Kathmandu, Oct. 5
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.
"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.
Published in The Rising Nepal daily on 6 October 2021.
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