Letter of Credit (Kenya)
DOCUMENTARY LETTER OF CREDIT
Subject to UCP 600 (ICC Publication No. 600) | Bills of Exchange Act (Cap. 27)
DATE OF ISSUE: [LC Date]
LC REFERENCE NUMBER: [LC Number]
ISSUING BANK:
[Issuing Bank Name], [Issuing Bank Branch]
SWIFT/BIC: [Issuing Bank SWIFT]
APPLICANT:
[Applicant Name], [Applicant Address]
BENEFICIARY:
[Beneficiary Name], [Beneficiary Address]
ADVISING/CONFIRMING BANK:
[Advising Bank Name]
1. CREDIT TERMS
1.1 Credit Amount: [Credit Amount] (Tolerance: [Tolerance Percent] per UCP 600 Article 30).
1.2 Type of Credit: [Credit Type].
1.3 Available with: [Available With], by [Available By].
1.4 Deferred payment period (if applicable): [Deferred Days].
1.5 Expiry Date: [Expiry Date] at [Expiry Place].
1.6 Documents must be presented within [Presentation Days] after the date of shipment, subject to UCP 600 Article 14(c).
2. SHIPMENT DETAILS
2.1 Latest Date for Shipment: [Latest Shipment Date].
2.2 Port/Place of Loading: [Port Of Loading].
2.3 Port/Place of Discharge: [Port Of Discharge].
2.4 Incoterms 2020: [Incoterms].
2.5 Partial Shipments: [Partial Shipments].
2.6 Transhipment: [Transhipment].
2.7 Description of Goods: [Goods Description].
3. DOCUMENTS REQUIRED
The beneficiary must present the following documents to obtain payment:
3.1 Commercial Invoice: [Invoice Requirement].
3.2 Transport Document: [Bill Of Lading Requirement].
3.3 Insurance Document: [Insurance Requirement].
3.4 Certificate of Origin: [Certificate Of Origin].
3.5 Additional Documents: [Additional Documents].
All documents must be in English. Any discrepancy between documents and this credit will entitle the issuing bank to refuse payment under UCP 600 Article 16.
4. SPECIAL CONDITIONS AND CHARGES
4.1 Special Conditions: [Special Conditions].
4.2 Bank charges outside Kenya are for the account of: [Bank Charges].
4.3 Confirmation Instructions: [Confirmation Instructions].
4.4 Amendments to this credit require the consent of all parties under UCP 600 Article 10.
5. GOVERNING RULES
5.1 This documentary credit is subject to the Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600 (UCP 600).
5.2 This credit is further governed by the Bills of Exchange Act (Cap. 27) of the Laws of Kenya and the Banking Act (Cap. 488) as regulated by the Central Bank of Kenya (CBK).
5.3 Any disputes arising from this credit shall be subject to the jurisdiction of the courts of Kenya.
Issued by authorised signatories of [Issuing Bank Name] on [LC Date].
Authorised Signatory 1 (Issuing Bank)
________________
Signature
Authorised Signatory 2 (Issuing Bank)
________________
Signature
What Is a Letter of Credit (Kenya)?
A Letter of Credit in Kenya communicates the sender's formal position on the matter and the response it requires.
Kenya's commercial banking sector, supervised by the Central Bank of Kenya (CBK) under the Central Bank of Kenya Act (Cap. 491) and the Banking Act (Cap. 488), recognises documentary letters of credit as the primary payment instrument for international trade finance. Kenyan banks that issue letters of credit are required to comply with CBK Prudential Guideline CBK/PG/22 on Trade Finance, which mandates adequate margin requirements, credit assessment of the applicant, and proper documentation of the underlying trade transaction.
A Letter of Credit in Kenya operates under the principle of documentary compliance — the issuing bank's obligation to pay arises solely upon the beneficiary presenting documents that conform on their face to the credit terms, including a commercial invoice, bill of lading or airway bill, certificate of origin, packing list, and any other documents specified. The principle of strict compliance, affirmed by Kenyan courts applying common law principles inherited through the Judicature Act (Cap. 8), means that a discrepancy as minor as a typographical error in the beneficiary's name can give the issuing bank grounds to refuse payment.
The Kenya Revenue Authority (KRA) Customs and Border Control department and the Kenya Ports Authority (KPA) require commercial importers to present letters of credit or similar payment instruments when clearing goods at the Port of Mombasa or Jomo Kenyatta International Airport. The Import Declaration Form (IDF) submitted via the KRA's iCMS platform must reference the letter of credit number when the transaction is financed by documentary credit.
A Kenya Letter of Credit should be distinguished from a Bank Guarantee — a guarantee is a secondary obligation where the bank pays only if the applicant defaults, whereas a letter of credit is a primary obligation where the bank pays upon document presentation regardless of any dispute between the applicant and beneficiary. Both instruments are issued by Kenyan commercial banks including Kenya Commercial Bank (KCB), Equity Bank, Co-operative Bank of Kenya, Standard Chartered Bank Kenya, and Stanbic Bank Kenya. Exporters who require a more direct payment commitment should also consider a Standby Letter of Credit, which functions closer to a guarantee under Kenyan banking practice.
The legal framework governing the Letter of Credit (Kenya) in Kenya draws on several key statutes and regulatory bodies. Under the Central Bank of Kenya Act (Cap. 491), the Central Bank of Kenya (CBK) regulates banking. The Capital Markets Authority (CMA) regulates securities under the Capital Markets Act (Cap. 485A). Section 84 of the Bills of Exchange Act (Cap. 27) governs promissory notes. The Kenya Revenue Authority (KRA) administers tax obligations. The Microfinance Act No. 19 of 2006 regulates microfinance institutions. The Hire Purchase Act (Cap. 507) governs credit sale agreements. Parties executing a Letter of Credit (Kenya) in Kenya should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Bills of Exchange Act (Cap. 27) sets the foundational requirements.
When Do You Need a Letter of Credit (Kenya)?
A Letter of Credit in Kenya is required in international and domestic trade transactions where the buyer and seller lack the mutual trust necessary for open-account trading, or where the value of the goods demands a bank-backed payment guarantee.
A Letter of Credit is needed when a Kenyan importer purchases goods from an overseas supplier, particularly from countries where Kenyan buyers have limited credit history. The exporter's bank (the advising or confirming bank) confirms that payment will be made by a Kenyan bank such as KCB or Equity Bank once complying documents are presented, eliminating the exporter's reliance on the Kenyan buyer's creditworthiness alone.
A Letter of Credit is required when a Kenyan manufacturer or trader imports capital goods, raw materials, or machinery under a contract where the supplier insists on confirmed payment before shipment. Under the Foreign Exchange (General) Regulations issued by the Central Bank of Kenya, payments for imports above USD 10,000 must be processed through authorised dealer banks, and a letter of credit provides the documentary trail required for CBK reporting.
A Letter of Credit is needed when a Kenyan exporter of agricultural commodities — tea, coffee, cut flowers, or horticultural produce — ships goods to buyers in Europe, the Middle East, or Asia under contracts arranged through the Kenya Tea Development Agency (KTDA) or the Nairobi Coffee Exchange. The letter of credit protects the Kenyan exporter against non-payment once the goods leave Kenyan shores.
A Letter of Credit is required when a government ministry or State corporation procures goods or services from an international supplier under a public procurement contract regulated by the Public Procurement and Asset Disposal Act No. 33 of 2015, where the Treasury's Integrated Financial Management Information System (IFMIS) records the payment obligation and the supplier insists on a bank-backed instrument.
A Letter of Credit is needed when a Kenyan SME first enters an export market and the foreign buyer's bank requires evidence of the Kenyan seller's ability to ship conforming goods. In such cases, the Kenyan exporter may approach the Kenya Export Promotion and Branding Agency (KEPROBA) for trade finance support, with the letter of credit serving as the primary payment instrument under the export contract.
What to Include in Your Letter of Credit (Kenya)
A valid Letter of Credit in Kenya under the Bills of Exchange Act (Cap. 27) and UCP 600 must contain the following essential elements to be operative and enforceable.
Parties and Bank Details: Full legal names of the applicant (importer), the beneficiary (exporter), the issuing bank (Kenyan commercial bank), and the advising or confirming bank in the beneficiary's country. The issuing bank's CBK licence number and SWIFT/BIC code must be included for international correspondent banking. If a confirming bank adds its confirmation under UCP 600 Article 8, its identity and confirmation charges must be stated.
Credit Amount and Currency: The maximum amount payable under the credit, expressed in the agreed currency — typically USD, EUR, or KES — with a tolerance percentage (e.g., plus or minus 10%) where partial shipments are permitted. Under UCP 600 Article 30, the words "about" or "approximately" allow a 10% tolerance on both amount and quantity.
Expiry Date and Place: The date and place at which the credit expires for presentation of documents. Under UCP 600 Article 6, the expiry date must be stated. Kenyan banks typically require the expiry place to be the counters of the issuing bank in Nairobi to retain control over document examination.
Required Documents: A precise list of all documents that the beneficiary must present to obtain payment, including: commercial invoice in the number of originals and copies specified; full set of clean on-board ocean bills of lading made out to order and blank endorsed, or airway bills consigned to the applicant; certificate of origin issued by an authorised body such as the Kenya National Chamber of Commerce and Industry (KNCCI); packing list; insurance certificate or policy covering at least 110% of CIF value; and any inspection certificate required by KRA or the applicant.
Shipment Terms: The latest date for shipment, the port or place of loading, the port or place of discharge (e.g., Port of Mombasa), and whether partial shipments and transhipments are permitted. Incoterms 2020 (CIF, FOB, CFR) must be specified as required by the underlying sale contract and consistent with the transport documents.
Presentation Period: The number of days after the date of shipment within which documents must be presented — UCP 600 Article 14(c) sets a maximum of 21 calendar days after the on-board date, but Kenyan banks frequently specify 15 days to accelerate customs clearance through the Kenya Ports Authority (KPA) Port Community System (PCS).
Special Conditions: Any additional conditions imposed by the applicant or required by Kenyan import regulations, such as pre-shipment inspection by the Kenya Bureau of Standards (KEBS), a phytosanitary certificate from the Kenya Plant Health Inspectorate Service (KEPHIS) for agricultural imports, or a radiation dose certificate for food products.
Charges and Amendments: Allocation of bank charges — whether charges outside Kenya are for the account of the applicant or beneficiary — and the procedure for amending the credit under UCP 600 Article 10, which requires consent of all parties including the confirming bank if one is involved.
The forms-legal.com Letter of Credit template for Kenya covers all eight mandatory elements above and includes the standard UCP 600 incorporation clause required by Kenyan banks for international trade finance transactions.
Additional compliance elements for a Letter of Credit (Kenya) used in Kenya include: Under the Central Bank of Kenya Act (Cap. 491), the Central Bank of Kenya (CBK) regulates banking. The Capital Markets Authority (CMA) regulates securities under the Capital Markets Act (Cap. 485A). Section 84 of the Bills of Exchange Act (Cap. 27) governs promissory notes. The Kenya Revenue Authority (KRA) administers tax obligations. The Microfinance Act No. 19 of 2006 regulates microfinance institutions. The Hire Purchase Act (Cap. 507) governs credit sale agreements. Forms-legal.com provides this template as a starting point for Kenya-compliant documentation.
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year = {2026},
howpublished = {\url{https://forms-legal.com/kenya/financial/agreements/letter-of-credit-kenya}},
note = {Free legal document template}
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Frequently Asked Questions
A Letter of Credit is legally binding and enforceable in Kenya once issued by a CBK-licensed commercial bank, as the issuing bank's undertaking creates a primary payment obligation independent of the underlying trade contract. Kenyan courts apply the Bills of Exchange Act (Cap. 27) and common law principles derived through the Judicature Act (Cap. 8) to documentary credits, treating the bank's obligation as autonomous from any disputes between the buyer and seller. The principle of autonomy — affirmed in Kenyan jurisprudence following the English House of Lords decision in United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] — means a Kenyan court will not ordinarily restrain payment under a letter of credit unless fraud on the part of the beneficiary is clearly established. Kenyan banks issuing letters of credit also incorporate UCP 600 by express reference, making those ICC rules contractually binding between the bank and the beneficiary.
Under a Kenya Letter of Credit governed by UCP 600, the beneficiary must present the documents specified in the credit within the presentation period — typically 15 to 21 days after the shipment date under UCP 600 Article 14(c). Standard documents required by Kenyan importers include: a commercial invoice showing the buyer's name, goods description, unit price, and total value; a full set of clean on-board ocean bills of lading or airway bills; a certificate of origin issued by the Kenya National Chamber of Commerce and Industry (KNCCI) or the relevant chamber in the exporter's country; a packing list; and a marine or air cargo insurance certificate for at least 110% of the CIF invoice value. Imports of regulated goods additionally require certificates from the Kenya Bureau of Standards (KEBS) under the Standards Act (Cap. 496), phytosanitary certificates from KEPHIS for plant products, or veterinary health certificates from the Directorate of Veterinary Services for animal products. Any discrepancy between the documents and the credit terms entitles the issuing Kenyan bank to refuse payment under UCP 600 Article 16.
A Letter of Credit and a Bank Guarantee are both payment instruments issued by Kenyan commercial banks, but they operate on fundamentally different legal principles. A Letter of Credit under UCP 600 and the Bills of Exchange Act (Cap. 27) is a primary payment obligation — the issuing Kenyan bank pays the beneficiary upon presentation of complying documents, regardless of any dispute between the buyer and seller. A Bank Guarantee, by contrast, is a secondary obligation — the Kenyan bank pays only if the applicant (the principal debtor) fails to perform its contractual obligation, and the beneficiary must typically demonstrate that default has occurred. Kenyan banks issue both instruments, but letters of credit are the standard instrument for international trade finance, while bank guarantees are more commonly used for performance bonds, advance payment security, and tender bonds under contracts governed by the Public Procurement and Asset Disposal Act No. 33 of 2015. The fees differ: letter of credit issuance typically incurs an opening commission plus document examination fees, whereas a guarantee incurs an annual guarantee fee based on the guaranteed amount.
Kenyan commercial banks issuing letters of credit must comply with the Central Bank of Kenya Act (Cap. 491), the Banking Act (Cap. 488), and CBK Prudential Guideline CBK/PG/22 on Trade Finance. The CBK requires issuing banks to conduct credit assessment of the applicant, hold adequate margin deposits or collateral against the contingent liability, and report all letters of credit in the bank's off-balance sheet items in accordance with CBK's Prudential Returns. All foreign currency payments under letters of credit must be reported to the CBK under the Foreign Exchange (General) Regulations and processed through authorised dealer banks. The Kenya Revenue Authority (KRA) also requires that import letters of credit be referenced on the Import Declaration Form (IDF) submitted through the iCMS customs platform, and the KRA Commissioner of Customs may require production of the letter of credit and underlying commercial documents during post-clearance audit. Banks that confirm letters of credit issued by foreign banks in favour of Kenyan exporters must obtain prior CBK approval if the confirmation exposure exceeds prescribed limits under the Banking Act (Cap. 488) large exposure framework.
A Letter of Credit can be amended after issuance in Kenya, but only with the consent of all parties — the issuing bank, the confirming bank (if any), and the beneficiary — as required by UCP 600 Article 10. The applicant (Kenyan importer) initiates an amendment request through the issuing bank, which then advises the amendment to the beneficiary through the advising bank. The beneficiary may accept or reject the amendment — silence does not constitute acceptance under UCP 600 Article 10(c), but the beneficiary is deemed to have accepted once it presents documents that comply with both the original credit and the amendment. Kenyan banks typically charge an amendment fee of KES 2,000 to KES 10,000 depending on the complexity. Common amendments include extending the expiry date, increasing the credit amount, changing the port of loading, or relaxing document requirements. Amendments that result in the letter of credit exceeding the original approved credit limit require fresh credit committee approval under the issuing Kenyan bank's internal lending policies and must be re-reported to the CBK under the large exposure framework if applicable.
Letters of credit issued by Kenyan banks are not subject to stamp duty under the Stamp Duty Act (Cap. 480) because they are bank undertakings rather than instruments of conveyance or transfer of property. However, the underlying sale contract that gives rise to the letter of credit may attract stamp duty depending on its nature and the type of goods involved. Commercial invoices and bills of lading presented under a letter of credit are exempt instruments under the Stamp Duty Act. Where a letter of credit is incorporated into or annexed to a formal trade agreement that involves Kenyan land, leasehold interests, or securities, the agreement itself may attract stamp duty at rates prescribed by the Stamp Duty Act (Cap. 480) as administered by the Kenya Revenue Authority's Domestic Taxes Department. Foreign letters of credit received by Kenyan exporters from overseas banks do not attract Kenyan stamp duty, but the Kenyan exporter must report the proceeds of the letter of credit to the CBK through the authorised dealer bank that receives payment under the Foreign Exchange (General) Regulations.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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