Import & Export · Business & Trade

Letter of credit in Pakistan: how an LC works, types and costs

How an import LC works in Pakistan: opening against a proforma, PSW, documents and payment. Which LC types SBP allows, advance payments and bank charges.

By Ahtisham Imtiaz · Updated · 5 min read

Rules
ICC UCP 600
Default validity
Up to 12 months
Advance payment
Up to 100%
LC commission (MCB)
Up to 0.40%
Summarize it for me

AI Summary

A letter of credit is your bank's promise to pay a foreign supplier once they present documents that match the LC's terms. In Pakistan, your bank opens the LC against a firm order or proforma invoice, sends it to Pakistan Single Window as a financial instrument, and pays or accepts when compliant documents such as a clean on-board bill of lading arrive. Sight and usance LCs are common; clean, revolving and transferable credits need State Bank referral. Commission at MCB, for example, is up to 0.40% for the first quarter.

A letter of credit (LC) is your bank’s promise to pay your foreign supplier once they present shipping documents that match the LC’s terms. In Pakistan your bank opens it against a firm order or proforma invoice, sends it to Pakistan Single Window as a financial instrument, and pays or accepts when compliant documents arrive. LCs follow the ICC’s UCP 600 rules. Commission at MCB, for example, is up to 0.40% for the first quarter.

How an import LC works
  1. You Agree terms, apply Firm order or proforma invoice
  2. Your bank Opens LC, sends to PSW As a financial instrument
  3. Supplier Ships and presents documents Through their bank
  4. Your bank Checks and pays or accepts Against compliant documents
  5. You Retire documents, clear goods Pay the bank, file the GD

How does an import LC work, step by step?

  1. Agree the deal. Get a firm order, indent or proforma invoice issued or accepted by the supplier. The LC must describe the goods and prices in full.
  2. Apply to your bank. The bank checks the goods can be imported under the trade rules. For LCs of Rs 15 lakh or more, it gets its own confidential report on the supplier.
  3. The bank opens the LC and sends it to PSW electronically as a financial instrument, within the payment modes in your trade profile. No bank visit is needed for this step.
  4. The supplier ships and presents documents within the period the LC allows, which can be at most 30 days after shipment. The LC must call for a full set of clean on-board bills of lading (or air waybill) showing dispatch to Pakistan, and invoices certifying the country of origin.
  5. Your bank checks the documents. If they comply, it pays (sight LC) or accepts to pay later (usance LC). If documents exceed the LC amount, the bank can pay the excess only up to 5%, capped at US$500.
  6. You retire the documents by paying your bank, then clear the goods with your goods declaration on PSW.

LCs are opened for up to 12 months unless the import rules say otherwise (24 months for specially made machinery), and can be extended up to 12 months at a time.

Which types of LC are allowed?

Type What it means Allowed for imports?
Sight Bank pays when compliant documents arrive Yes
Usance (deferred) Bank accepts documents and pays on a later date Yes, if no interest is charged separately; can’t be switched to sight later
Clean Pays without shipping documents Only with State Bank referral
Revolving Renews automatically for repeat shipments Only with State Bank referral
Transferable Beneficiary can pass it to another supplier Only with State Bank referral

What are the alternatives to an LC?

  • Advance payment: since 30 January 2024, banks may pay up to 100% in advance against an irrevocable LC or invoice, after due diligence. If the goods aren’t imported within 120 days (730 for plant and machinery), you pay a penalty of 0.1% a day on the outstanding amount, and repeat defaulters can be barred.
  • Contract registration (collection): your bank registers your contract and pays when documents arrive from the supplier’s bank, on D/P (documents against payment) or D/A (against acceptance) terms under the ICC’s URC 522.
  • Open account: documents come straight from the supplier. The 2019 rules allowed it mainly for manufacturers’ spare parts and raw materials, and for some items within limits, with payment within six months.

What does an LC cost?

Each bank sets its own charges. MCB’s schedule for July to December 2026, for example:

Charge MCB (up to)
Import LC commission, first quarter (annual volume up to Rs 5 crore) 0.40%
Each later quarter 0.30%
Minimum commission Rs 2,000
LC amendment Rs 1,500 + SWIFT
LC cancellation Rs 2,000 + SWIFT
Service charge on import bills 0.15% (min. Rs 1,500)
PSW financial instrument Rs 100

Rates fall for bigger volumes and are negotiable above Rs 15 crore a year. Sight bills retired within 10 days of negotiation carry no extra commission; foreign bank charges, SWIFT and taxes are added on top.

What rules govern LCs?

Documentary credits follow the ICC’s UCP 600, read with ISBP (Publication 821, 2023), which sets how banks examine invoices, bills of lading, insurance documents and certificates of origin. Collections follow URC 522.

For the full export side, see how to export from Pakistan. To set up as an importer, see the import/export checklist and PSW registration.

More guides: Import & Export.

Questions people ask

What is the process of an LC in Pakistan?

Your bank opens the LC against a firm order or proforma invoice once it confirms the goods can be imported, and sends it to PSW as a financial instrument. The supplier ships and presents documents through the banks, and your bank pays or accepts against documents that comply.

What types of LC are allowed for imports in Pakistan?

Sight and usance (deferred payment) LCs are allowed. Under the State Bank's import rules, clean, revolving, transferable and packing credits can't be opened without referring the case to SBP.

What are LC charges in Pakistan?

Each bank publishes its own schedule. MCB's for July to December 2026 lists import LC commission of up to 0.40% for the first quarter and up to 0.30% for each later quarter on smaller volumes, plus SWIFT and foreign bank charges.

Can I pay my supplier in advance instead of using an LC?

Yes. Since January 2024 banks may make advance payments of up to 100% against an irrevocable LC or invoice, with due diligence. If the goods don't arrive within 120 days (730 for plant and machinery), a penalty of 0.1% a day applies.

What is the difference between an LC and a documentary collection?

Under an LC your bank promises to pay against compliant documents. Under a collection (D/P or D/A), the banks only pass documents to you on payment or acceptance, with no bank promise; in Pakistan this runs on a registered contract.

Sources

  1. Foreign Exchange Manual, Chapter 13: Imports (2019 text, archived), State Bank of Pakistan (accessed 7 Oct 2026)
  2. EPD Circular Letter No. 01 of 2024: advance payment for import of goods, State Bank of Pakistan (accessed 7 Oct 2026)
  3. Annexure A to EPD Circular Letter No. 01 of 2024: revised para 30, State Bank of Pakistan (accessed 7 Oct 2026)
  4. EPD Circular Letter No. 09 of 2025: updated FE Manual chapters, State Bank of Pakistan (accessed 7 Oct 2026)
  5. Elimination of EIF and EFE, Pakistan Single Window (accessed 7 Oct 2026)
  6. Schedule of Bank Charges, July–December 2026, MCB Bank (accessed 7 Oct 2026)
  7. Trade finance, International Chamber of Commerce (accessed 7 Oct 2026)
  8. International Standard Banking Practice (ISBP), Publication 821, International Chamber of Commerce (accessed 7 Oct 2026)
  9. URC 522: Uniform Rules for Collections, International Chamber of Commerce (accessed 7 Oct 2026)

Photo: MariyamAftab / CC BY-SA 4.0

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