1. UCP 500 and
UCP 600
17/0
9/12

2. What's that UCP all about ????
The UCP is the work of the ICC
(International Chamber of Commerce),
a private international organization
founded in 1919 and is formulated
entirely by experts in the private
sector.
To date, it remains the most successful
set of private rules for trade ever
developed.

3. • On June 1, 2007 the new Uniform Customs and
Practices for Documentary Credits, published as
International Chamber of Commerce publication No
600, will take effect. The first version of the UCP was
drafted at the ICC congress in Vienna in 1933 (ICC-
Publication No. 82). After the first revision in 1951,
the UCP were again revised in 1962, latter revision
being of particular significance, since for the first
time Great Britain and the Commonwealth accepted
the UCP. The UCP were again revised in 1974 and
1993; the 1993 revision obtained the blessing of the
UNCITRAL (United Nations Commission on
International Trade Law) which recommended that
the UCP be applied to all documentary credits

4. The stated goal of the current revision has been
identical to previous ones, i.e. - take into account
developments in banking, transportation and
insurance - review the wording of the UCP to avoid
differing interpretations and applications [2]. In a
note to its members and the national committees
the ICC itself labeled the new revision as "the most
comprehensive in the entire history of the rules."
Comprehensiveness however did not lead to
substantive changes.
The ICC has shortened the number of articles from 49
to 38(39)!!. This change is mostly cosmetic however,
since substantive changes are barely noticeable. An
exception to the foregoing is the shortening of the
time to examine documents from seven to five
working days.

5. Previous publications
UCP Publication Number 500, 1993 Revision.
UCP Publication Number 400, 1983 revision
UCP Publication Number 290, 1974 revision
UCP Publication Number 222, 1962 revision.
UCP Publication number 151, 1951 revision.
UCP Publication number 82 created in 1933.

6. Lets see what's existing now in UCP
600 and we can go and enquire about
UCP 500 ?
And also we need to study deeper
about the changes between UCP 500
and UCP 600
And also the necessity for alteration
and reducing from 49 to 39 articles ???

7. Article 1- 5
Article 1 - 5
Definition,
Interpretation,
independence of credits
 and underlying contracts.

8. Article 6 - 10
Article 6 - 10
Availability,
 expiry date
and place, obligations of issuing
and confirming bank,
 advising credits
and amendments.

9. Article 11 - 17
Article 11 - 17
Pre-Advised Credits,
 nominated bank,
 reimbursement arrangements,
 complying presentations
 and discrepant documents,
waiver,
original documents and notices

10. Article 18 Commercial invoice
Article 19 - 27 Transport
Documents Article 28 Insurance
documents Article 29 - 37
Extension of Expiry Date,
tolerances, partial drawings and
partial shipments, Disclaimers

11. Article 38 - 39 Transferability of Credits and
Assignment of Proceeds. The most important
substantive changes are: The criterion that
documents have to appear to comply "on their
face" is only mentioned in Article 14 a UCP 600.
This leaves open that one has to consult the back
side of the document. The criterion of
inconsistency (Article 13 a UCP 500 "Documents
which appear on their face to be inconsistent
with one another") was watered down to read
now (see Article 14 d UCP 600): "Data in a
document, when read in context ... need not be
identical to, but must not conflict with...

12. UCP 500UCP 500
Uniform Customs and Practice for
Documentary Credits,
International Chamber of Commerce,
Paris, France
Publication No. 500.

13. 13
UCP 500
Buyer /
Applicant
Seller /
Beneficiary
Advising
Bank
Issuing
Bank
UCP 500
Uniform Customs and Procedures
for Documentary Letters of Credit.
The UCP 500 Letter of Credit - Concept

14. 14
UCP 500
Uniform Customs and Practice for Documentary Credits,
International Chamber of Commerce Publication No. 500.
Article 1: Application of UCP
This article states that all Letters of Credit, including Standby Credits, are issued
subject to UCP 500 provided that the Letter of Credit specifically indicates this to
be the case.
Article 2: Meaning of Credit
This article is saying that a Letter of Credit is any instrument issued by a
financial institution subject to UCP 500 that contains a conditional undertaking to
effect payment provided that its terms and conditions have been complied with.
Article 3: Credits vs Contracts
Credits, by their nature are separate transactions from the sales or other
contract(s) on which they may be based.

15. 15
UCP 500
UCP 500
Article 4: Documents vs. Goods / Services / Performance
In Credit operations all parties concerned deal with documents, and not with
goods, services and/or other performances to which the documents may relate.
Article 5: Instructions to Issue / Amend Credits
• Instructions for the issuance of a Credit must be complete and precise.
• In order to avoid confusion, Credit should not include excessive detail,
• The Credit must state precisely the documents that are to be presented.
Article 6: Revocable v. Irrevocable Credits
A Credit may be either (i) revocable or (ii) irrevocable.
Article 7: Advising Bank’s Liability
A Credit may be advised to a beneficiary through another bank (the Advising
Bank) without engagement on the part of the Advising Bank…

16. 16
UCP 500
Article 8: Revocation of a Credit
A revocable Credit may be amended or cancelled by the issuing bank at
any moment and without prior notice to the beneficiary.
Article 9: Liability of Issuing and Confirming Banks
An irrevocable Credit constitutes a definite undertaking of the Issuing
Bank.
Article 10: Types of Credit
All Credits must clearly indicate whether they are available by sight
payment, by deferred payment, by acceptance or by negotiation.
Article 11: Teletransmitted and Pre-Advised Credits
When an Issuing Bank instructs an Advising Bank by an authenticated
teletransmission to advise a Credit or an amendment to a Credit, the
teletransmission will be deemed to be the operative Credit instrument.

17. 17
UCP 500
Article 12: Incomplete or Unclear Instructions
If incomplete or unclear instructions are received to advise, confirm or amend a
Credit, the bank requested to act on such instructions may give preliminary
notification to the Beneficiary only and without responsibility.
Article 13: Standard for Examination of Documents
Banks must examine all documents stipulated in the Credit with reasonable care, to
ascertain whether or not they appear, on their face, to be in compliance with the
terms and conditions of the Credit… Documents not stipulated in the Credit will not
be examined by banks.
Article 14: Discrepant Documents and Notice
When the issuing bank authorizes another bank to pay, incur a deferred payment
undertaking, accept Draft(s), or negotiate against documents which appear on their
face to be in compliance with the terms and conditions of the Credit, the issuing bank
and the confirming bank, if any, are bound:

18. 18
UCP 500
Article 15: Disclaimer on Effectiveness of Documents
“Banks assume no liability of responsibility for the form, sufficiency, accuracy,
genuineness, falsification or legal effect of any document’s…
Article 16: Disclaimer on the Teletransmission of Documents
Banks assume no liability or responsibility for errors in translation and/or
interpretation of technical terms, and reserve the right to transmit Credit without
translating them.
Article 17: Force Majeure
Banks accept no liability or responsibility for consequences arising out of the
interruption of their business by Acts of God…
Article 18: Disclaimer for Acts of an Instructed Party
When a bank requests one of its correspondent banks to “give effect to the
instructions of the applicant” they do so “for the account of and at the risk of
such applicant.

19. 19
UCP 500
Article 19: Band-to-Bank Reimbursement Arrangements
When an issuing bank transmits a Credit through a correspondent bank
with which they do not have an account…
Documents
Article 20: Ambiguity as to Issuers of Documents
Terms such as ’first class,’ ‘well known,’ ‘qualified,’ independent’, ‘official,’
‘competent,’ ‘local,’ and the like shall not be used to describe the issuers of
any document’s to be presented under a Credit.
Article 21: Unspecified Issuers of Contents of Documents
When documents other than transport documents, insurance documents
and commercial invoices are called for, the Credit should stipulate by whom
they are to be issued and their wording or data content.

20. 20
UCP 500
Article 22: Issuance Date on Documents v. Credit Date
Documents may be presented showing an issuance date prior to the issuance date of the
Credit unless the Credit stipulates otherwise.
Article 23: Transport Documents
A Bill of Lading services three purposes; a contract between the shipper and carrier to
transport goods; a receipt by the carrier for the goods being shipped; and it normally
transfers title of the goods represented by it.
Article 24: Non-Negotiable Sea Waybill
The main difference between a negotiable bill of lading and non-negotiable document is the
way the bill of lading is consigned. A negotiable bill of lading is consigned “to order of” a
named party. Title is passed by surrender of an endorsed original bill of lading. A non-
negotiable bill of lading has a direct consignment to a named party. Title is passed by
surrender of either an original or non-negotiable copy of the B/L or Waybill.

21. 21
UCP 500
Article 25: Charter Party Bill of Lading
A charter party bill of lading is one where a shipper has contracted with a
shipping line to charter a vessel for the movement of cargo. The Credit
must stipulate that charter party bills of lading are acceptable.
Article 26: Multimodal Transport Document
A multimodal transport document is one that covers more than one kind of
conveyance.
Article 27: Air Transport Document
Air transport documents are issued in the form of an Air Waybill. A
significant difference between an Air Waybill and Ocean Bill of Lading is that
the former are always straight consignments whereas Ocean Bills of Lading
may be either straight or negotiable

22. 22
UCP 500
Article 28: Road, Rail or Inland Waterway Transport Documents
Frequently letters of credit issued for the purpose of accommodating shipments within
North America will call for some type of “domestic” transport document.
Article 29: Courier and Postal Receipts
Small or lightweight shipments are frequently sent via courier such as Airborne, Federal
Express, DHL, etc.
Article 30: Transport Document Issued by Freight Forwarders
Sometime a freight forwarder receives cargo from several different shippers and
consolidates them into a single container shipment.
Article 31: On deck,” “Shipper’s Load and Count,” Name of Consignor
Transport documents which do indicate that the goods may be carried “on deck”; bear a
clause such as “shippers load and count”; or indicate a consignor other than the
beneficiary.

23. 23
UCP 500
Article 32: Clean Transport Documents
A clean transport document is one that does not indicate any defect in the goods
such as “damaged.”
Article 33: Freight Payable/Prepaid Transport Documents
All Letters of Credit that require presentation of a transport document must
indicate whether the freight has been prepaid or is being sent “freight collect”.
Article 34: Insurance Documents
Insurance is a contract between the insurance company and the shipper,
consignee or party having an insurable interest in the merchandise
Article 35: Type of Insurance Cover
Credits should stipulate the type of insurance required and, if any, the additional
risks which are to be covered.

24. 24
UCP 500
Article 36: All Risk Insurance Cover
Frequently a Credit requires that the insurance document cover “all risks.”
Banks will accept an insurance document that bears an “all risks” clause or
notation even though the insurance document contains wording elsewhere
that certain risks are excluded.
Article 37: Commercial Invoice
This is the only document where the merchandise description must
correspond exactly with that indicated in the Credit. Must appear on their
face to be issued by the Beneficiary named in the Credit, and must be made
out in the name of the Applicant.
Article 38: Other Documents
This article covers weight certificates on transport documents other than by
sea.

25. 25
UCP 500
Article 39: Miscellaneous Documents
Allowances in Credit Amount, Quantity and Unit Price. Banks will accept
documents which show that the quantity of goods being shipped has a
variance of 5% more or less than that stipulated in the Credit.
Article 40: Partial Shipments/Drawings
Partial shipments are allowed, unless the Credit stipulates otherwise.
Sometimes a shipper may load goods on the same carrier at different times or
even different ports. So long as the transport documents indicate that the
goods were all shipped on the same carrier, for the same journey, show the
same destination, then a bank may not treat thee as partial shipments.
Article 41: Installment Shipments/Drawings
If a shipper (beneficiary) fails to make a drawings and/or shipment within a
specified time frame then the entire Letter of Credit ceases to be available for
any future drawings.

26. 26
UCP 500
Article 42: Expiry Date and Place for Presentation of Documents
All Credits must stipulate an expiry date and a place for presentation of
documents for payment.
Article 43: Limitation on the Expiry Date
every Credit which calls for a transport document should also stipulate a
specified period of time after the date of shipment during which presentation
must be made… If no such period of time is stipulated banks will not accept
documents presented to them later than 21 (calendar) days after the date of
shipment
Article 44: Extension of Expiry Date
If the expiry date of the Credit and/or last day of the period of time for
presentation of documents falls on a day on which the bank… is closed the
stipulated expiry date shall be extended to the first following day on which such

27. 27
UCP 500
Article 45: Hours of Presentation
Banks are under no obligation to accept presentation of documents outside their banking
hours.
Article 46: General Expressions as to Dates
Unless otherwise stipulated in the Credit, the expression ‘shipment’ used in stipulating an
earliest and/or latest date for shipment will be understood to include the expressions such
as ‘loading on board,’ ‘dispatch,’ ‘accepted for carriage, and the like.
Article 47: Date Terminology for Periods of Shipment
When Credits refer to dates such as “from X date to Y date” and the like, then banks will
interpret that to mean that both “X” and “Y” dates are included.

28. 28
UCP 500
Article 48: Transferable Credit
A transferable Credit is one under which the beneficiary may request that the
Credit be made available to a third party. A Credit is considered transferable
only if it is expressly designated as “transferable” by the issuing bank.
Article 49: Assignment of Proceeds
The beneficiary may request the paying/negotiating bank to “assign” all or
part of the proceeds to a third party. Unlike a transferee, an assignee is
entirely dependent on the beneficiary to perform in order to receive payment.
In addition, an assignee is not entitled to receive any notification of
amendments or even cancellation of the Credit. The main advantage to an
assignee is that it will be assured that payment will be made directly to them
instead of to the first beneficiary.

29. The UCP 500 is the global standard for
issuing, advising, presenting documents,
and negotiating Commercial Letters of
Credit in over 200 countries. It is the “gold
standard” for international transaction
settlement.

30. UCP500 Articles not incorporated into
UCP600 text:
Article 5[Instructions to Issue/Advise Credits]
Article 6 [Revocable v. Irrevocable Credits]
Article 8 [Revocation of a Credit]
Article 12[Incomplete or Unclear
Instructions]
Article 38[Other Documents]

31. Who is Affected?
LC Operations
Sales
Legal
Trainers
Applicants, Beneficiaries, Freight
Forwarders and Carriers

32. Fewer articles. UCP600 contains 39 articles. The
UCP 500 has 49.
The term "reasonable time" replaced with a
definite number of days (5) for examining and
determining compliance of documents;
A new provision concerning addresses of the
beneficiary and the applicant;
An expanded discussion of "original documents“;
Re-drafted transport articles aimed at resolving
confusion over the identification of carriers and
agents

33. A new section of “definitions”, containing terms such as
“honour”and “negotiation.”
Honour means:
i) to pay at sight if the credit is available by sight payment
ii) to incur a deferred payment undertaking and pay at maturity
if the credit is available by deferred payment,
(iii) to accept a bill of exchange (“draft”) drawn by the
beneficiary and pay at maturity if the credit is available by
acceptance.
Negotiation means the purchase by the nominated bank of drafts
(drawn on a bank other than the nominated bank) and/or
documents under a complying presentation, by advancing or
agreeing to advance funds to the beneficiary on or before the
banking day on which reimbursement is due to the nominated
bank.

34. Kindly Look at it !!!!
UCP500 Articles not incorporated into UCP600
text:
Article 5[Instructions to Issue/Advise Credits]
Article 6 [Revocable v. Irrevocable Credits]
Article 8 [Revocation of a Credit]
Article 12[Incomplete or Unclear Instructions]
Article 38[Other Documents]
Content of Articles 2, 6, 9, 10, 20, 21, 22, 30, 31,
33, 35, 36,46 and 47 were merged or otherwise
incorporated in other ways within the text of
the UCP 600.

35. The phrase "reasonable time" for acceptance or refusal
of documents has been replaced by a firm period of five
banking days.
The number of articles reduced to 39.
New provisions allow for the discounting of deferred
payment credits.
Banks can now accept an insurance document that
contains reference to any exclusion clause.
New sections on "definitions" and "interpretations"
have been added to clarify the meaning of ambiguous
terms.
Credit must state if reimbursement is subject to the ICC
rules for bank to bank reimbursements.

36. • An applicant or beneficiary address appearing in any
stipulated document need not be the same but must be
within the same country as the address stated in the
credit and contact details such as fax, phone, email and
the like, when stated as a part of the applicant or
beneficiary address will be disregarded…unless the
address and contact details appear as part of the
consignee or notify party details on a transport
document subject to the transport document articles of
the UCP 600. In that case they must appear as stated in
the credit.
• The word "clean“ need not appear on a transport
document even if a credit has a requirement for that
transport document to be “clean on board”.

37.  The flight stamp shown on an airway bill will be
considered as the date of shipment, whether requested in
the credit or not.
 The turndown notice has two new options: (i) to hold
documents pending applicant waiver or receipt of
additional instructions from the presenter or (ii) that the
bank is acting in accordance with instructions previously
received from presenter.
 At least one original of each document stipulated in a
credit must be presented.
 The concept of a revocable credit was removed from
UCP.

38. What is affected?
 Import letters of Credit
 Export Letters of credit
 Standby Letters of Credit
 LC Applications and Agreements
 LC Systems and Standard Letters
 Impact on SWIFT messages (notices of
refusal, subject to URR 525?)

39. Who is affected?
LC Operations
Work Procedures/Standard of Care
Staff Training in Multiple Locations
LC Systems and Standard Letters
What to do with existing LC’s after July 1, 2007?
Sales
Training of Sales Team Members
Legal
Learning the new rules
LC applications, documents and agreements

40. Trainers
Must learn new rules
Design and prepare training materials
Identify trainees, schedule and conduct
training.
Applicants/Beneficiaries/Freight
Forwarders & Carriers
Revocable credits not covered by UCP
Cannot set time limits for acceptance of
amendments by beneficiary

41. Applicants, Beneficiaries, Freight Forwarders &
Carriers
Issuing Bank must pay for credit complying documents,
if lost in transit.
At least one original of each document must be
presented.
Fewer Discrepancies? a document may be considered an
original if it appears to be on the document issuer’s
original stationery.
Applicant and/or beneficiary address may be different than
shown in the credit provided it is within the same country
as stated in the credit.

42. Applicants, Beneficiaries, Freight Forwarders & Carriers
The word “clean” not required to appear on Bill of
Lading, even if a “clean” transport document is
required in the LC.
An original document may be used to fulfill a
requirement for a “copy” even if a copy of a document
was required in the credit.
Transport document articles re-written to make it
easier to understand requirement to identify the
capacity of the signer of a Bill of Lading (agent, carrier
or master).
Banks allowed to discount or “prepay” an acceptance
or deferred payment obligation before maturity.

43. – Contact details such as Telefax, telephone, email and
the like, used as part of an applicant or beneficiary
address can be disregarded, unless used as part of
consignee or notify party details on a transport
document.
– A flight stamp or notation shown on an air waybill may
now be considered the date of shipment, whether
requested in the credit or not.
--Insurance documents containing references to any
exclusion clauses are now acceptable.
-- Faster Payment? Number of days required to notify
presenter of discrepancies hasbeen reduced from
seven (7) banking days following day of presentation
of documents to five (5) banking days.

44. Notable Changes!!!!!
New to UCP -Article 2 Definitions:
Advising bank, Applicant, Banking Day, Beneficiary,
Complying Presentation, Confirmation, Confirming bank,
Credit, Honour, Issuing bank, Negotiation, Nominated
bank, Presentation and Presenter.
New to UCP - Article 3 Interpretations:
Mainly conditions taken from UCP 500 Articles 20, 46 and
47
Plus wider application of terminology i.e., "Unless required
to be used in a document, words such as "prompt",
"immediately" or "as soon as possible" will be
disregarded" as opposed to its limited application under
UCP 500 sub-Article 46(b).

45. Article 6 Availability, Expiry Date and Place for
Presentation(includes):
(a) A credit must state the bank with which it is available or whether it
is available with any bank. A credit available with a nominated
bank is also available with the issuing bank.
(d) (i) A credit must stipulate an expiry date for presentation. An
expiry date stated for honour or negotiation will be deemed to be an
expiry date for presentation.
(d) (ii) The place of the bank with which the credit is available is the
place for presentation. If the credit is available with any bank then
the place for presentation is that of any bank. A place for
presentation other than that of the issuing bank is in addition to the
place of the issuing bank.

46. Article 7 Issuing Bank Undertaking (includes):
An issuing bank undertakes to reimburse a nominated bank that
has honoured or negotiated a complying presentation and
forwarded the documents to the issuing bank.
Reimbursement for the amount of a complying presentation
under acredit available by acceptance or deferred payment is
due at maturity, whether or not the nominated bank prepaid
or purchased before maturity. An issuing bank's undertaking
to reimburse a nominated bank is independent of the issuing
bank's undertaking to the beneficiary.
Article 8 Confirming Bank Undertaking (includes):A
confirming bank undertakes to reimburse another
nominated bankthat has honoured or negotiated a
complying presentation and forwarded the documents to
the confirming bank.
Reimbursement for the amount of a complying presentation
under a credit available by acceptance or deferred payment is
due at maturity, whether or not another nominated bank
prepaid or purchased before maturity. A confirming bank's
undertaking to reimburse another nominated bank is

47. Article 9 Advising of Credits and Amendments (includes):
An advising bank may utilize the services of another bank ("second
advising bank") to advise the credit and any amendment to the
beneficiary.
Article 10 Amendments (includes):
The terms and conditions of the original credit (or a credit incorporating previously
accepted amendments) will remain in force for the beneficiary until the
beneficiary communicates its acceptance of the amendment to the bank that
advised such amendment. The beneficiary should give notification of acceptance
or rejection of an amendment. If the beneficiary fails to give such notification, a
presentation that complies with the credit and to any not yet accepted amendment
will be deemed to be notification of acceptance by the beneficiary of such
amendment. As of that moment the credit will be amended.
A provision in an amendment to the effect that the amendment shall
become valid unless rejected by the beneficiary within a certain
time shall be disregarded.

48. Article 12 Nomination (includes):
By nominating a bank to accept a draft or incur a deferred
payment undertaking, an issuing bank authorizes that
nominated bank to prepay or purchase a draft accepted
or a deferred payment undertaking incurred by that
nominated bank. (See also Articles 7 and 8)
Article 13 Bank-to-Bank Reimbursement Arrangements
(includes):
If a credit states that reimbursement is to be obtained by a
nominated bank ("claiming bank") claiming on another
party ("reimbursing bank"), the credit must state if the
reimbursement is subject to the ICC rules for bank-to-
bank reimbursements in effect on the date of issuance
of the credit.

49. Article 14 Standard for Examination of Documentation (includes):
A nominated bank acting on its nomination, a confirming bank, if any,
and the issuing bank must examine the presentation to determine,
on the basis of the documents alone, whether or not the documents
appear on their face to constitute a complying presentation.
A nominated bank acting on its nomination, a confirming bank, if any,
and the issuing bank shall each have a maximum of five banking
days following the day of presentation to determine if a
presentation is complying. This period does not depend on any
upcoming expiry date or last day for presentation.
A document may be dated prior to the issuance date of the credit, but
must not be dated later than the date of its presentation.
The shipper or consignor of the goods indicated on any document
need not be the beneficiary of the credit.

50. Article 14 Standard for Examination of Documentation (Con’t):
Data in a document, when read in context with the credit, the document itself
and international standard banking practice, need not be identical to, but
must not conflict with, data in that document, any other stipulated
document or the credit.
The addresses of the beneficiary and the applicant appearing in any stipulated
document, need not be the same as those stated in the credit or in any
other stipulated document, but must be within the same country as the
addresses mentioned in the credit.
Contact details (telefax, telephone, email and the like) stated as part of the
beneficiary’s and the applicant’s address will be disregarded. However,
when the address and contact details of the applicant appear as part of the
consignee or notify party details on a transport document that is subject to
the transport document articles (19, 20, 21, 22, 23, 24 or 25), they must be
as stated exactly as in the credit.

51. Article 16 Discrepant Documents, Waiver and Notice (Includes):
The notice of discrepancy must state that the bank is
refusing to honor or negotiate, must cite each
discrepancy found and one other of the following
options:
That the bank is holding the documents pending further
instructions from the presenter, or
That this issuing bank is holding the documents until it
receives a waiver from the applicant and agrees to
accept it, or receives further instructions from presenter
prior to agreeing to accept a waiver, or
That the bank is returning the documents; or
That the bank is acting in accordance with instructions
previously received from the presenter.

52. Article 17 Original Documents and Copies:
This article follows the principles of the ICC Decision for determination of an
original document.
Article 18 Commercial Invoice (includes):
"... must be made out in the same currency as the credit; ...”
Articles 19-25 represent the new Transport Articles of the UCP (main
changes):First transport article is "Transport Document Covering at Least Two
Different Modes of Transport" and replaces UCP500 Article 26 "Multimodal Transport
Document".
Further alignment of the signing and identification of capacity;> Refined 'on board'
notation requirements;
Re-definition of transshipment i.e., "unloading from one vessel and reloading to
another vessel during the carriage from the port of loading to the port of discharge
stated in the credit".
For air transport, the flight stamp shown on the air waybill will now be considered the
date of shipment whether requested in the credit or not.

53. Article 27 Clean Transport Document (includes):
The word "clean" need not appear on a transport document even if
a credit has a requirement for that transport document to be
“clean on board”.
Article 28 Insurance Document and Coverage (includes):
Cover notes will not be accepted.
"... that risks are covered at least between the place of taking in
charge or shipment and the place of discharge or final destination
as stated in the credit“
An insurance document may contain reference to any exclusion
clause .
Note: the change to the position in ISBP paragraph 186.

54. Article 35 Disclaimer on Transmission and
Translation (includes):
If a nominated bank determines that a presentation
is complying and forwards the documents to the
issuing bank or confirming bank, whether or not
the nominated bank has honoured or negotiated,
an issuing bank or confirming bank must honour
or negotiate, or reimburse that nominated bank,
even when the documents have been lost in
transit between the nominated bank and the
issuing bank or confirming

55. Article 36 Force Majeure:
A bank assumes no liability or responsibility for the
consequences arising out of the interruption of
its business by Acts or God, riots, civil
commotions, insurrections, wars, acts of
terrorism** or by any strikes or lockouts, or any
other causes beyond its control.
A bank will not, upon resumption of its business,
honour or negotiate under a credit that expired
during such interruption of its business.
** Note: addition of the coverage for "acts of
terrorism"

56. Article 38 Transferable Credits (includes):
a. A bank is under no obligation to transfer a credit
except to the extent and in the manner expressly
consented to by that bank.
b. This section contains definitions for
"Transferable credit", "Second beneficiary",
“First beneficiary", "Transferring bank" and
"Transferred credit.”
k. Presentation of documents by or on behalf of a
second beneficiary must be made to the
transferring bank.

57. •Export
FIANCING

58. Export Financing
Exporters naturally want to get paid as quickly as
possible, while importers usually prefer to
delay payment until they have received the
goods. Because of the intense competition for
export markets, being able to offer attractive
payment terms customary in the trade is often
necessary to make a sale. Exporters should be
aware of the many financing options open to
them so that they choose the most acceptable
one to both the buyer and the seller.

59. Export credit can be broadly classified into
• Pre-shipment finance and
• post shipment finance.
• Preshipment
finance refers to finance extended to
purchase, processing or packing of goods
meant for exports
• Financial
assistance extended after the shipment of
exports falls within the scope of post
shipment finance

60. PACKING CREDIT
• As loan or cash credit against pledge or hypothecation.
• Verification of Exporter-Importer Code No. issued by
DGFT.
• Party should not be in the RBI Caution
list or ECGC Special Approval List.
• Export is not to a listed country
• Verify order/LC
• Up-to date knowledge of export policy
• Commodity should not be in the negative list.
• Commodity should have a good market
• Terms of contract
• No FEMA violation
• Borrower should be credit worthy.

61. • Working capital may be defined as funds required
to carry the required level of Current
assets to enable the industry to carry
on its operations at the expected levels
uninterruptedly..
• The guidelines set by Nayak Committee for
computation of WC finance quantum for
village, tiny and other SSI industries
to a minimum extent of 20% of Projected/ Accepted
Turnover to continue Guidelines
with regard to specific activities / industries / situations
to continue (Sugar / tea
industries, Rehabilitation cases, Export Financing etc.)
Banks may consider Cash Flow approach of financing
in order to close the gap between
the sanctioned limits and the utilization levels …

62. Quantum of finance:
• FOB value of goods minus profit and credit
margin
Cost of production less margin (can be
more if the domestic cost is more
than the FOB value and the difference
is accounted as incentives like duty draw-back
etc. subject to export production finance
guarantee of ECGC).
• In the case of exports on CIF value basis PC
can be granted towards insurance and freight also
• Period of finance: to coincide
with the date for shipment and normally up
to 180 days

63. Clean Packing Credit
• Granted to credit worthy parties where advance
payment is required to be made to the supplier.
• Quantum determined based on the likely purchase
pattern of the exporter with their suppliers.
• Period of CPC is determined based on the
facts of each case (but not later
than the period of contract /LC.
• A higher margin of say 25% should be stipulated,
collected each time and remitted along with PC to
the supplier.
• CPC should be converted as PC or Bills

64. EXPORT FINANCE
• PRE SHIPMENT finance : Deals with the
finance schemes available before the
shipment has been made.
• POST SHIPMENT finance : on the
contrary deals with credit available after
the goods have shipped.
Both stages are crucial for the exporter

65. Pre-shipment finance
• PSF.. Offer liquidity to the
exporter to produce raw
materials, carry out
processing, packing,
transporting and warehousing
of the goods to be exported.

66. • Pre-Export Finance: provision of funds to
cover the period between signing of purchase
orders and payment (short-term, working
capital)
• –Pre-export finance typically covers:
• Cost of inland transport to port
• Purchase of raw materials for processing
• Cost of processing
• Storage costs

67. Illustrative procedure (commodities)
• Exporter provides title to or pledges products to bank
• –Products that have yet to be produced
• –Products that have been produced (warehouse
receipt)
• Bank provides credit facility
• Payment
• –Trader takes delivery
• –Bank receives payment directly from buyer
• »Escrow account
• »Evidence account

68. Methods of Pre-Export Finance
• Open Account: –Exporter ships goods without any guarantee of
payment, thereby financing importer
–Risk of transaction dependent on relationship/importer integrity.
• Documentary letter of credit (see UCC Art. 5 and UCP 500): Letter
from bank, addressed to exporter, in which bank promises to pay or accept
drafts if exporter conforms 100% to conditions within the letter.
• Three parties:
• –Issuer: the issuing bank
• –Account party (importer)
• –Beneficiary (exporter)
• •Three agreements
• –Trade contract between importer and exporter
• –Documentary credit between bank and exporter
• –Reimbursement agreement between bank and importer

69. Documentary Letter of credit
Revocable/Irrevocable
• –A revocable letter of credit can be cancelled or amended by the issuing
bank; the bank does not need the exporter/beneficiary’s consent.
Confirmed/Unconfirmed
• –Issuing bank forwards letter of credit to exporter’s bank
• –Exporter’s bank promises to pay exporter (confirms l/c)
• –In an unconfirmed transaction, the advising bank acts as the issuing
bank’s agent and bears no obligation to exporter
Back-to-back
• –Typically used by brokers, the letter of credit allows the beneficiary to
assign its rights in one letter of credit to the issuer of a second letter of
credit
• –Both letters of credit must require identical documents
Transferable
• –The original beneficiary can transfer the letter of credit to third parties

70. Documentary Letter of credit
• Revolving
• –Typically used in construction contracts
• –Allows beneficiary to draw on the letter of credit, up to a certain
amount, usually without presentation of documents
• –The account party replenishes the account
“Red clause” letter of credit
• –Exporter can use to obtain pre-shipment finance by providing either (i)
a statement of purpose or (ii) an undertaking to provide specified
documents.
• –Issuing bank provides exporter with a percentage of the L/C amount
• –Advising bank guarantees reimbursement
“Green clause” letter of credit
• –Similar to “red clause” letters of credit, but pre-shipment finance is
contingent upon the production of warehouse receipts…

71. Letter of credit Settlement
Sight payment (sight draft)
• –Exporter presents documents and receives payment
Deferred payment (dated draft)
• –Exporter presents documents and receives payment at some
specified future time
Acceptance (time draft)
• –Exporter (i) presents documents and (ii) draws a usance draft
• –Bank accepts bill of exchange for payment on a future date
Negotiation
• –Exporter may choose a bank and negotiate the payment of a
sight or usance draft
• –Bank will either:
• »Advance payment with recourse to the exporter
• »Advance payment less a fee (discount)
• »Pay exporter when issuing bank provides payment

72. Post shipment Finance
• Provides credit facility from the date
shipment of the goods to the time
export payment is realized
( expenses between period of
shipment dispatch and payment
realisation…

73. Export Finance –Post-Export
Post-Export Finance (medium/long-term)
• –Post-Export finance typically covers:
• •Account receivables
• •Equipment
• •Other fixed assets
–Methods of Post-Export Finance
• •Revolving line of credit
• •Term loan
• •Finance accounts receivable

74. Methods of Post-Export Finance
Finance account receivables
–Typically used in two instances
• •Undercapitalized company with permanent financing
need
• •Temporary insufficient cashflow
–Banks provide loan secured by:
• •Assignment of receivables
• •Assignment of commodity inventory
–Loan
• •Made on a revolving basis against a pool of receivables
–Borrower
• •Responsible for collecting from customers
• •Responsible for 100% loan repayment despite inability to
collect from customers

75. Export Finance –Forms of Risk
Commercial risk
•The risk that either party will not fulfill its
obligations
Transportation risk
•The risk that goods become damaged or destroyed
during transport
Exchange risk
• •The risk that currency fluctuations will affect the
value of the transaction
Political risk
• •The risk that government policy changes, wars,
embargoes, etc., will prevent the conclusion or
affect the value of the transaction

76. Indian Case study ; RBI sources !
• PRE-SHIPMENT EXPORT CREDIT, Definition:
…any loan or advance granted or any other credit provided by a
bank to an exporter for financing the purchase, processing,
manufacturing or packing of goods prior to shipment / working
capital expenses towards rendering of services on the basis of
letter of credit opened in his favour or in favour of some other
person, by an overseas buyer or a confirmed and irrevocable
order for the export of goods / services from India or any other
evidence of an order for export from India having been placed on
the exporter or some other person, unless lodgement of export
orders or letter of credit with the bank has been waived.

77. Period of Advance
The period for which a packing credit advance may be
given by a bank will depend upon the circumstances
of the individual case, such as the time required for
procuring, manufacturing or processing (where
necessary) and shipping the relative goods /
rendering of services.
It is primarily for the banks to decide the period for which a
packing credit advance may be given, having regard to the
various relevant factors so that the period is sufficient to
enable the exporter to ship the goods / render the services

78. • If pre-shipment advances are not adjusted by
submission of export documents within 360
days from the date of advance, the advances
will cease to qualify for concessive rate of
interest to the exporter ab initio.
• RBI would provide refinance only for a
period not exceeding 180 days.

79. Disbursement of Packing Credit
Banks may also maintain different
accounts at various stages of processing,
manufacturing, etc. depending on the
types of goods / services to be exported,
e.g. hypothecation, pledge, etc.,
accounts and may ensure that the
outstanding balance in accounts are
adjusted by transfer from one account to
the other and finally by proceeds of
relative export documents on purchase,

80. Banks should continue to keep a close
watch on the end-use of the funds
and ensure that credit at lower rates
of interest is used for genuine
requirements of exports. Banks
should also monitor the progress
made by the exporters in timely
fulfillment of export orders.

81. Liquidation of Packing Credit
The packing credit / pre-shipment credit granted
to an exporter may be liquidated out of
proceeds of bills drawn for the exported
commodities on its purchase, discount etc.,
thereby converting pre-shipment credit into
post-shipment credit. Further, subject to
mutual agreement between the exporter and
the banker it can also be repaid / prepaid out
of balances in Exchange Earners Foreign
Currency A/c ( EEFC A/c ) as also from rupee
resources of the exporter to the extent

82. Running Account' Facility
In many cases, the exporters have to procure raw
material, manufacture the export product and
keep the same ready for shipment, in anticipation
of receipt of letters of credit / firm export orders
from the overseas buyers. Having regard to
difficulties being faced by the exporters in availing
of adequate pre-shipment credit in such cases,
banks have been authorized to extend Pre-
shipment Credit ‘Running Account’ facility in
respect of any commodity, without insisting on
prior lodgment of letters of credit / firm export
orders, depending on the bank’s judgment
regarding the need to extend such a facility and
subject to the following conditions:

83. a) Banks may extend the ‘Running Account’ facility only to those
exporters whose track record has been good as also to Export
Oriented Units (EOUs) / Units in Free Trade Zones / Export
Processing Zones (EPZs) and Special Economic Zones (SEZs)
(b) In all cases where Pre-shipment Credit ‘Running Account’ facility has
been extended, letters of credit / firm orders should be produced
within a reasonable period of time to be decided by the banks.
(c) Banks should mark off individual export bills, as and when they are
received for negotiation / collection, against the earliest outstanding
pre-shipment credit on 'First In First Out' (FIFO) basis. Needless to
add that, while marking off the preshipment credit in the manner
indicated above, banks should ensure that concessive credit available
in respect of individual pre-shipment credit does not go beyond the
period of sanction or 360 days from the date of advance, whichever
is earlier.
(d) Packing credit can also be marked-off with proceeds of export
documents against which no packing credit has been drawn by the
exporter.

84. Export Credit against Proceeds of Cheques, Drafts, etc.
Representing Advance
Payment for Exports
Where exporters receive direct remittances
from abroad by means of cheques, drafts, etc.
in payment for exports, banks may grant
export credit at concessive interest rate to
exporters of good track record till the
realization of proceeds of the cheque, draft
etc. received from abroad, after satisfying
themselves that it is against an export order,
is as per trade practices in respect of the
goods in question and is an approved method
of realization of export proceeds as per extant

85. Rupee Export Packing Credit to Manufacturer Suppliers for
Exports Routed through STC/MMTC/Other Export Houses,
Agencies, etc.
Banks may grant export packing credit
to manufacturer suppliers who do not
have export orders/letters of credit in
their own name, and goods are
exported through the State Trading
Corporation/Minerals and Metal
Trading Corporation or other export
houses, agencies, etc.

86. Requirements
(a) Banks should obtain from the export house a letter
setting out the details of the export order and the portion
thereof to be executed by the supplier and also certifying
that the export house has not obtained and will not ask
for packing credit in respect of such portion of the order
as is to be executed by the supplier.
(b) Banks should, after mutual consultations and taking into
account the export requirements of the two parties,
apportion between the two i.e. the Export House and the
Supplier, the period of packing credit for which the
concessionary rate of interest is to be charged. The
concessionary rates of interest on the pre-shipment
credit will be available up to the stipulated periods in
respect of the export house/agency and the supplier put
together.

87. The export house should open inland L/Cs in favour of the supplier
giving relevant particulars of the export L/Cs or orders and the
outstandings in the packing credit account should be extinguished
by negotiation of bills under such inland L/Cs. If it is inconvenient
for the export house to open such inland L/Cs in favour of the
supplier, the latter should draw bills on the export house in
respect of the goods supplied for export and adjust packing credit
advances from the proceeds of such bills. In case the bills drawn
under such arrangement are not accompanied by bills of lading or
other export documents, the bank should obtain through the
supplier a certificate from the export house at the end of every
quarter that the goods supplied under this arrangement have in
fact been exported. The certificate should give particulars of the
relative bills such as date, amount and the name of the bank
through which the bills have been negotiated.

88. Export of Services
In view of the large number of categories of
service exports with varied nature of
business as well as in the environment of
progressive deregulation where the
matters with regard to micromanagement
are left to be decided by the individual
financing banks, the banks may formulate
their own parameters to finance the
service exporters.

89. Exporters of services qualify for working capital export credit
(pre and post shipment) for consumables, wages, supplies etc.
• The proposal is a genuine case of export of services.
• The item of service export is covered under
Appendix – 36 of the Hand Book (Vol.1)
• The exporter is registered with the Export
Promotion Council for services
• There is an Export Contract for the export of the
Service
• There is a time lag between the outlay of working
capital expense and actual receipt of payment from
the service consumer or his principal abroad.
• There is a valid Working Capital gap i.e. service is
provided first while the payment is received some
time after an invoice is raised.

90. • Banks should ensure that there is no double
financing/excess financing.
• The export credit granted does not exceed the
foreign exchange earned less the
• margins if any required, advance
payment/credit received.
• Invoices are raised
• Inward remittance is received in Foreign
Exchange.
• Company will raise the invoice as per the
contract where payment is received from
overseas party, the service exporter would utilize
the funds to repay the export credit availed of
from the bank.

91. India: POST-SHIPMENT EXPORT CREDIT
Post-shipment Credit' means any loan or
advance granted or any other credit provided
by a bank to an exporter of goods / services
from India from the date of extending credit
after shipment of goods / rendering of
services to the date of realization of export
proceeds and includes any loan or advance
granted to an exporter, in consideration of,
or on the security of any duty drawback
allowed by the Government from time to

92. Types of Post-shipment Credits:
(i)Export bills purchased/
discounted/ negotiated.
(ii) Advances against bills for
collection.
(iii) Advances against duty
drawback receivable from
Government

93. Liquidation of Post-shipment Credit:
Post-shipment credit is to be liquidated by the
proceeds of export bills received from abroad in
respect of goods exported / services rendered.
Further, subject to mutual agreement between
the exporter and the banker it can also be
repaid / prepaid out of balances in Exchange
Earners Foreign Currency Account (EEFC A/C) as
also from proceeds of any other unfinanced
(collection) bills. Such adjusted export bills
should however continue to be followed up for
realization of the export proceeds and will

94. Rupee Post-shipment Export
Credit
• the case of demand bills, the period of advance shall be the
Normal Transit Period (NTP) as specified by FEDAI.
• In case of usance bills, credit can be granted for a maximum
duration of 365 days from date of shipment inclusive of Normal
Transit Period (NTP) and grace period, if any. However, banks
should closely monitor the need for extending post shipment credit
up to the permissible period of 365 days and they should influence
the exporters to realize the export proceeds within a shorter
period.
• Normal transit period' means the average period normally
involved from the date of negotiation / purchase / discount till the
receipt of bill proceeds in the Nostro account of the bank
concerned, as prescribed by FEDAI from time to time. It is not to be
confused with the time taken for the arrival of goods at overseas
destination.

95. Post-shipment Advances against Duty
Drawback Entitlements
• Banks may grant post-shipment advances to exporters
against their duty drawback entitlements as provisionally
certified by Customs Authorities pending final sanction
and payment.
• The advance against duty drawback receivables can also
be made available to exporters against export promotion
copy of the shipping bill containing the EGM Number
issued by the Customs Department. Where necessary,
the financing bank may have its lien noted with the
designated bank and arrangements may be made with
the designated bank to transfer funds to the financing
bank as and when duty drawback is credited by the
Customs

96. ECGC Whole Turnover Post-shipment
Guarantee Scheme
The Whole Turnover Post-shipment
Guarantee Scheme of the Export Credit
Guarantee Corporation of India Ltd. (ECGC)
provides protection to banks against non-
payment of post-shipment credit by
exporters. Banks may, in the interest of
export promotion, consider opting for the
Whole Turnover Post-shipment Policy. The
salient features of the scheme may be
obtained from ECGC.

97. DEEMED EXPORTS - CONCESSIVE RUPEE EXPORT
CREDIT
Banks are permitted to extend rupee pre-
shipment and post-supply rupee export credit at
concessional rate of interest to parties against
orders for supplies in respect of projects
aided/financed by bilateral or multilateral
agencies/funds (including World Bank, IBRD,
IDA), as notified from time to time by
Department of Economic Affairs, Ministry of
Finance under the Chapter "Deemed Exports" in
Foreign Trade Policy, which are eligible for grant
of normal export benefits by Government of

98. INTEREST ON EXPORT CREDIT
• A ceiling rate has been prescribed for rupee export credit
linked to Benchmark Prime Lending Rates (BPLRs) of
individual banks available to their domestic borrowers.
Banks have, therefore, freedom to decide the actual
rates to be charged within the specified ceilings. Further,
the ceiling interest rates for different time buckets under
any category of export credit should be on the basis of
the BPLR relevant for the entire tenor of export credit.
• ECNOS: ECNOS means Export Credit Not Otherwise
Specified in the Interest Rate structure for which banks
are free to decide the rate of interest keeping in view the
BPLR and spread guidelines. Banks should not charge
penal interest in respect of ECNOS.

99. Interest Rate Structure
• Pre-shipment Credit (from the date of advance) : (a) Up to 180
days / (b)Against incentives receivable from Government covered
by ECGC Guarantee up to 90 days.
• Post-shipment Credit (from the date of advance) : a) On demand
bills for transit period (as specified by FEDAI) (b) Usance bills (for
total period comprising usance period of export bills, transit
period as specified by FEDAI, and grace period, wherever
applicable)
Up to 90 days
Up to 365 days for exporters under the Gold Card Scheme.
(c) Against incentives receivable from Govt. (covered by ECGC
Guarantee) up to 90 days
(d) Against undrawn balances (up to 90 days)
(e) Against retention money (for supplies portion only) payable

100. EXPORT CREDIT IN FOREIGN CURRENCY
• Pre-shipment Credit in Foreign Currency (PCFC): The
scheme is an additional window for
providing pre-shipment credit to Indian
exporters at internationally competitive
rates of interest. It will be applicable to
only cash exports. The instructions with
regard to Rupee Export Credit apply to
export credit in foreign currency also
mutatis mutandis, unless otherwise
specified.

101. Source of Funds for Banks
• The foreign currency balances available with the bank in
Exchange Earners Foreign Currency (EEFC) Accounts,
Resident Foreign Currency Accounts RFC(D) and Foreign
Currency (Non-Resident) Accounts (Banks) Scheme
could be utilized for financing the pre-shipment credit in
foreign currency.
• Banks are also permitted to utilise the foreign currency
balances available under Escrow Accounts and Exporters
Foreign Currency Accounts for the purpose, subject to
ensuring that the requirements of funds by the account
holders for permissible transactions are met and the
limit prescribed for maintaining maximum balance in
the account under broad based facility is not exceeded.

102. Post-shipment Export Credit in Foreign
Currency
• Banks may utilise the foreign exchange
resources available with them in Exchange
Earners Foreign Currency Accounts (EEFC),
Resident Foreign Currency Accounts (RFC),
Foreign Currency (Non-Resident) Accounts
(Banks) Scheme, to discount usance bills and
retain them in their portfolio without resorting
to rediscounting. Banks are also allowed to
rediscount export bills abroad at rates linked to
international interest rates at post-shipment
stage.