Ucp Article 38-39 - PDF

Article 38: Transferable Credits
a. A bank is under no obligation to transfer a credit except to the

extent and in the manner expressly consented to by that bank.
b. For the purpose of this article:
Transferable credit means a credit that specifically states it is
"transferable". A transferable credit may be made available in
whole or in part to another beneficiary ("second beneficiary") at
the request of the beneficiary ("first beneficiary").
Transferring bank means a nominated bank that transfers the
credit or, in a credit available with any bank, a bank that is
specifically authorized by the issuing bank to transfer and that
transfers the credit. An issuing bank may be a transferring bank.
Transferred credit means a credit that has been made available by
the transferring bank to a second beneficiary.
01
c. Unless otherwise agreed at the time of transfer, all charges

(such as commissions, fees, costs or expenses) incurred in
respect of a transfer must be paid by the first beneficiary.
d. A credit may be transferred in part to more than one second
beneficiary provided partial drawings or shipments are allowed.
A transferred credit cannot be transferred at the request of a
second beneficiary to any subsequent beneficiary. The first
beneficiary is not considered to be a subsequent beneficiary.
02
e. Any request for transfer must indicate if and under what

conditions amendments may be advised to the second
beneficiary. The transferred credit must clearly indicate those
conditions.
f. If a credit is transferred to more than one second

beneficiary, rejection of an amendment by one or more second
beneficiary does not invalidate the acceptance by any other
second beneficiary, with respect to which the transferred credit
will be amended accordingly.
For any second beneficiary that rejected the amendment, the

transferred credit will remain unamended.
03
g. The transferred credit must accurately reflect the terms and conditions
of the credit, including confirmation, if any, with the exception of:
- the amount of the credit,
- any unit price stated therein,
- the expiry date,
- the period for presentation, or
- the latest shipment date or given period for shipment,
any or all of which may be reduced or curtailed.
The percentage for which insurance cover must be effected may be
increased to provide the amount of cover stipulated in the credit or these
articles.
The name of the first beneficiary may be substituted for that of the
applicant in the credit.
If the name of the applicant is specifically required by the credit to
appear in any document other than the invoice, such requirement must
be reflected in the transferred credit.
04
h. The first beneficiary has the right to substitute its own invoice
and draft, if any, for those of a second beneficiary for an amount
not in excess of that stipulated in the credit, and upon such
substitution the first beneficiary can draw under the credit for the
difference, if any, between its invoice and the invoice of a second
beneficiary.
i. If the first beneficiary is to present its own invoice and draft, if
any, but fails to do so on first demand, or if the invoices presented
by the first beneficiary create discrepancies that did not exist in
the presentation made by the second beneficiary and the first
beneficiary fails to correct them on first demand, the transferring
bank has the right to present the documents as received from the
second beneficiary to the issuing bank, without further
responsibility to the first beneficiary.
05
j. The first beneficiary may, in its request for transfer, indicate

that honour or negotiation is to be effected to a second
beneficiary at the place to which the credit has been
transferred, up to and including the expiry date of the credit.
This is without prejudice to the right of the first beneficiary in

accordance with sub-article 38 (h).
k. Presentation of documents by or on behalf of a second

beneficiary must be made to the transferring bank.
06
Transferable Credits
Preliminaries:
In some cases, an applicant will conduct business

with an intermediary trader, agent or middleman
who obtains the goods from one or more suppliers
(ie, one or more second beneficiaries).
In this event, the trader will need to buy the goods
or make arrangements for their purchase before
supplying them to the applicant.
It also allows for the transfer of the undertaking in
the documentary credit to the actual seller of the
goods.
07
SUMMARY PROCEDURES OF TRANSFERABLE CREDITS
At the request of buyer bank issues irrevocable transferable
documentary credit favoring trader and sends it to the advising
bank.
The advising bank advises the credit to the trader (first beneficiary).
At the request of trader the advising bank transfers part/whole of

the credit to a supplier (second beneficiary).
The 2nd beneficiary ships the goods and sends its documents to
transferring bank
[Upon determination of a complying presentation, 1st beneficiary and

2nd beneficiary receive their respective amounts.]
Allowing substitution of 2 nd beneficiary’s invoice and draft, if any, by

1st beneficiary transferring bank forwards doc. to the issuing bank.
[Transferring bank receives payment from issuing bank,

1 beneficiary and 2 beneficiary receive their respective amounts.]
st nd
08
Diagrammatic Process-flow of a TRANSFERABLE CREDIT:
09
a. A bank is under no obligation to transfer a

credit except to the extent and in the manner
expressly consented to by that bank.
010
b. For the purpose of this article:

Transferable credit means a credit that
specifically states it is "transferable".
A transferable credit may be made available in

whole or in part to another beneficiary ("second
beneficiary") at the request of the beneficiary
("first beneficiary").
011
Sub-article 38(b) … EXPLANATION…

Credit issued in SWIFT (IRREVOCABLE but not TRANSFERABLE):
012
Sub-article 38(b) … EXPLANATION…:

SWIFT format of a Credit (IRREVOCABLE and TRANSFERABLE):
013
Sub-article 38(b) … continued …
Transferring bank means a nominated bank

that transfers the credit
or,
in a credit available with any bank, a bank that is
specifically authorized by the issuing bank
to transfer and that transfers the credit.
An issuing bank may be a transferring bank.
014

Availability options in SWIFT format of a Credit:
015
SUB-ART 38(b): EXPLANATION
Availability option in a
transferable Credit:
No further
authorization is
required from the
issuing bank
016
In case of “LC available

with any bank” an specific
authorization is required
from the issuing bank
017
In case of “LC available

with any bank” an specific
authorization is required
from the issuing bank
018
Recall sub-article 38(a):
A bank is under no obligation to transfer a

credit except to the extent and in the manner
expressly consented to by that bank.
If a bank determines not to transfer then

who transfers?
019
Sub-article 38(a) … Explanation …
EXPLANATION:
a nominated bank or
a bank authorised to transfer
has the authority to decide whether or not it will
accept a transfer request, and if it will, on what
terms, because a transfer request may be
unacceptable for commercial or other reasons.
020
Sub-article 38(a) … Explanation …
EXPLANATION:
This position applies equally to an issuing bank,
which may be approached by a first beneficiary
to transfer the documentary credit if the
nominated bank or a bank authorised to
transfer has declined to act.
021
Who can transfer a credit?
Nominated bank
or
(Any other) Authorized bank

or
Issuing bank
022
Sub-article 38(b) … continued …
Transferred credit means a credit that has been

made available by the transferring bank to a
second beneficiary.
023
Sub-article 38(b) … Explanation …
EXPLANATION:
The salient feature of transferred credit is that it
creates new availability for 2nd beneficiary who
did not exist in original credit.
In this way, each 2nd beneficiary obtains the right
to claim payment direct from the transferring
bank at which its portion of the documentary
credit is available against presentation of
complying documents.
024
Sub-article 38(b) … Explanation …

TRANSFERRED CREDIT ISSUED IN SWIFT:
025
AN EXAMPLE:
CREDIT Extracts TRANSFERRED CREDIT EXTRACT
(MT700): (MT720):
F40A: Form of Doc. Credit F40A: Form of Doc. Credit
IRREVOCABLE TRANSFERABLE IRREVOCABLE
F40E: Applicable Rules: F40E: Applicable Rules:
UCP LATEST VERSION UCP LATEST VERSION
F50: Applicant: F50: First Beneficiary:
ABC IMPO. LTD. BANGLA GARMENTS LTD.
F59: Beneficiary: F59: Second Beneficiary:
BANGLA GARMENTS LTD. DESH GARMENTS LTD.
F32B: Currency Code, Amount: F32B: Currency Code, Amount:
USD100,000.00 USD80,000.00
F41D: Available with, BY: F41D: Available with, BY:
PUBALI BANK LTD, MERCANTILE BANK LTD ,
PRINCIPAL BR. PRINCIPAL BR.
F45A: Description of Goods: F45A: Description of Goods:
20,000 pcs T-Shirt, 20,000 pcs T-Shirt,
USD5.00 per pc USD4.00 per pc
026
Sub-article 38(b) AN EXAMPLE: … Continued …
Thus the 2nd beneficiary draw it’s profit or margin

for USD20,000.00 without manufacturing/
carrying any stock of goods.
027
c. Unless otherwise agreed at the time of

transfer, all charges (such as commissions, fees,
costs or expenses) incurred in respect of a
transfer must be paid by the first beneficiary.
028
d. A credit may be transferred in part to more

than one second beneficiary provided partial
drawings or shipments are allowed. … … …
029
Sub-article 38(d) … EXPLANATION …
EXAMPLE: Credit transferred (fully) to a single second beneficiary
CREDIT Extracts TRANSFERRED CREDIT

(MT700): EXTRACT (MT720):
F59: Beneficiary: F50: First Beneficiary:
BANGLA GARMENTS BANGLA GARMENTS LTD.
LTD. F59: Second Beneficiary:
F32B: Currency Code, Amount: DESH GARMENTS LTD.
F32B: Currency Code, Amount:
USD100,000.00
USD80,000.00

030
EXAMPLE: Credit transferred (partially) to a single second beneficiary
CREDIT Extracts TRANSFERRED CREDIT

(MT700): EXTRACT (MT720):
BANGLA GARMENTS BANGLA GARMENTS LTD.

LTD. F59: Second Beneficiary:

F32B: Currency Code, Amount:
USD100,000.00
USD60,000.00
031
EXAMPLE: Credit transferred (partially) to TWO second beneficiaries

CREDIT Extracts (MT700)
F59: Beneficiary: BANGLA GARMENTS LTD.
F32B: Currency Code, Amount: USD100,000.00
F45A: Description of Goods: 20,000 pcs T-Shirt, USD5.00 per pc
TRANSFERRED CREDIT EXTRACT TRANSFERRED CREDIT EXTRACT

(MT720): (MT720):
F50: 1ST Beneficiary: F50: 1ST Beneficiary:
BANGLA GARMENTS LTD. BANGLA GARMENTS LTD.
F59: 2ND Beneficiary: F59: 2ND Beneficiary:
DESH GARMENTS LTD. SONAR BANGLA GARMENTS LTD.
F32B: Currency Code, Amount: F32B: Currency Code, Amount:
USD20,000.00 USD60,000.00
032
Sub-article 38(d) … Continued …
A transferred credit cannot be transferred at

the request of a second beneficiary to any
subsequent beneficiary.
033
Credit Transferred Cr.
2nd beneficiary Permitted? Permitted if

partial drawing
1st or shipment are
beneficiary 2nd beneficiary allowed
Credit Transferred Cr. Transferred Cr. Permitted?
3rd beneficiary
2nd beneficiary
1st 3rd beneficiary
beneficiary
3rd beneficiary
2nd beneficiary
3rd beneficiary
034
Sub-article 38(d) … Continued …
The first beneficiary is not considered to be a

subsequent beneficiary.
Credit Transferred Cr. Transferred Cr. Permitted?
2nd beneficiary 1st beneficiary

1st
beneficiary
2nd beneficiary 1st beneficiary
035
e. Any request for transfer must indicate if and

under what conditions amendments may be
advised to the second beneficiary.
The transferred credit must clearly indicate those

conditions.
036
Sub-article 38(e) … EXAMPLE …

CREDIT EXTRACTS (MT700): TRANSFERRED CR. EXTRACT (MT720):

BANGLA GARMENTS LTD.
F59: Second Beneficiary:
USD100,000.00 F32B: Currency Code, Amt:
USD80,000.00
F45A: Description of Goods:
F45A: Description of Goods:
Instruction from Beneficiary to Transferring Bank:

No amendment of value increase shall be transferred to 2nd
Beneficiary. Also the beneficiary retains the right to decide
whether any amendment of extension of shipment validity
and thus expiry to be advised to 2nd beneficiary.
037
f. If a credit is transferred to more than one

second beneficiary, rejection of an amendment
by one or more second beneficiary does not
invalidate the acceptance by any other second
beneficiary, with respect to which the transferred
credit will be amended accordingly.
For any second beneficiary that rejected the

amendment, the transferred credit will remain
unamended.
038
g. The transferred credit must accurately reflect the terms and

conditions of the credit, including confirmation, if any, with the
exception of:
- the expiry date,
- the latest shipment date or given period for shipment,
The percentage for which insurance cover must be effected may be
increased to provide the amount of cover stipulated in the credit or
these articles.
The name of the first beneficiary may be substituted for that of the
applicant in the credit.
If the name of the applicant is specifically required by the credit to
appear in any document other than the invoice, such requirement
must be reflected in the transferred credit.
039
g. The transferred credit must accurately reflect

the terms and conditions of the credit, including
confirmation, if any, with the exception of:
- the expiry date,
- the latest shipment date or given period for
shipment,
040
Sub-article 38(g) … EXPLANATION …

Expiry Date, Amount, Latest Shipment Date, Unit Price, Presentation
Period – all of these are reduced or curtailed in the transferred Credit:
CREDIT EXTRACTS (MT700): TRANSFERRED CR. EXTRACT (MT720):
F31D: Date and Place of Expiry: F31D: Date and Place of Expiry:
2016 July 31 2016 July 21
F50: First Beneficiary:
F59: Beneficiary:
BANGLA GARMENTS LTD. F59: Second Beneficiary:
USD100,000.00 F32B: Currency Code, Amount:
F44C: Latest Date of Shipment: USD80,000.00
2016 July 10 F44C: Latest Date of Shipment:
F45A: Description of Goods: 2016 July 05
20,000 pcs T-Shirt, F45A: Description of Goods:
20,000 pcs T-Shirt,
USD5.00 per pc
USD4.00 per pc
F48: Period for Presentation: F48: Period for Presentation:
21 days after shipment 16 days after shipment
041
Sub-article 38(g) … Continued …
The percentage for which insurance cover must

be effected
may be increased to provide
the amount of cover stipulated in the credit or
these articles.
042
Sub-article 38(g) … continued …
EXPLANATION:
The rationale for this is that the first beneficiary
will usually be buying the goods from a second
beneficiary (or beneficiaries) at a lower price
than the sale price that the first beneficiary is
charging to the applicant.
Thus a higher percentage insurance cover will be
required under the transferred credit to cover the
amount of insurance required under the original
credit.
043
Sub-article 38(g) … Explanation …

QUIZ:
A transferable credit was issued for USD100,000.00 covering
shipment of 20,000 T-Shirts with unit price USD5.00. The first
beneficiary requested a transfer for 20,000 T-Shirts @
USD4.50. What is the Minimum percentage of insurance
coverage requirement to be mentioned in the transferred
credit?
SOLUTION:
Minimum insurance coverage under the transferable credit
= USD100,000 X 110% = USD110,000
Value of transferred credit = USD20,000 X 4.50 = USD90,000
Minimum percentage under the transferred credit
= (USD110,000/USD90,000) X 100
= 122.22%
044
QUIZ:
A transferable credit issued by bank BBVA, Spain available with
Mercantile Bank Ltd. with following particulars:
Credit amount: USD110,000.00
Order 1: 700 pcs @ USD80
Order 2: 600 pcs @ USD90
Beneficiary of the credit requested Mercantile Bank to issue
two transfers as follows:
Transfer-1 Transfer-2
700 pcs @ USD75 600 pcs @ USD85
What are the percentages of insurance cover the transferring

bank need to mention in each transfer?
045

SOLUTION:
Transfer-1:
Original credit value for 700 pcs @ USD80 = USD56,000
Required Insurance coverage = USD56,000 X 110% = USD61,600
Transferred credit value = 700 @ USD75 = USD52,500
Required percentage of insurance cover in transferred credit
= (USD61,600/USD52,500) X 100
= 117.33%
Transfer-2:
Original credit value for 600 pcs @ USD90 = USD54,000
Required Insurance coverage = USD54,000 X 110% = USD59,400
Transferred credit value = 600 @ USD85 = USD51,000
Required percentage of insurance cover in transferred credit
= (USD59,400/USD51,000) X 100
= 116.47%
046
The name of the first beneficiary may be

substituted for that of the applicant in the
credit.
47
Sub-article 38(g) … continued …

EXPLANATION:
If first beneficiary requires confidentiality in the
transferred documentary credit that should be
preserved. For example, the first beneficiary may not
want the name of the applicant to be divulged to the
second beneficiary.
This provision makes it more difficult for the second
beneficiary (or beneficiaries) to find out to whom the
first beneficiary is supplying the goods.
If the second beneficiary (or beneficiaries) obtains this
information, they may be able to avoid the first
beneficiary in subsequent transactions by going direct
to the ultimate buyer.
48
If the name of the applicant is specifically

required by the credit to appear in any document
other than the invoice, such requirement must
be reflected in the transferred credit.
49
EXPLANATION:
For example, where the transferable credit requires
the transport document to indicate the name and
address of the applicant as notify party that
requirement must be reflected in the transferred
credit.
50
QUESTIONS
➢ WHAT ABOUT THE INVOICE?
➢ WHY DOES THE ABOVE REQUIREMENT NEED NOT BE
REFLECTED IN INVOICE UNDER THE TRANSFERRED
CREDIT?
RECALL ART-18:
A commercial invoice:
………
ii. must be made out in the name of the applicant
(except as provided in sub-article 38 (g)) … … …
51
h. The first beneficiary has the right to substitute

its own invoice and draft, if any, for those of a
second beneficiary for an amount not in excess of
that stipulated in the credit,
and upon such substitution the first beneficiary

can draw under the credit for the difference, if
any, between its invoice and the invoice of a
second beneficiary.
52
i. If the first beneficiary is to present its own invoice

and draft, if any, but fails to do so on first demand,
or if the invoices presented by the first beneficiary

create discrepancies that did not exist in the
presentation made by the second beneficiary and the
first beneficiary fails to correct them on first demand,
the transferring bank has the right to present the

documents as received from the second beneficiary
to the issuing bank, without further responsibility to
the first beneficiary.
53
Sub-article 38(i) … Explanation …
NOTE:
The term ‘first demand’ is not defined in UCP 600.
Therefore, the transferring bank should, at the

time of transfer, indicate to the first beneficiary the
period it will permit for substitution to occur.
54
Sub-article 38(i) … Explanation …
Since first beneficiary may fail to substitute its own invoice

and draft (if any), the issuing bank of a Transferable Credit
should be cautious about following possibilities:
❑ The Credit can be under drawn.

❑ Unit prices (if any) can be reduced in the presented
invoice.
❑ Invoice add draft (if any) not issued by the
beneficiary.
❑ Invoice may be addressed to a party other than the
applicant.
55
j. The first beneficiary may, in its request for

transfer, indicate that honour or negotiation is to
be effected to a second beneficiary at the place
to which the credit has been transferred, up to
and including the expiry date of the credit.
This is without prejudice to the right of the first

beneficiary in accordance with sub-article 38 (h).
56
Sub-article 38(j) … Continued …
EXPLANATION:
A salient feature of transferred credit is that it can
create a new availability place (subject to the
consent of the transferring bank) at 2nd
beneficiary’s bank which did not exist in original
credit.
In this way, each 2nd beneficiary obtains the right
to claim payment direct from it’s bank at which its
portion of the documentary credit is available
against presentation of complying documents.
57
k. Presentation of documents by or on behalf of a

second beneficiary must be made to the
transferring bank.
EXPLANATION:
One of the risks that can occur with a transferred
credit is that the documents of the second
beneficiary by-pass the transferring bank by being
sent directly to the issuing bank.
58
Sub-article 38(k) … Explanation …
100% TRANSFER
❖ It may happen that the transferred credit represents a 100%
transfer of the original documentary credit.
❖ In such case there will be no substitution of an invoice and
draft (if any), and
❖ Transferring bank that has not added its confirmation to the
transferred credit may make a modification of the rule to
state that the documents are to be sent directly to the
issuing bank.
❖ In such circumstances, the transferring bank should inform
the issuing bank of this action.
Sources: UCP600 Drafting Group’s Comment &
ICC Banking Commission Opinion R653 (TA632(rev)).
59
Article 39: Assignment of Proceeds
The fact that a credit is not stated to be

transferable shall not affect the right of the
beneficiary to assign any proceeds to which it may
be or may become entitled under the credit, in
accordance with the provisions of applicable law.
60
This article relates only to the assignment of

proceeds and not to the assignment of the right
to perform under the credit.
61
THANK YOU
62

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Article 38: Transferable Credits

a. A bank is under no obligation to transfer a credit except to the

c. Unless otherwise agreed at the time of transfer, all charges

e. Any request for transfer must indicate if and under what

f. If a credit is transferred to more than one second

For any second beneficiary that rejected the amendment, the

j. The first beneficiary may, in its request for transfer, indicate

This is without prejudice to the right of the first beneficiary in

k. Presentation of documents by or on behalf of a second

In some cases, an applicant will conduct business

At the request of trader the advising bank transfers part/whole of

[Upon determination of a complying presentation, 1st beneficiary and

Allowing substitution of 2 nd beneficiary’s invoice and draft, if any, by

[Transferring bank receives payment from issuing bank,

Diagrammatic Process-flow of a TRANSFERABLE CREDIT:

a. A bank is under no obligation to transfer a

b. For the purpose of this article:

A transferable credit may be made available in

Sub-article 38(b) … EXPLANATION…

Sub-article 38(b) … EXPLANATION…:

Sub-article 38(b) … continued …

Transferring bank means a nominated bank

An issuing bank may be a transferring bank.

Sub-article 38(b) … EXPLANATION…:

SUB-ART 38(b): EXPLANATION

SUB-ART 38(b): EXPLANATION

In case of “LC available

SUB-ART 38(b): EXPLANATION

In case of “LC available

Recall sub-article 38(a):

A bank is under no obligation to transfer a

If a bank determines not to transfer then

Sub-article 38(a) … Explanation …

Sub-article 38(a) … Explanation …

Sub-article 38(b) … EXPLANATION…:

Who can transfer a credit?

(Any other) Authorized bank

Sub-article 38(b) … continued …

Transferred credit means a credit that has been

Sub-article 38(b) … Explanation …

Sub-article 38(b) … Explanation …

Sub-article 38(b) AN EXAMPLE: … Continued …

Thus the 2nd beneficiary draw it’s profit or margin

c. Unless otherwise agreed at the time of

d. A credit may be transferred in part to more

Sub-article 38(d) … EXPLANATION …

EXAMPLE: Credit transferred (fully) to a single second beneficiary

CREDIT Extracts TRANSFERRED CREDIT

USD5.00 per pc USD4.00 per pc

Sub-article 38(d) … EXPLANATION …

EXAMPLE: Credit transferred (partially) to a single second beneficiary

CREDIT Extracts TRANSFERRED CREDIT

BANGLA GARMENTS BANGLA GARMENTS LTD.

F32B: Currency Code, Amount: DESH GARMENTS LTD.

USD5.00 per pc USD4.00 per pc

EXAMPLE: Credit transferred (partially) to TWO second beneficiaries

TRANSFERRED CREDIT EXTRACT TRANSFERRED CREDIT EXTRACT

Sub-article 38(d) … Continued …

A transferred credit cannot be transferred at