Commercial banks and national level development banks in Nepal can now issue Standby Letter of Credit (SBLC) to any firm, organisation or agency to run business activities and obtain loan in foreign countries.
The Nepal Rastra Bank has enacted this facility for the first time by amending its Unified Directives, 2019’s circular 14/2019, said Dev Kumar Dhakal, Spokesperson for the central bank.
Foreign Exchange Management Department of the central bank informed in a notice published on Tuesday that any company, firm, organisation or agency that has earned foreign currency and wants to operate its business in other countries can obtain the bank guarantee or SBLC from the banks and financial institutions (BFIs) in Nepal.
An SBLC guarantees a bank’s commitment of payment to seller in the event that the buyer or the bank’s client defaults on the agreement, according to Investopedia.
It will be particularly effective in facilitating trade between two international parties that don’t know each other or function in different legal regimes.
SBLC is different from Letter of Credit or LC as the former pays the party when conditions have not been fulfilled and the latter makes payment when the conditions are fulfilled.
As per the new provision, Nepali producers and exporters of goods and services can obtain bank guarantee like bid bond and performance bond or SBLC for advance payment from the companies in other countries to provide goods or services export from Nepal.
Companies that require such service need to submit authentic relevant documents to the banks. Banks will be responsible for all the liability created after the issuance of SBLC, stated the NRB. It also said that SBLC can’t be issued to obtain loan in foreign land.
Amount of such guarantee or SBLC will be US$5 million or equivalent other foreign currency, and such amount should not exceed the income of foreign currency of the applicant company in the last five consecutive years.
According to the central bank, the applicant should submit documents showing the need of the SBLC, tax clearance, latest audit report, decision of the board of directors of the company to that effect, evidence of the income of foreign currency, and action plan to bring in additional foreign currency to Nepal.
Bharat Raj Acharya, Chairman of Industry Committee at the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said that the new provision would benefit the services exporters like computer software and entertainment product.
“This will immediately help the software developers and exporters to further expand their markets in other countries.
It will increase the company’s reliability and help in business development,” he said.
However, goods export will be less likely to benefit from the provision although handicraft exporters could reap benefit to some extent.
Source : TRN,
