Research On Practical And Legal Issues Of Forfaiting Under Letters Of Credit

Forfaiting is a kind of medium-or-long-term financing tool for the exporter in the international trade. It solves the exporters’problems of the absence of capital in the medium-or-long-term international trades. The boom in the international trade of our country after China’s entry into WTO has resulted in the rapid growth of exporters’ financing needs. Forfaiting is low-risk for the exporters and high-profit for the banks and financing corporates. During the recent years, Chinese banks have expanded the operation of forfaiting. However, most Chinese banks only operate forfaiting under letters of credit concerning the risks. Based on the summary of the operation flows of forfaiting under letters of credit of Chinese Banks, the article analyzes the legal issues of mainly two legal relationships. The legal relations are about assignment of credit between exporters and forfaiters and guarantee for the assigning credit. Based on the analysis of the legal character, the form, and rights and obligations of the legal relationships, there is a list of the legal risks of the Chinese banks operating the service and advise on how to prevent them.Most researches on forfaiting focus on the field of international trade and finance. Not only economic researches but also juristic researches are recapitulative. However, the recapitulative researches can’t help the each kind of forfaiting because of the complexity of the operation. The article is only about the forfaiting under letters of credit. The article agrees on the viewpoint that the legal character of forfaiting is assignment of credit without recourse and that the guarantee for the assigning credit is independent. However, the article disagrees to changes the law to prevent the legal risks. Therefore, the suggestions of how to prevent legal risks in the article are based on the current law.There are empirical studies of the legal issues and the Chinese banks’ legal risks of the operation of the forfaiting under letters of credit in the article and comparative analysis of influences of the different legislation in different counties on the operation of forfaiting under letters of credit.