An importer may have a genuine order and enough funds to pay a supplier, yet still face questions from the bank. Here is what SBP requires, what the issuing bank decides and how to avoid common delays.

A Karachi importer agrees to buy industrial machinery from Germany. The equipment costs $100,000. The German manufacturer asks for an irrevocable letter of credit before starting production.

The importer takes the supplier’s proforma invoice to his bank. He expects the bank to issue the LC and send it to Germany through SWIFT. Instead, the officer asks for the machinery’s classification and details of the foreign supplier. The bank also wants to examine the purchase contract.

The importer has a reasonable question. Are these requirements imposed by the State Bank of Pakistan, or has his bank introduced them?

I worked with SWIFT and cross-border payments for many years. I learned that a letter of credit involves more than sending an authenticated banking message. The issuing bank must first establish whether the underlying import is permissible. It must also decide whether it can accept the financial obligation. These are separate decisions, and confusing them can delay a shipment.

What does SBP require before a bank opens an import LC?

The main regulatory framework appears in Chapter 13, Imports, of the State Bank of Pakistan’s Foreign Exchange Manual. It contains instructions for Authorized Dealers, the banks permitted to handle foreign exchange transactions.

For ordinary eligible imports, an Authorized Dealer can generally establish a documentary credit without seeking individual prior approval from SBP. However, some goods or arrangements may require additional permission.

The bank must check the applicable Import Policy Order, together with any relevant notifications and foreign exchange instructions. For example, an importer may have a genuine contract for equipment that requires a particular government clearance. Opening an LC does not remove that requirement. The first question is whether the goods can lawfully be imported into Pakistan under the applicable conditions.

What documents does an importer need?

A commercial contract provides the starting point. Chapter 13, paragraph 7 addresses firm commitments and the credibility of foreign suppliers. An Authorized Dealer must establish that the proposed import is genuine. A bank may use the purchase agreement, accepted order or proforma invoice to examine the transaction.

The documentation ordinarily includes information about the importer and supplier, the goods being purchased, their value and the proposed shipment arrangements. The bank will also require information for customer due diligence and sanctions screening. Where goods require a permit or other regulatory clearance, the relevant evidence must be available.

The exact checklist can differ according to the goods, payment arrangement and bank’s procedures. It would be inaccurate to present one universal list as an SBP-prescribed checklist for every import LC. A first-time importer may therefore face additional questions about an unfamiliar overseas supplier. Those questions do not, by themselves, establish that SBP has restricted the commodity.

Does SBP require a 100% cash margin for import LCs?

Cash margins have caused considerable confusion among importers. During earlier foreign exchange difficulties, SBP imposed margin requirements on specified imported goods.

On March 24, 2023, SBP issued BPRD Circular Letter No. 06 of 2023, withdrawing the requirements imposed through the circulars identified in that instruction. The withdrawal took effect on March 31, 2023.

A bank should not treat those withdrawn instructions as a continuing general SBP requirement for a 100% import LC cash margin. However, this does not mean every importer can obtain an LC without providing security.

Consider an importer requesting an LC worth $100,000. The bank might issue the credit under an existing approved trade facility. It might instead require a cash margin because the customer has no established borrowing limit. That is a credit decision made by the issuing bank, subject to applicable banking regulations and its approved policies.

An importer should ask the bank to distinguish between an SBP-mandated margin and a security requirement imposed under its own credit policy. Withdrawal of a regulatory margin does not automatically oblige a bank to provide unsecured credit.

What is the difference between a sight LC and a usance LC?

A sight letter of credit makes payment available at sight against a complying presentation of the stipulated documents. A usance LC provides for payment at a later maturity determined by the credit terms.

Suppose a Pakistani manufacturer imports raw materials from China. The supplier may request a sight LC to reduce the waiting period for payment. The Pakistani buyer may prefer deferred terms to manage working capital. Both structures may be used for eligible imports, subject to the applicable regulations and the bank’s approval.

A sight LC does not necessarily mean payment reaches the exporter on the date of shipment. The beneficiary must present the required documents, and the bank must examine them under the credit terms.

Where UCP 600 applies, the documentary-credit rules govern matters such as examination and honour. Banks examine documents, not the actual goods. A documentary presentation may comply with the LC even where the buyer later disputes the physical quality of the merchandise. That commercial risk requires separate attention.

Can a Pakistani importer pay a foreign supplier in advance?

SBP significantly relaxed advance-payment arrangements in January 2024. Under EPD Circular Letter No. 01 of 2024, Authorized Dealers may process advance payments for imports of goods against irrevocable letters of credit or invoices, up to 100% of the relevant value, without prior SBP approval.

The permission remains subject to appropriate due diligence and the conditions incorporated into Chapter 13, paragraph 30. Consider a manufacturer who needs a customised machine. The overseas supplier may demand payment before starting production. The Pakistani importer can approach an Authorized Dealer for an advance remittance under the applicable instructions.

The bank must still assess the genuineness of the transaction and satisfy the regulatory requirements governing subsequent import documentation. Advance payment is not the same as an LC payment against compliant shipping documents. The importer may have paid before the supplier ships anything.

If the foreign supplier fails to deliver, the importer and bank must address the outstanding transaction under the applicable rules. The importer may also need to pursue remedies under the purchase agreement. An importer considering a substantial advance payment should examine the supplier’s track record before agreeing to the arrangement.

How does Pakistan Single Window affect import LCs?

Pakistan Single Window connects trade procedures with the financial instrument information needed for customs processing. The term Financial Instrument, or FI, frequently appears in import-related banking procedures. An Authorized Dealer must follow the applicable FI issuance and linkage instructions when processing imports through PSW.

A documentary credit and a PSW Financial Instrument record are not interchangeable. The LC establishes the issuing bank’s undertaking under its terms. The FI forms part of the domestic import-processing and customs framework. Receipt of an LC copy does not complete customs or regulatory requirements.

What happens when the bank issues the LC through SWIFT?

In a conventional documentary-credit transaction, the issuing bank commonly sends the LC through an authenticated SWIFT MT700 message. An MT700 communicates documentary-credit terms to the receiving bank. Depending on the transaction, the banks may exchange additional SWIFT messages.

The overseas advising bank authenticates and advises the credit to the beneficiary. The supplier can then prepare the shipment according to the contractual arrangements. After shipment, the beneficiary presents the documents required by the LC.

The responsible banks examine the presentation under the terms of the credit and any applicable documentary-credit rules. If the presentation complies, the issuing bank must honour its undertaking according to the LC’s availability and payment terms.

SWIFT transmits the banking message. It does not grant permission to import goods into Pakistan. The issuing bank remains responsible for observing the applicable domestic regulations.

Can an importer amend or extend an LC?

Yes, subject to the applicable conditions. Import contracts often change after the buyer and supplier agree on the original shipment schedule. A supplier may require additional production time. The buyer may therefore request an extension of the latest shipment date and the LC expiry.

The issuing bank must examine the amendment and any resulting regulatory implications. A change in the goods description or value may also require additional review. Under the documentary-credit rules, an amendment may require the beneficiary’s acceptance. The issuing bank cannot assume that every proposed change automatically becomes binding on all parties.

Are transferable and revolving LCs permitted?

These structures require particular care. Chapter 13, paragraph 14 provides that clean and transferable letters of credit are not ordinarily permitted. Applications for such credits must be referred to the specified SBP authority with the relevant particulars.

The same provision recognises that Authorized Dealers may open time-based revolving LCs under the conditions of paragraph 9. A time-based revolving LC differs from an ordinary credit because the amount available can renew under the specified terms. It should not be confused with unrestricted permission to issue any form of revolving documentary credit.

Why might a bank refuse an import LC?

The goods may be prohibited or subject to a permission that the importer has not obtained. The bank may also find that the commercial documentation does not adequately establish the transaction. In another case, the bank may accept that the proposed import is lawful but decline to extend the required credit facility.

Imagine two businesses ordering the same machinery. One has an established trade-finance facility and a strong repayment history. The other is a newly formed importer seeking an unsecured LC. The bank’s credit decision may differ even though both businesses want to import the same permitted goods.

The importer should ask which requirement remains outstanding. Where a regulatory restriction is cited, the importer can request the relevant SBP circular or Foreign Exchange Manual provision. Where the problem concerns financing, the discussion should focus on the bank’s credit requirements.

What changed for petroleum and LNG imports in April 2026?

SBP issued EPD Circular Letter No. 09 on April 23, 2026, to facilitate specified energy imports. The circular amended paragraph 6B(viii) of Chapter 13 and paragraph 10 of Chapter 19.

It authorised relevant FI issuance at the import-contract registration stage for crude oil and petroleum products. It also delegated authority to Authorized Dealers concerning standby letters of credit for imports of crude oil, petroleum products and liquefied natural gas.

These changes apply to the specified energy transactions. They do not create a general exception allowing an ordinary importer to replace a documentary LC with an SBLC without regard to the applicable regulations.

What should an importer check before visiting the bank?

Begin with the product. Find out whether it is permitted under Pakistan’s current Import Policy Order and whether it needs a particular certificate or clearance. The supplier’s invoice should identify the goods accurately. The contract should also reflect the agreed shipment and payment conditions.

Next, discuss the LC arrangement with the bank’s trade-finance department. Establish whether the bank can issue the proposed credit and whether it requires a borrowing facility or cash security. Ask how the transaction will be recorded through PSW and what documents the bank expects after shipment.

What importers should remember

The Karachi importer who approaches his bank with a $100,000 machinery invoice does not need a complicated explanation of monetary policy. He needs to know whether the machinery is eligible, whether his documents support the transaction and whether the issuing bank is willing to undertake the credit.

An LC delay can arise from regulation. It can also result from a bank’s commercial lending decision. I would advise the importer to ask one precise question when the bank puts an application on hold: Which requirement has not yet been satisfied, and what evidence will resolve it?

The answer may be a missing import permit. It may be a problem with the supplier’s contract. Sometimes the importer simply needs a different credit arrangement.

Related reading

Sending Business Payments Abroad from Pakistan: What Chapter 14 Really Allows

Pakistan LNG Crisis 2026: Why Winter Supplies Are at Risk

Official regulatory sources

SBP Foreign Exchange Manual, Chapter 13

SBP BPRD Circular Letter No. 06 of 2023

SBP EPD Circular Letter No. 01 of 2024

SBP EPD Circular Letter No. 09 of 2026

Regulatory note: This guide explains the general SBP framework and identified amendments. Banks and importers must consult the latest applicable instructions and the current Import Policy Order before processing an individual transaction.