Mr. Matthew N. Clarke and Mr. Davis Daniels

MONROVIA, Banker and Businessman Share Experiences Every business person in the world looks for the best security that will protect his/her investment. The security may be personal, a secure investment friendly environment which provides for transactions without harassments or intimidations, government protections and credit or loans protections from local and international banking institutions in the economy of the country the said business person is operating.

The major hold-up to business start-ups today, especially in developing countries, is access to loans, money or credit from banks. Lack of access to credit has led many local business entities that should be breeding up for economic growth in the formal private sector of the developing world to languish in the informal sector without any hope of becoming formal or growth. This is the case in the war-ravished economy of Liberia, a developing country whose social and economic fabric got destroyed by its own citizens. But things have begun to eventually change for the better with commercial banks exerting efforts to steadily respond to this shamble that has left the country lagging behind in business.

Different credit instruments have now been introduced by some commercial banks. But our attention for today's discussion is drawn to the introduction in the country recently of a Letter of Credit (LC) by the Liberian Bank for Development and Investment (LBDI). This Liberian-owned bank recently obtained from the International Finance Company (IFC) US$2 million Credit Line under the Global Trade Finance Program to guarantee trade financing undertaken by the LBDI. As result of the conclusion of this significant arrangement, the bank established early this year a new department called Trade and Finance. This department provides different services including letters of credit, documentary collections, bonds and guarantees as well as lease/bills or notes discounting as diverse credit instruments for its many customers and business houses in the country.

The letters of credit service being introduced by the Trade Finance Department of LBDI is assisting and protecting several local importers by guaranteeing the goods they import into the country.

Mr. Mathew N. Clarke is the senior vice-president for Trade and Finance at the LBDI. He explains to this columnist why the bank chose to introduce this service and how letter of credit protects the importer and the exporter in international trade. The Liberian banker first began by defining what a letter of credit is. “Letter of credit (LC) is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount.” He said in the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.

According to Mr. Clarke, letter of credit involves three main persons, the importer, the exporter and the banks. He said the advising bank is normally considered the importer's bank while the supplier's bank is the exporter's bank. Mr. Clarke pointed out that introduction of the letter of credit at LBDI signals the bank's readiness to support the growth of the domestic economy by protecting and linking business people in the country to foreign banks. He pointed out that this link would also be extended between the Liberian importers and the manufacturing foreign companies in developed countries.

One of the main points Mr. Clarke considered as an advantage to business people obtaining a letter of credit is that it is often used in international transactions to ensure that payment will be received. Owing to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally, the use of letter of credit has become a very important aspect of international trade. Hear Mr. Clarke: “The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped.”

He disclosed that business people had for the last 15 years or so imported goods into the country when banks were not offering LC services and noted that such importations were covered with high risks. “They talked on the counters, send their money and did pre-shipments, a risky venture,” he stated.

Another thing importers were doing, he said, was that they had an arrangement with the exporting parties that allowed them (the importers) not to pay until the goods were cleared from the receiving port. But with the LC, he said it is a fair ball game where pre-shipment inspection is done at the request of the importing party. “You have a supplier who would refuse to supply his goods to Liberia because he does not know anyone in the country,” he observed. He indicated that without the LC, the importing party would have nobody to review neither the goods nor the document before importing.

Another added advantage for the importers who use LC, he stated, is that they can expand their source of supply, meaning, they can buy from any exporter of their choice because there are bank guarantees. “You don't also have to send your cash to the exporter for 90 days and you can transact business with your money within that time period before paying the bank for your goods,” he added.

Mr. Clarke called on Liberian business people to take advantage of the LC service being offered by the bank.

At the close of the interview with Mr. Clarke, this columnist caught up with Ambassador Davis Daniels, a beneficiary of the LC service being offered by the LBDI.

Mr. Daniels is an importer. He imports fire trucks, ambulances, computers and heavy equipment into the country using the letter of credit service provided him by LBDI. The Liberian businessman is also the proprietor of other business ventures in Monrovia.

Mr. Daniels explained that importers had taken risk by importing goods without the use of a letter of credit. “The associated cost with that is that you can import goods and still not be sure whether the goods are correct,” he observed. But with the LC, he said, the banks are involved to guarantee the transaction. “The banks will be protecting their customers because they want to maintain their relationship,” he added.

The Liberian businessman praised LBDI for offering the LC service to Liberians and advised his fellow countrymen and women in business to take advantage of the service.

Speaking further about the advantages of LC, Mr. Daniels noted that letter of credit substitutes the bank's credit for the credit of another party.

Mr. Daniels, who has benefited from several facilities offered by LBDI, stated that the cost attached to obtaining a LC from LBDI is far cheaper and economical than the petit loans being offered by money changers on the streets. “I have been doing business with LBDI for nearly 20 years and so I trust them. They get me to be where I am now,” Mr. Daniels noted.

He said had LBDI been a flamboyant type of bank, he would not have been dealing with it. “I would have concluded that they are eating the people's money there,” he suggested.

Mr. Daniels downplayed public perception that banks are conservative by saying “the bank has to protect people's money.”

He called on Liberians to improve their credit habits by paying and on time loans they take from banks. He believes that this would further improve the banks' confidence in the people.

PROCEDURES FOR OBTAINING LETTER OF CREDIT