DRAFT Improving the SMEs Access to Trade Finance
in the OIC Member States
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3. “Silently” Confirmed Letter of Credit - A Silent Confirmation is typically undertaken at the
request of the Beneficiary instead of the Issuing Bank, and without the knowledge of the
Issuing Bank. A bank that adds this type of confirmation undertakes to honor or negotiate
compliant documents by direct arrangement with the beneficiary. The 'Silent' Confirming
Bank’s obligation is evidenced by a separate undertaking document which is outside the terms
of the letter of credit and this distinct bilateral arrangement is not covered by the ICC rules. By
contrast to an "open" confirmation, the silently confirming bank is not a participant in the LC
according to UCP.
4. Reimbursement Undertaking - Irrevocable guarantee by the reimbursing bank to a
nominated bank/claiming bank (to whom documents under a letter of credit would be
presented for payment) to honor their reimbursement claim. An IRU can be based upon the
request of an issuing bank or can be silent to the issuing bank.
(iii) Commercial (Documentary) Letters of Credit - Special characteristics
a. Revolving Credit – A commitment on the part of the issuing bank to automatically restore
the credit value to the original (or other) amount after it has been drawn upon. This is typically
used for instalment or multiple delivery contracts and may revolve around time or value.
b. Transferable Credit – The original letter of credit allows the beneficiary to transfer all or
part of the originally issued letter of credit (Master LC) to another party (one or more second
beneficiary) and specifically states that the LC is transferrable.
c. Back-to-Back Credit – A separate letter of credit is issued at the request of the beneficiary
of an original letter of credit using the original letter of credit as a model and/or collateral for
the bank issuing the second letter of credit.
d. Front-to-Back or “To Arrive” Credit - The second letter of credit is issued without the
benefit of the original Master credit beingavailable. In some markets this is also known as an
“Export will Buy” credit where the master credit leg is replaced with a commitment to discount
or purchase an export collection to pay out the import credit.
e. Red Clause – A clause authorizing the nominated bank to make advances to the beneficiary
(usually by simple receipt) prior to the shipment of goods or presentation of documents.
f. Green Clause – A green clause credit is the same as a “Red Clause” credit except that pre-
shipment advance is made against beneficiary’s presentation of title document to the goods
made to the order of the bank or its nominated agent, evidencing storage of the goods in a
warehouse in the exporter’s country.
g. Assignment of Proceeds – A beneficiary may assign all or part of the proceeds of a letter of
credit to another party (assignee). The original beneficiary maintains sole rights to the letter of
credit and the payment to the assignee is contingent upon payment under the original letter of
credit.