4.5.4 Export Financing:

4.5.4 Export Financing:

Financing exports constitutes an important part of a bank’s activities. Exporters require financial services at four different stages of their export operation. During each of these phases exporters need different types of financial assistance depending on the nature of the export contract.

 Pre-shipment credit  Post-shipment credit

 Pre-shipment credit: Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter prior to the actual shipment of the goods for export. The purpose of such credit is to meet working capital needs starting from the point of purchasing of raw materials to final shipment of goods for export to foreign country. Before allowing such credit to the exporters the bank takes into consideration about the credit worthiness, export performance of the exporters, together with all other necessary information required for sanctioning the credit in accordance with the existing rules and regulations. Pre-shipment credit is given for the following purposes:

 Cash for local procurement and meeting related expenses.  Procuring and processing of goods for export.  Packing and transporting of goods for export.  Payment of insurance premium.  Inspection fees.  Freight charges etc.

An exporter can obtain credit facilities against lien on the irrevocable, confirmed and unrestricted export letter of credit in form of the followings: i. Export cash credit (Hypothecation) ii. Export cash credit (Pledge) iii. Export cash credit against trust receipt. iv. Packing credit. v. Back to back letter of credit. vi. Credit against Red-clause letter of credit.



Export cash credit (Hypothecation):



Under this arrangement, a credit is sanctioned against hypothecation of the raw materials or finished goods intended for export. Such facility is allowed to the first class exporters. As the bank has got no security in this case, except charge documents and lien on exports L/C or contract, bank normally insists on the exporter in furnishing collateral security. The letter of hypothecation creates a charge against merchandise in favor of the bank. But neither r the ownership nor the possession is passed to it.



Export cash Credit (Pledge):

Such Credit facility is allowed against pledge of exportable goods or raw materials. In this case cash credit facilities are extended against pledge of goods to be stored in the godawn under bank’s control by signing letter of pledge and other pledge documents. The exporter surrenders the physical possession of the goods under banks effective control as security for payment of bank dues.

Charge Documents for P.C.

Banker should obtain the following charge documents duly stamped prior to disbursement:

I) Demand Promissory Note ii) Letter of Arrangement iii) Letter of Lien of Packing Credit (On special adhesive stamp) iv) Letter of Disbursement v) Packing Credit Letter

Additional Documents for P.C.

a) Letter of Partnership along with Registered Partnership Deed in case of Partnership Accounts.

c) Resolution of the Board of Directors along with Memorandum & Articles of association in case of Accounts of Limited Companies. In case of Corporation, Resolution of the Board Meeting along with Charter.

Back to Back Letter of Credit (BTB):

Bangladesh is a developing country. After receiving order from the importer, very frequently exporters face problems of scarcity of raw material. Because. some raw-materials is not available in the country. These have to be collected from abroad. In that case, exporter gives lien of export L/C to bank as security and opens an L/C against it for importing raw materials. This L/C is called Back To Back L/C. In back to back L/C, DBBL keeps no margin. Sometimes there is provision in the export L/C that the importer can use the certain portion of the export L/C amount for importing accessories that are necessary for the making of the product. Only in that case, BTB is opened.

Payment of Back to Back L/C:

Client gives the payment of the BTB L/C after receiving the payment from the importers. But in some cases, client sells the bills to the DBBL. But if there is discrepancy, the DBBL sends it for collection.

In case of BTB L/C, DBBL gives the payment to the beneficiary after receiving the payment from the L/C of the finished product (i.e. exporter). Bank gives the payment from DFC Account (Deposit Foreign Currency Account) where Dollar is deposited in national rate.

For BTB L/C, opener has to pay interest at LIBOR rate (London Inter Bank Offering Rate). Generally LIBOR rate fluctuates from 1% to 7%. A schedule named Payment Order; Forwarding Schedule is prepared while making the payment. This schedule is prepared when the payment of L/C is made. This schedule contains the followings:

i. Reference number of the beneficiary’s bank and date. ii. Beneficiary’s name. iii. Bill value. iv. Payment order number and date. v. Equivalent amount in Taka.





Foreign Documentary Bill Purchase (FDBP):

Sometimes the client submits the bill of export to bank for collection and payment of the BTB L/C. In that case, bank purchases the bill and collects the money from the exporter. DBBL subtracts the amount of bill from BTB and gives the rest amount to the client in cash or by crediting his account or by the pay order. For this purpose, DBBL maintains a separate register named FDBP Register. This register contains the following information: # Date # Reference number (FDBP) # Name of the drawee # Name of the collecting bank # Conversion rate # Bill amount both in figure & in Taka. # Export form number # Export L/C number



Advances against Export Bills surrendered for collection:

Banks generally accept bills for collection of proceeds when they are not drawn under an L/C or when the documents, even though drawn against an L/C contain some discrepancies. Bills drawn under L/C, without any discrepancy in the documents, are generally negotiated by the bank and the exporter gets the money from the bank immediately. However, if the bill is not eligible for negotiation, the exporter may obtain advance from the bank against the security of export bill. In addition to the export bill, banks may ask for collateral security like a guarantee by a third party and equitable/registered mortgage of property.

Export Documents Checking:

1. General verification: - a) L/C restricted or not. b) Exporter submitted documents before expiry date of the credit. c) Shortage of documents etc.

2. Particular verification: a) Each and every document should be verified with the L/C.

3. Cross verification: a) Verified one documents to another.

After proper examination or checking of a described Export document banker may find following discrepancies:

General: - Late shipment - Late presentation - L/C expired - L/C over-drawn - Partial shipment or transshipment beyond L/C terms. Bill of exchange (b/e):

1. Amount of B/E differ with Invoice. 2. Not drawn on L/C issuing Bank. 3. Not signed 4. Tenor of B/E not identical with L/C. 5. Full set not submitted.

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