Introduction

A Transferable Letter of Credit (LC) is a vital instrument in international trade finance, allowing the beneficiary to transfer all or part of the credit to one or more secondary beneficiaries.

The MT700 SWIFT message format governs the issuance and processing of such LCs, ensuring standardization, clarity, and compliance. Understanding the structure and components is crucial for banks, exporters, and intermediaries to execute transferable LCs securely and efficiently.

I. Overview of Transferable LCs

• Definition: A transferable LC permits the original beneficiary (first beneficiary) to transfer rights to a second beneficiary, typically a supplier or subcontractor.

• Use Case: Common in commodity trading, manufacturing, and project finance, where intermediaries need to pass on part of the credit.

• Key Requirement: Must be irrevocable, and transferable status must be clearly indicated in the LC terms.

Example: A trading company secures a transferable LC from a bank to pay multiple suppliers for a large consignment of raw materials.

Keywords: transferable documentary credit, irrevocable LC, secondary LC.

II. MT700 SWIFT Message Format

The MT700 message standardizes the transmission of documentary credits, including transferable LCs. Key features include:

1. Structured fields for clarity

2. Mandatory and optional data elements

3. Compliance with UCP 600 standards

Jargon: SWIFT MT700, mandatory LC fields, message components.

III. Key Components of MT700 for Transferable LCs

1. Field 20 – Documentary Credit Number

   • Unique identifier for the LC.

2. Field 31C – Date of Issue

   • Indicates when the LC was issued.

3. Field 40A – Form of Credit

   • Specifies the LC type (e.g., transferable, irrevocable).

4. Field 50 – Applicant

   • Party requesting the LC, usually the buyer.

5. Field 59 – Beneficiary

   • Original beneficiary, authorized to transfer the LC to secondary beneficiaries.

6. Field 32B – Currency Code/Amount

   • Defines the amount and currency of the LC.

7. Field 41D – Available With / By / Negotiation Instructions

   • Bank(s) through which the LC can be utilized.

8. Field 42C – Drafts at…

   • Terms of draft payment, if applicable.

9. Field 44C – Shipment Details

   • Required shipping terms and documents.

10. Field 47A – Additional Conditions

    • Any other conditions, including transfer instructions and partial transfer limits.

Example: A transferable LC allows 60% of the credit to be transferred to a secondary supplier, indicated in Field 47A, ensuring compliance and clear documentation.

IV. Structure of a Transferable LC

• Master LC: Issued by the bank to the first beneficiary.

• Secondary LC: Derived from the master LC, transferred to one or more secondary beneficiaries.

• Transfer Conditions: Must comply with the terms of the original LC, including amount limits, shipment dates, and documents.

Best Practice: Always clearly state “transferable” in Field 40A and define whether partial or full transfer is allowed.

V. Compliance and Documentation Considerations

1. UCP 600 Compliance – Ensures that the transferable LC adheres to international standards.

2. SWIFT Protocol Adherence – Accurate MT700 message transmission reduces errors.

3. Verification of Beneficiaries – KYC and due diligence for both first and secondary beneficiaries.

4. Document Accuracy – Bills of lading, invoices, and shipping documents must match LC terms.

Example: A bank rejects a partial transfer request because the secondary beneficiary’s documents did not fully comply with the MT700 instructions.

VI. Conclusion

Understanding the structure and components of a transferable LC (MT700) is essential for smooth, secure, and compliant international trade transactions.

By correctly utilizing SWIFT MT700 fields, UCP 600 standards, and transfer conditions, banks and corporates can facilitate complex trade operations, enable supplier financing, and minimize risks associated with miscommunication or non-compliance.

FAQ: Structure and Components of Transferable LC (MT700)

Q1 — What is a transferable LC?
It allows the original beneficiary to transfer all or part of the LC to one or more secondary beneficiaries.

Q2 — What is MT700 in trade finance?
MT700 is a SWIFT message format used to issue and communicate documentary credits, including transferable LCs.

Q3 — Which field indicates that an LC is transferable?
Field 40A (Form of Credit) specifies the LC as “transferable” and irrevocable.

Q4 — What is the difference between master LC and secondary LC?
The master LC is issued to the first beneficiary, while the secondary LC is transferred to another party under the terms of the master LC.

Q5 — What are the key compliance requirements?
UCP 600 adherence, accurate SWIFT messaging, KYC verification, and document conformity with LC terms.

Q6 — Can partial transfers be allowed?
Yes, partial transfers must be explicitly permitted in the LC terms and Field 47A.

Q7 — Why is MT700 critical for transferable LCs?
It ensures standardized, clear, and legally recognized communication between banks and beneficiaries, reducing disputes and operational errors.