Name: Rida Khan

Roll No: Fa-21/030

Class/Sec: BBA-4A
Topic: Procedure of Opening L/C in Pakistan
Q: What is the procedure of opening LCs in Pakistan under State Bank of
Pakistan? Which bank open LCs in Pakistan? What is the cash margin
restriction on import LCs in Pakistan? Problems face by Pakistan importer &
exporter during opening LCs.

LETTER OF CREDIT(L/C) OPENING PROCEDURE IN

PAKISTAN
A letter of credit (L/C) is a bank’s promise to pay to the exporter all the agreed value of the
consignment on behalf of the foreign importer, provided that the exporter has complied with all
the terms and conditions of the L/C.

L/C is the most commonly used medium used for payment in international trade and is used to
protect the interests of both the exporter and importer. Using L/C as a mode of payment helps to
minimize the risk of transaction. L/C also adds to ensure to both buyer and seller that the goods
will be shipped within the time stipulated and the payment shall be made on time without undue
delay.

PARTIES INVOLVED IN LETTER OF CREDIT

Buyer / Importer (herein after called “The Applicant”): The Applicant means the importer
(buyer) who requests a bank to issue a Letter of Credit.

Seller / Exporter (herein after called “The Beneficiary”): The Beneficiary means the exporter
(seller) who finally ships the goods and receives the payment on fulfillment of terms and
conditions laid down in the Letter of Credit.

The Issuing Bank: The issuing bank (Importer’s Bank) issues the L/C and makes the payment
on behalf of importer as per the terms and conditions prescribed in L/C. The exporter may
negotiate with the buyer to select a particular bank (if possible) for issuance of the L/C and may
ask the Advising Bank if it has a corresponding bank in the buyer’s country and suggest that
bank to the buyer as the issuing bank. It is not necessary that the issuing bank shall be the same
bank where the buyer or the seller has a commercial account. It can be any other bank, mutually
agreed upon by the importer and exporter.
The Advising Bank: Advising bank is usually in the country of the seller. The Advising Bank
advises the exporter / seller / beneficiary that an L/C is received from the issuing bank and
provides information on terms and conditions of the L/C. The advising bank is not responsible
for any payment under L/C.

STEP BY STEP PROCEDURE OF OPEN L/C IN PAKISTAN

Opening a Letter of Credit (LC) in Pakistan under the State Bank of Pakistan (SBP) regulations
involves several steps. Here's a detailed procedure:
Choose the LC Type: Determine the type of LC you want to open based on the nature of your
trade transaction. The commonly used types include Sight LC (payment upon presentation of
documents) and Usance LC (payment at a future date).
Select an Authorized Dealer (AD): Identify a commercial bank in Pakistan authorized by the
SBP to handle foreign exchange transactions. These banks are referred to as Authorized Dealers,
and they can assist you with the LC process.
Submit Required Documents: Approach the selected AD and submit the following documents:
 Proforma Invoice: This document outlines the terms of the trade agreement, including the
description of goods/services, their quantity, price, delivery terms, and payment
conditions.
 Importer's Request Letter: A formal request from the importer addressed to the AD,
specifying the LC type, amount, expiry date, and any additional instructions.
 Copy of Import/Export License: Provide a copy of the importer's valid import/export
license.
 Bill of Lading/Airway Bill: These transport documents serve as proof of shipment and are
required for customs clearance.
 Insurance Policy/Certificate: If applicable, provide the insurance documents covering the
goods during transit.
 Other Supporting Documents: Depending on the nature of the transaction, additional
documents like certificates of origin, inspection certificates, etc., may be required.
LC Application Form: Fill out the LC application form provided by the AD. The form will
require details such as the name and address of the beneficiary (exporter), LC amount, shipment
terms, expiry date, and any specific instructions.
Review and Approval: The AD will review your documents and application. They may request
additional information or clarification if necessary. Once satisfied, they will obtain approval from
the SBP for issuing the LC.
Issuance of LC: Upon receiving SBP approval, the AD will issue the LC on behalf of the
importer. The LC will contain details such as LC number, LC amount, expiry date, terms and
conditions, and beneficiary information.
Advising the LC: The AD will advise the LC to the beneficiary's bank (the bank through which
the exporter operates). This can be done through secure electronic means or by issuing a physical
LC document.
Exporter Confirmation: The beneficiary's bank will notify the exporter about the LC's issuance
and provide them with a copy of the LC. The exporter will review the terms and conditions and
confirm their acceptance.
Shipment and Document Presentation: The exporter will arrange for the shipment of goods as
per the agreed terms. Upon shipment, they will prepare the required documents, including
commercial invoice, packing list, transport documents, and any other documents specified in the
LC.
Document Submission: The exporter will present the documents to their bank for examination
and compliance with the LC terms. The bank will ensure the documents meet the requirements
and then forward them to the AD (importer's bank).
Document Examination by AD: The AD will examine the presented documents to verify their
compliance with the LC terms. If the documents are in order, the AD will make the payment to
the exporter as per the LC instructions.
Goods Clearance and Delivery: The importer can now proceed with customs clearance and
take possession of the goods. The importer is responsible for paying any applicable customs
duties, taxes, or fees.

BANKS OPEN L/C IN PAKISTAN

Several commercial banks in Pakistan are authorized by the State Bank of Pakistan (SBP) to
handle foreign exchange transactions and open Letters of Credit (LC). Here are some of the
major banks in Pakistan that offer LC services:
 National Bank of Pakistan (NBP)
 Habib Bank Limited (HBL)
 United Bank Limited (UBL)
 MCB Bank Limited (MCB)
 Allied Bank Limited (ABL)
 Bank Alfalah Limited (BAFL)
 Standard Chartered Bank (Pakistan) Limited
 Citibank N.A. Pakistan
 Faysal Bank Limited
 Bank Al Habib Limited
 PROBLEMS FACED BY THE IMPORTER AND EXPORER IN
PAKISTAN
Complex Documentation: The process of preparing and submitting the required documents for
LC issuance can be complex and time-consuming. Importers and exporters need to ensure that all
the necessary documents are in order and comply with the specific requirements of the LC.
Limited Access to Financing: Access to financing for importers and exporters in Pakistan can
be a challenge. Banks may have strict criteria for providing credit facilities, and smaller
businesses or those with limited financial resources may struggle to meet these requirements,
making it difficult to obtain the necessary funds to open an LC.
High Bank Charges: Banks in Pakistan often charge significant fees for opening and processing
LCs. These charges, including issuance fees, amendment fees, and negotiation fees, can add to
the overall cost of trade transactions and affect the profitability of importers and exporters.
Stringent SBP Regulations: The State Bank of Pakistan (SBP) regulations governing LCs aim
to ensure compliance, transparency, and control over foreign exchange transactions. However,
the stringent regulations and frequent changes can create confusion and delays in the LC process,
leading to additional administrative burdens for importers and exporters.
Delayed Shipment and Delivery: Delays in the LC process can result in delayed shipments and
deliveries, impacting the importers' ability to receive goods on time and fulfill customer
demands. This can lead to increased costs, lost business opportunities, and damage to the
importer's reputation.
Lack of Awareness and Guidance: Importers and exporters, especially small and medium-sized
enterprises (SMEs), may lack awareness and understanding of the LC process and the specific
requirements set by banks and the SBP. This lack of knowledge can result in errors or non-
compliance, leading to delays and additional costs.
Exchange Rate Fluctuations: Exchange rate fluctuations can pose risks for importers and
exporters when opening LCs. Sudden changes in currency values can impact the cost of goods,
payment obligations, and overall profitability.
Political and Economic Instability: Political and economic instability in Pakistan can create
uncertainties and risks for importers and exporters. Factors such as policy changes, regulatory
reforms, and economic crises can affect the stability of trade transactions and increase the
challenges faced by businesses.

MARGINS OF BANKS IN L/C

The margins or charges for opening Letters of Credit (LCs) in Pakistan can vary among banks
and depend on various factors. Generally, banks charge an LC issuance fee, which is a
percentage of the LC value, ranging from 0.1% to 1% or more. There may be additional charges
for amendments, advising, negotiation, courier services, SWIFT transmission, and margin
requirements. The specific margins and fees can differ between banks, transaction sizes, and
individual circumstances. It is recommended to contact the banks directly for the most accurate
and up-to-date information regarding their charges for LC opening in Pakistan.

COUNTRIES GOODS BAN IN PAKISTAN

The GOP has banned the import of the following items: arms and ammunition of prohibited
bores, high explosives, radioactive substances, security printing, hazardous chemicals, currency
and mint, and alcoholic beverages.
The Ministry of Commerce (MOC), imposed the ban through SRO No. 598(I)/2022, effective
from 19 May 2022. Among the many imports listed in the SRO are products such as cellular
phones, cars, cosmetics, home appliances, shoes, lighting, pet food, sanitary and bathroom ware,
luxury leather apparel, shampoos, kitchenware and carpets except those from Afghanistan. The
ban also covers confectionery, chocolates and ice cream, fish and frozen fish, jams and jelly,
fruits and dry fruits except from Afghanistan, juices, pasta, travelling bags and suitcases, and
cigarettes, among others.