export proceeds

User

Direct exporter Indirect exporter

Tenor

Maximum of ! months

Direct exporter% &pon receipt of export proceeds &pon receipt of or post'