Trade Finance Facilites

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Banks also offer Trade Finance facilities which can again be again either secured or unsecured. Secured as explained earlier are facilities which are issued against a security which can be a fixed deposit or cash placed in a customer's account which will be placed on hold. Unsecured will be the other way round wherein no security will be taken from the customer and facility will be provided purely at Bank's risk.

Some of the trade Finance facilities provided by Banks are mentioned below:

1. Letter of Credit
2. Letter of Guarantee
3. Documentary Collection
4. Short Term Loans

The main role of a trade finance department consists of issuance of Letter of Credit and Letter of Guarantees. These can again be divided into various sub segments:

Letter of Guarantee (LG):

a) Labour guarantee

b) Performance bond guarantee
c) Payment guarantee

c) Payment guarantee

d) Shipping guarantee etc

Letter of Credit (LC)

a) Import LC

b) Export LC

Documentary collection is a facility offered by Banks to its customer wherein Banks act as a mediator in sending or receiving documents on behalf of a customer and even checks these documents against the LC issued as per the customer's requirement.

Short term loans is again a type of trade finance facility which is issued to customers based on their relationship with the Bank and the way the account was operated during the time the account was opened with the Bank. These loans can either be used to issue LC's or to transfer payments via remittances.

All these facilities are offered by Banks at a charge and these are generally published in their rate sheet or price guide. All such facilities are subject to Bank's approval as in the case of any liabilities.