Local Currency Letters of Credit
Local Currency – I.R.Rial- Letters of Credit:
These letters of credits whose destination of commodities and/or services, the location of pertinent banks, applicant, and its beneficiary are located within the boundaries of Islamic Republic of Iran are opened in I.R.Rials.
- The significant point about the Local-Currency Letters of Credit is that they are irrevocable and any changes in the conditions of credit and/or cancellation of them are allowed upon the consent and agreement of the seller (beneficiary)
- One of the most important factors of Local-Currency Letters of Credit is that the buyer, seller, employer, contractor, LC opening and granting banks are within the boundaries of the country and are subject to the national rules and regulations.
- Another significant point is that its I.R.Rial basis attracts the customers to use such credit
- Another significant point is the motive of the buyer and seller in which the buyer can purchase the required commodities or services as per the regulations and conditions which has been set for credit confidently and the seller is certain about receiving the amount of the credit which is guaranteed by the bank. In this regard, the Local-Currency Letters of Credit reduce the transaction risk for the buyer and seller as the transaction is accomplished by the mediatory role of the bank and the transaction conditions of the parties are verified and guaranteed by third parties including the Bank, Supervising Company, The transmission Company, insurance company etc.
Types of Local -Currency Letters of Credit:
- At Sight LC
It is a kind of credit that the negotiating bank after receiving the carriage documents from the seller and checking all the documents immediately pays the required money to the seller.
In case the buyer/employer apply to use facilities for meeting the amount of the letter of credit need at the time of submitting the opening application for Letter of Credit, the bank can, in accordance with the rules and regulations, make the payment of LC to the seller by means of granting facilities in case the applicant meets the conditions and requirements.
- Usance LC
In this type of credit, in accordance with the primary contract or the Proforma invoice of the commodities price or services of subject of Local-Currency LC, the payment will be made by the negotiating bank to the seller by mutual agreement on due date after accomplishing the contract by the seller.
Conditions of the Primary Contract or Proforma Invoice
The Primary Contract or Proforma invoice issued by the seller must be complete and comprehensive and must contain the commitments of the parties to the contract including measurements, unit weight, overall weight, type of materials, alloys, color, brand, commercial characteristics, technical characteristics, source, destination, etc. In addition, the documents which are deemed as the conditions for making the payment of LC are significant and the manner of transmission (by the buyer or seller), place of submitting the commodities or services, the deadline of submission of the commodities or accomplishment of commitment by the seller or manufacturer must be clearly defined and there should exist no points of ambiguity in the primary contract or the Proforma invoice.
Required Documents for Opening Local Currency – I.R.Rials – LC
- Application for Opening Local Currency – I.R.Rials – LC
- Completing and signing the general conditions for opening Local Currency – I.R.Rials – LC by the applicant
- Submitting the Proforma invoice or designated contract between the purchaser and seller in which the name of bank and the account number of seller is printed. In addition, the seller should verify that the price printed in the Proforma invoice or the contract corresponds to the market value and the name of manufacturer should be clearly stated therein.
- Signed declaration on the authenticity of the contract between the buyer and seller
- Copy of applicant’s birth certificate and ID card
- All the legal documents and financial statements for the legal entities which apply to open Local Currency – I.R.Rials – LC