LETTER OF CREDIT WITH WORLD BANK'S SPECIAL COMMITMENT

QUESTION FROM R. May 6 at 10:25am

Hi Mr.Duc

I am R. from Cambodia your neighboring country.
I have known you by Ms.Loan. She told me that you have a lot of experiences in LC under special commitment letter from World Bank. M currently have that kind of LC. If you mind could you share some idea regarding to this LC.

Regards

———————————–

COMMENT FROM Old Man May 6 at 8:48pm

Dear R.,

I must admit that I do not have experience in letters of credit under special commitment from World Bank.

As far as I know, these letters of credit are normally funded by donors such as WB, ADB, SIDA (Swedish International Development Agency), JICA (Japan International Cooperation Agency) etc… Under this type of letter of credit the nominated (negotiating) bank is authorized to claim payment/reimbursement from the donor or from the bank designated by the donor.

Back to your specific case, the letter of credit may be established under the loan agreement between WB and the applicant’s government. The letter of credit may be assumed to stipulate as follows:

Quote
This letter of credit is established under Loan Agreement No. xxx between WB and Cambodian Government. This letter of credit is non-operative and shall become operative upon receipt by the advising bank of a special commitment from WB.

Negotiations under this letter of credit is restricted to the said advising bank.

Instructions to negotiating bank:

Upon negotiation, the negotiating bank shall claim reimbursement from WB by cable/swift provided all terms and conditions herein have been complied. And simultaneously the negotiating bank is required to dispatch all documents in one lot by courier service to the issuing bank address …

Unquote

The above is just one of the examples to demonstrate this type of letter of credit.

Best regards,

Mr. Old Man
——————

FROM R. May 7 at 3:31pm

Dear Mr.Old Man

You are correct, mr.old man. Moreover, Can the that kind of LC be transferable?

——————-

FROM Mr. Old Man May 7 at 5:36pm

It may and may not be transferable. It may depend on whether the contract of sale requires a transferable L/C, whether the applicant wishes to open such an L/C, and especially whether WB prohibits this.
However, I guess a transferable L/C may not be suitable in this type of transaction as the negotiating bank or the supplier may be nominated in the loan agreement.

As said, I have no practical experience in this type of L/C.

Good luck.

Best regards,
Mr. Old Man
——————–

FROM R. May 7 at 8:58pm

Mr.Old Man

Your information is helpful. Thank you for your kindness.

Regards

R.