Standby Letters Research Articles

Standby akreditiv kao sredstvo obezbeđenja u međunarodnim ugovornim odnosima

The subject of this paper is a type of letter of credit that is not commonly encountered in the practices of domestic banks. It is not specifically regulated by domestic legislation; however, its significance is expected to grow in the international business relations of our businessmen with companies from other countries where the use of this payment security instrument is common in the banking industry. This type of letter of credit is theoretically of disputed legal nature, raising questions about whether it qualifies as a letter of credit, a type of guarantee, or a distinct legal institute. The focus of the research is on the standby letter of credit as a security measure in international contractual relations, particularly in sales and construction contracts. In sales contracts, the standby letter of credit serves to secure the interests of the seller, while in construction contracts, it can secure interests of both the client the contractor, depending on the party for whose benefit it was issued. The paper aims to define the standby letter of credit, explain its role in protecting the rights and interests of contracting parties, and explore its legal nature. In particular, we will conduct a comparative analysis between this legal institute and a 'classic' documentary letter of credit and a bank guarantee. In our legal theory, and to a greater extent in American and English legal theory, there are numerous works that deal with the topic of standby letters of credit. However, the legal regulations related to banking operations have changed over time, which requires a fresh perspective. The goal of this work is to familiarize our companies and banks engaged in transactions with foreign entities, where the issuance of this type of letter of credit is customary, with the role of a standby letter of credit as an instrument for ensuring contractual obligations. In addition to that, the paper aims to explore the legal relationships established with this type of letter of credit.

The Legal Perspective on Strengthening the Practice of Bank Guarantees in Indonesia: Revisiting the Provisions Related to Payment

This Article provides the legal perspective of the transaction of bank guarantees in the banking practice in Indonesia. It examines the provisions related to payment for bank guarantees by comparing the provisions related to payment for the bank garansi and that of the standby letter of credit or demand guarantee. The work shows that the bank garansi is dependent guaranty, whereas the standby letter of credit or demand guarantee is independent guaranty. The payment for the bank garansi is based on the actual default, whereas the payment for the standby letter of credit or demand guarantee is based on the statement of default. The primary obligation to pay for the bank garansi is that of the issuing bank or guaranteed party, while the primary obligation to pay for the standby letter of credit or demand guarantee is that of the issuing bank. And, as to the international counter guarantee, the conflicting provisions arise when it is asking the bank garansi as the domestic bank guarantee. The banks, companies and government agencies involved in the transaction of bank guarantees are encouraged to understand the implication of these findings and further prepare the appropriate solution.

A Study on Strengthening of Document Requirements for Demand in Standby Letter of Credit Transaction

A Study on Strengthening of Document Requirements for Demand in Standby Letter of Credit Transaction

Bank Guarantee: Significance and Regulation Issues of the solvet et repete Principle

Bank Guarantee: Significance and Regulation Issues of the solvet et repete Principle

A Study on the Defence of Refusal for the Payment of Issuing Bank under Standby Letter of Credit and Documentary Credit

A Study on the Defence of Refusal for the Payment of Issuing Bank under Standby Letter of Credit and Documentary Credit

Regulating Financial Guarantors: Abstraction Bias As a Cause of Excessive Risk-taking

To improve financial regulation, scholars have engaged in extensive research over the past decade to try to understand why systemically important financial institutions engage in excessive risk-taking. None of that research fully explains, however, the unusually excessive risk-taking by financial guarantors such as bond insurers, protection sellers under credit-default-swap (CDS) derivatives, credit enhancers in securitization transactions, and even issuers of standby letters of credit. With tens of trillions of dollars of financial guarantees outstanding, the potential for failure is massive. This Article argues that financial guarantor risk-taking is influenced by a fundamental anomaly in perceiving risk. Financial guarantors commit to pay out capital only if certain future contingencies occur, in contrast to banks and other financial institutions that pay out capital—for example, by making a loan—at the outset of a project. As a result, financial guarantors are subject to a previously unrecognized cognitive bias, which the author calls “abstraction bias,” that causes them to underestimate the risk on their guarantees. The Article provides empirical evidence that supports the existence of abstraction bias and its influence on financial guarantors. The Article also examines how an understanding of abstraction bias can improve the regulation of financial guarantor risk-taking.

Determining the Value of Standby Letter of Credit in Transfer Stage of a PPP Project to Control Concessionaire’s Opportunistic Behavior

Determining the Value of Standby Letter of Credit in Transfer Stage of a PPP Project to Control Concessionaire’s Opportunistic Behavior

CONTRACT OF KAFĀLAH (GUARANTEE) IN ISLAMIC FINANCE: EXTENDING THE FRONTIERS OF ISLAMIC LAW

In the traditional application of kafālah (guarantee) agreementunder the Islamic law, the kāfil (guarantor) is not expected to makeprofit from offering to guarantee. However, in the contemporaryIslamic financing, a huge volume of national and transnationaltransactions are built around kafālah in form of bank guarantee,standby letter of credit and shipping guarantee. The Islamicfinancial institutions have thus redesigned the traditional conceptto take advantage of the robust return, like their conventionalcounterparts, accruable from kafālah transactions. This raisesfundamental question of possible infraction of the Shariah orcontrivance of legal device (hiyal) to permit the impermissible.This paper therefore, conducts a study of the traditional conceptof kafālah with a view to examining the possible contrivancein and/or infraction of Shariah in the process of its redesignand application. The goal is to screen the product for Shariahcompliance and the methodology adopted is qualitative. Itconcludes that rather being a contrivance of Islamic traditionalprecept the practice is an ingenious extension of the frontiers ofIslamic law to the contemporary needs.

THE ROLE OF ISLAMIC BANKING INSTITUTION IN ASSISTING MUSLIM ENTREPRENEURS IN MALAYSIA

This paper aims to discuss the role of Islamic banking institutions among Muslim entrepreneurs in Klang Valley, Malaysia. The problem to be solved in this paper is how the Islamic banking institutions to play their role in helping Muslim entrepreneurs in Malaysia. Usually, the problems faced by Muslim entrepreneurs which are difficult to obtain financing from banking institutions to start a business or expand an existing business. This study was conducted to four (4) Islamic banking institutions; Bank Islam Malaysia Berhad (BIMB), Bank Muamalat Malaysia Berhad (BMMB), Small Medium Enterprise Bank (SME Bank) and Bank Kerjasama Rakyat Malaysia Berhad (Bank Rakyat) to see the true role of Islamic banking institutions that assist Muslim entrepreneurs through financing products that have been offered by four (4) Islamic banking institutions as mentioned. As we know, in Malaysia, all of the banks have been offered various Islamic financing products including personal financing and business financing such as Letter of Credit-i, Trade Working Capital Financing-i, No Front-i, Bills of Exchange Purchased-i, Refinancing of Credit Export-i, Promotion, Shipping Guarantee-i, Bank Guarantee-i, Standby Letter of Credit-i, No. -bil Collection-i, Letter of Credit-i and transfer Letter of Credit-i, Rural Economy Funding Scheme, Micro Financing-i scheme, Micro Business Financing, Graduate Entrepreneur Fund. Thus, based on this statement, the entrepreneurs have no problem in obtaining the Islamic financial products, theoretically, but not practically. Therefore, this study aims to identify the actual problems that is faced by entrepreneurs and the Islamic banking institutions in Malaysia. This study used in-depth interview method from six bank officers as informant and eight Muslim entrepreneurs as respondent for the data collection process. The finding of this study showed that Islamic banking institutions played an important role in helping the Muslim entrepreneurs. In addition, it was also found that the Muslim entrepreneurs were lack of financial management knowledge. Thus, this study has outlined some recommendations to improve the knowledge in financial management among the Muslim entrepreneurs as a strategy to uphold their involvement in Malaysia.

Remedies to Fraud in Documentary Letters of Credit: A Comparative Perspective / Opravné Opatrenia Pri Podvodoch S Dokumentárnymi Akreditívami: Komparatívna Perspektíva

Abstract Article 4 of the Unified Customs and Practices of Documentary Letters of Credit establishes the notion of autonomy principle by separating credit from underlying contract between account party and beneficiary. Article 5 by recognizing the autonomy principle confirms that effectuate the payment under credit, banks only deal with documents and not with goods. As a result, while documentary letters of credit are meant to facilitate the process of international trade, their sole dependency on compliance of presented documents to bank by beneficiary to actualize the payment will increase the risk of fraud and forgery in the course of their operation. Interestingly, UCP (currently UCP600) takes a silent status regarding the problem of fraud in international LC operation and leaves the ground open for national laws to provide remedies to affected parties by fraudulent beneficiary. National Laws have different approaches to the problem of fraud in general and fraud in international LC operation in particular which makes the access of affected parties to possible remedies complicated and difficult. Current paper tries to find answer to the questions of (i) what available remedies are provided to affected parties in international LC fraud by different legal systems? (ii) And what are conditions for benefiting from such remedies under different legal systems? In achieving its objective, paper will be divided in two main parts to study remedies provided by intentional legal frameworks as well as the ones offered by national laws. Part one will study the position of UCP and UNCITRAL Convention on Independent Guarantees and Standby Letters of Credit (UNCITRAL Convention) and remedies, which they provide to LC fraud in international trade. Part two in contrary will study available remedies to LC fraud and condition for access them under English and American legal system.

Investigating the Policy of International Trading Companies of Iran in Using Letters of Credit

<p>Letters of credit play a crucial role in international trade. In this study, we investigate the most preferable characteristics of letters of credit for the international trading companies in Iran. We seek to investigate which kind of guarantee (commercial L/C or standby L/C) they prefer to secure the performance of their client's obligations. Studied companies were 20 international trading companies in Tehran, from which 50 experts were participated in our survey study. For measuring the participants and their policy in using letters of credit, a questionnaire in Persian was designed. For analyzing data we used statistical tests (One-sample t-test). Data showed that <em>being</em><em> a guarantee</em>, <em>integration</em>, <em>documentary conditions</em>, and <em>secondary payment mechanism </em>are four important reasons for international trading companies in Iran to use letters of credit in their contracts. Statistical results showed that “being a guaranteed credit” is the most important factor with a mean of 3.660 ± 1.135.Also, we found significant relationship between these four factors and the L/C usage policy (p <0.01, and p< 0.05). We concluded that they mostly prefer standby letters of credit for securing their transactions.</p>

The Domestic Standby Letter of Credit Desk Book for Business Professionals, Bankers and Lawyers

The following preface and chapter describe an effort to convince readers (business people, bankers, and lawyers) that the standby letter of credit is a handy, flexible, commercial device that can support virtually any business activity and often without a battery of lawyers or letter of credit “experts.” The law of standby letters of credit is unique but not exotic. Any educated professional can understand it and can use the standby to enhance the value of an unperformed promise.

An Examination of the Regulations on Non-documentary Conditions in Standby Letters of Credit Transactions

An Examination of the Regulations on Non-documentary Conditions in Standby Letters of Credit Transactions

The Evaluation of Fraud Rule on Independent Guarantees and Standby Letters under the UN Convention

The Evaluation of Fraud Rule on Independent Guarantees and Standby Letters under the UN Convention

Credit enhancement factors for the financing of independent power producer (IPP) projects in Asia

Public and private parties give a number of guarantees and commitments in the form of credit enhancement for successful investment and implementation of independent power producer (IPP) projects in Asia. A research is thus conducted to find the suitable credit enhancement factors for these projects. From 27 out of 28 credit enhancement factors that were validated by IPP professionals, factor analysis revealed five factor groupings which are — (1) shareholders' credit enhancement, (2) host government's credit enhancement, (3) multi-lateral development banks (MDBs), export credit agencies (ECAs) and other parties' credit enhancement, (4) capital structure mechanism, and (5) commercial bank's credit enhancement. From these critical credit enhancement groupings, it is further noticed that contingency equity support, standby credit guarantee, subordinated debt mechanism, financing with political risk insurance from MDBs and ECAs, escrow account, and standby letter of credit are of great importance for financing decision of IPP projects in Asia.

The applicable law for standby letters of credit in the Colombian legal system

espanolEl objetivo de este trabajo de investigacion es determinar cual es la ley aplicable a las cartas de credito en Colombia. Esto busca resolver la controversia en torno a la aplicacion de regulaciones internacionales uniformes a cartas de credito en transacciones locales. Para cumplir con este objetivo, en primer lugar se planteara una pregunta de investigacion, en segundo lugar se definira la carta de credito y por ultimo se analizara la ley aplicable. Despues de seguir esta metodologia, se concluira que la naturaleza de las cartas de credito no es la de una fianza, como la Superintendencia Financiera argumenta. Esto significa que las regulaciones colombianas relacionadas con la fianza no deben ser aplicadas a las cartas de credito standby, porque se contradicen con la esencia de este instrumento. En vez de eso, las regulaciones internacionales uniformes emitidas especificamente para reglamentar este instrumento deberian incorporarse a el por las partes EnglishThe objective of this research is to determine the law applicable to letters of credit in Colombia. Such research seeks to resolve the controversy found when applying uniform international regulations to letters of credit in local transactions. In order to accomplish this objective, I begin this paper by first posing the research question, then defining the term standby letter, and finally analyzing the applicable law. I conclude that the nature of letters of credit is not one of a suretyship, as the Financial Superintendence of Colombia argues, and therefore Colombian regulation of suretyships should not be applied to letters of credit because they contradict the very essence of this instrument. Rather, I argue that parties should incorporate uniform international regulations, which have been issued specifically to govern this instrument. portuguesO objetivo deste trabalho de pesquisa e determinar qual e a lei aplicavel as cartas de credito na Colombia. Isto busca resolver a controversia em torno da aplicacao de regulacoes internacionais uniformes a cartas de credito em transacoes locais. Para cumprir com este objetivo, em primeiro lugar sera formulada uma pergunta de pesquisa, em segundo lugar sera definida a carta de credito e por ultimo sera analisada a lei aplicavel. Despois de seguir esta metodologia, sera concluido que a natureza das cartas de credito nao e a de uma fianca, como a Superintendencia Financeira argumenta. Isto significa que as regulacoes colombianas relacionadas com a fianca nao devem ser aplicadas as cartas de credito standby, porque se contradizem com a essencia deste instrumento. Em vez disso, as regulacoes internacionais uniformes emitidas especificamente para regulamentar este instrumento deveriam incorporar-se a ele pelas partes

Bank Demand Guarantee and Standby Letter of Credit as collaterals in International Trading Operations

Bank demand guarantees have become an established part of international trade. This financial instruments are often used in trade financing when suppliers, or vendors, are purchasing and selling goods to and from overseas customers with whom they don't have established business relationships. The instruments are designed to reduce the risk taken by each party. In this sense bank demand guarantees are similar to standby letters of credit. Similarities and differences among them are the subject of this paper.

Standard for Examination of Documents and Liability of Issuing Bank in Standby Letter of Credit

Standard for Examination of Documents and Liability of Issuing Bank in Standby Letter of Credit

Improper Demand of Payment in Standby Letter of Credit Transactions

Improper Demand of Payment in Standby Letter of Credit Transactions

Enforcement of Arbitration Agreement in the Dispute of Standby Letter of Credit

Enforcement of Arbitration Agreement in the Dispute of Standby Letter of Credit