What is a Transferable and Standby LC? Describe the standard operational procedure of the mentioned LCs in Bangladesh.

Transferable LC

A transferable LC allows the first beneficiary to transfer all or part of the credit to another beneficiary. It is commonly used when a middleman receives an LC from the buyer and transfers it to the actual supplier.

Operational procedure:

(1) The applicant requests the issuing bank to issue a transferable LC in favour of the first beneficiary.

(2) The first beneficiary requests the transferring bank to transfer the LC to the second beneficiary.

(3) The transferring bank transfers the LC to the second beneficiary according to the permitted terms.

(4) The second beneficiary ships the goods and submits the required documents to the transferring bank.

(5) The first beneficiary may substitute its own invoice and draft to maintain its margin between the buyer’s price and the supplier’s price.

(6) The transferring bank forwards the documents to the issuing bank, and payment is made according to the LC terms.

Standby LC

A standby LC is mainly used as a security or guarantee. The bank makes payment only when the applicant fails to fulfil an underlying obligation.

Operational procedure:

(1) The applicant requests its bank to issue a standby LC in favour of the beneficiary against a specific obligation.

(2) The issuing bank undertakes to pay the beneficiary if the applicant fails to meet the obligation.

(3) If the applicant fulfils the obligation, the standby LC normally expires without being used.

(4) If the applicant defaults, the beneficiary submits a claim according to the standby LC terms, and the issuing bank makes payment if the claim complies with those terms.