A Standby Letter of Credit (SBLC) is mainly used for trade finance, the validity of which is variable, is a payment of the last resort, and is a contract between two parties, the buyer, (the Provider), and the seller, (the Beneficiary). The buyer/Provider, instructs their bank, (The Issuing Bank), to issue a SBLC in favour of the seller/Beneficiary, and in the event the buyer/Provider fails to honour their financial obligation to the seller/Beneficiary, their bank will call the SBLC, which the buyer/Provider’s bank, is legally bound to pay.
The term “Leased” is a misnomer, and the correct technical term is Collateral Transfer, and was originally been used in conjunction with a Leased Bank Guarantee, where after much research, professional financiers have concluded the word Leased was adopted from a commercial leasing contract, as the transactions are quite similar. The term leased, which will not be found in any official reference book but nonetheless is referred to globally, has been applied to other banking instruments such as the Standby Letter of Credit.