Foreign Exchange and Foreign Trade
Ordinarily foreign exchange is the same as foreign money or currency notes of foreign countries like American Dollar or British Pound Sterling. This is true only in a narrow sense. In practice, foreign exchange is not conceived the same as generally understood. Bank notes or what we commonly call foreign currency notes, do not play any significant role in settlement of international transactions. In a broader sense, foreign exchange can be defined as a process of conversion of one currency into other.
Which forms the basis for the administration of the present exchange control in Bangladesh, anything that conveys a right to wealth in another country is foreign exchange. These include foreign currencies (bank notes), deposits, credits and balances payable in foreign currency, drafts, traveler’s checks, letters of credit and bills of exchange payable in foreign currency.
Foreign Exchange Regulation Act, 1947
In short, foreign exchange is the means and methods by which rights to wealth in one country’s currency are converted into those of another country.
- International Business under Islamic perspective
- Essential features of international trade financing by conventional banks are:
- Legal relation is based on assignment and Mandate
- Title of goods remains in the name of client
- Deals with documents rather than goods
- Does not take risk as rate of return is fixed at the time of negotiation
- Abstract responsibility in case of fraud or defective goods
- Charges interest based on the amount disbursed
- No necessity to comply with Shari’ah
Essential features of internal trade financing by IBBL are
- Legal relation is based on sales contract between parties
- Title of goods remains in the name of the Bank
- Deals with goods rather than documents
- Takes risk as the client may fail to purchase the goods at the predetermined prices
- Responsibility Subordinate to the contract
- Earns profit based on the purchase price at the agreed upon rate of profit.
- Traded goods must comply with Shari’ah
Foreign Exchange Department is dividend in to 3 sections.
Import Export Remittance
IBBL offer different trade products and services complying Shari’ah and law of the land.
Categorization of International Business Activities
Import Services and Import Finance
Export Services and Export Finance
Foreign Remittance Services
Foreign Treasury Operation
Deposit collection and Investment in FC
Other Foreign Exchange Services.
Meaning of Import
Import means lawfully carrying out of anything from one country to county for Buying. It will be occurred according to the Government law.
Import Policy Order
Based on the needs of commodity and availability of finance, Government declares policy. For import of goods for a particular period having approval from the National Assembly is defined as Import policy order. Import policy is a guideline of a set of rules envisaged by Government Authority i.e. the Ministry of Trade and commerce for the registered importer for import of goods inside the country.
Earlier import policy has been formulated the five years. But present import policy order has been formulated for 3 (three) years, Effect from the 14th June 2003 to 30th June 2006 and valid till announce of new import policy order. If require Government can revise the policy in each every years.
General rules in Connection with Import
A: Restriction of Import:
a) Negative list of Merchandises.
b) Restricted list.
c) Footnote under Restricted List
d) Freely importable items.
ITC number is compulsory (H.S code 6 digit) to be mentioned in the L/C and LCAF to identification the item to be imported.
- Requirement Right of Refusal (ROR) for public sector agency from Ministry of Industry or respective Ministry/department of both to Import item under Restricted List.
- Import cannot be Israel.
- Pre-shipment inspection (PSI) for private sector normally PSI is not mandatory.
- Shipment to be made through Bangladeshi ship some exemption
a) Single importer maximum 20 MT grow importer highest 100 MT
b) General waiver from department of shipping otherwise certificate of
Waive is to be obtained to ship through Foreign Cargo
c) Import of Raw materials export oriented Industries to be made on
Regulations of Import
Import of goods under this policy shall be regulated as under:
Control list: Unless otherwise specified items which have been indicated as banned in this list shall no be permissible for import. An item included in this list with specific conditions for import shall be importable only on fulfillment of the conditions specified.
Freely Importable Items: Unless otherwise specified an items the name of which does not appear in the control list shall be freely importable.
Notwithstanding anything mentioned else where, all imports into Bangladesh shall be subject to such general or specific conditions as many have been prescribed in this order.
In addition to the conditions mentioned in the control list the conditions. Restrictions and procedures for import of various items mentioned in the test portion of this order, shall as usual, apply in case of import of those items.
If, while determining the import status of an items mentioned in the control list the description of goods does not conform to the H.S Code mentioned against item, or any discrepancy arises between the H.S Code and the description of goods, in that case the description of goods shall prevail, In other words, if the import of a particular item is shown as banned in the control list, or is shown as importable as subject to fulfillment of conditions in the list, the said ban or restriction as the case may be, shall equally apply to the import of that item , even if such ban or restriction is mentioned else where and not against the appropriate H.S Code, if any importer, taking , advantage of such discrepancy, import any banned items or restricted items or restricted item without fulfilling the respective conditions, such import shall be treated to have been made as in contravention of the provisions of this order.
Modes Used in Foreign Exchange Investments
- Murabaha/ Bai Muazzal —- Import/Export
- Bai- Salam ——————– Reshipment
- Hire purchase—————– For important Machinery under project
The Documentary Letter of Credit
Import L/C (Letter of Credit)
Letter of Credit is a credit contract where the Opening/Issuing Bank is committed to place an agreed amount of money at the beneficiary’s disposal under some agreed conditions. In other words letters of credit is a letter form the importer Bankers to the exporter that the bills if drawn as per terms & conditions complied with will be honored on presentation.
Definition of L/C
A letter of Credit is a conditional bank undertaking of payment. In other words letters of credit is a letter form the importer bankers to the exporter that the bills if drawn as per terms and conditions are compiled with will be honored on presentation
As per UCPDC 500 a credit may be either:
The Credit, therefore, should clearly indicate whether it is revocable or irrevocable. In the absence or such indication the credit shall be deemed to be irrevocable.
Types of L/C
1. Revocable Credit:
As per Article no. 8 (a) A revocable credit is a credit which can be amended or canceled by the issuing bank at any time without prior notification to the seller since to offers little security to the seller.
2. Irrevocable Credit:
As per Article no 9 an irrevocable credit constitutes a definite undertaking of the issuing Bank. A credit cannot be amended or cancelled without the agreement of all parties. It gives the seller grater assurance of payment. An irrevocable credit can be either confirms or unconfirmed dependant on the desire of the seller.
Classification of Importer
Importers are those who ate authorized by the import Trade authority i.e. & CCI & E for import of goods essential for consumption or for production purposes.
There are mainly three types of importers.
1. Commercial Importer
2. Industrial Importer
3. Importers under Wage Earner Scheme
1. Commercial Importer:
It means an importer registered under the importers, exporters and indention registration order 1981 who import goods from sale, when issued to commercial importers, given the category held by him with ITC classification and public notice against which they are admitted into import trade.
2. Industrial importers:
When issued to an industrial consumer, gives the items of import as raw materials and packing materials and spare parts, the value of entitlement and ITC classification.
3. Importers under WES:
It means registration importers who import only under the WES. In this scheme, the foreign exchange required for import of goods is met out of the remittance made. By Bangladeshi citizen earning wage abroad. WES importers can be importing all permissible items a declared by the importer also can import under WES.
Registration of Importer
As per import & Export control Act. 1950 no person can indent, import or export any goods into Bangladesh except kin case of exemption issued by the Government of the peoples Republic of Bangladesh. Violation of this order is punishable with fine under the provisions of Sea Customs Act 1878 as applied by sub section (3) of Section 3 of this Act.
A: Procedure for Obtaining IRC (Import Registration Certificate)
Through public notice or import policy the chief controller of imports & Exports invites applications usually for registration of importers. The following papers/ documents are required for submission to CCI&E or area office of CCI & for import registration certificate:
1. Application form.
2. Nationality Certificate.
3. Income Tax registration Certificate with GIR.
4. Trade License from the municipal or local Authority.
5. Membership Certificate.
6. Partnership deed (for partnership firm)
7. Certificate of Registration with the register of joint Stock Co. & Articles and Memorandum of Association in case of Limited Co.
8. Bank Certificate.
9. Documentary evidence for business existence.
10. Original copy of Treasury Chalan being payment of registration fees.
11. Original copy Chaplin for passbook.
12. Other documents if any required by the CCI & E.
13. Ownership’s documents or Rent receipts of the place of Business.
14. Survey clearance from the relevant Authority.
The nominated bank of the application will examine the papers/documents s& verity the signature of the applicant and forward the same to the concerned office of the CCI & E with forwarding schedule in duplicate through bank’s representative. The duplicate copy of the same bearing the acknowledgement of CCI & E office of the receipt of the documents is back by the bank and is preserved.
If the documents are found in order and the CCI & E is satisfied the IRC is issued to the applicant and sent direct to the nominated bank. The passbook is also issued by the CCI & E simultaneously to the importer and sent direct to the nominated bank.
Some Important Terms of Letter of Credit
Amendment of Credit: Sometimes the importer may require amendment to be made in the L/C, but this amendment must be made with the consent of the exporter, otherwise amendment will have no validity.
Adding Confirmation: Sometimes the exporter may not rely on the L/C issuing bank. Exporter requires the L/C to be confirmed by another bank situated in his country. Then on request of issuing bank, any bank in exporter’s country gives guarantee about the payment. This is called Confirming Bank. By adding such confirmation, confirming banks undertakes the liability to honor the bill of exchange of exporter.
Validity and Expiry of Credit: All L/C must mention the expiry date of L/C within which the documents for payment/acceptance must be presented. This date must exceed the date of issuance of the bill of lading or other shipping documents, during which presentation of documents for payment/acceptance must be made.
Free On Board (FOB): Under FOB basis, the exporter quotes the price covering all his expenses until the goods duty packed are delivered “on board”, the carrying vessel named and arranged by the buyer with the freight and the insurance being paid by the buyer. The importer bears any costs incurred and all risks from the time the goods are placed on board inclusive of those arising out of the ship’s failure on berth.
Cost and Freight (C & F): In this case the exporter quotes the FOB price plus insurance cost. The responsibilities of carrying out all formalities for shipment of the goods develop upon the seller.
Cost, Insurance and Freight (CIF): Under CIF, the exporter quotes C&F price plus the insurance cost. The responsibility of carrying out all formalities for shipment of the goods develop upon the seller.
Free alongside Ship (FAS): Under FAS, the seller quotes the price covering all his charges until such time as goods are loaded on train at the specified railway station. The buyer is responsible for all charges from the time he takes delivery of all goods from the exporter’s yard.
EX-Factory: The seller quotes the price of the goods ex-factory on the date agrees. The importer is responsible for all further necessary arrangements and charges.
Parties of Letter of Credit
1. Importer (Buyer)/Applicant
2. The Issuing Bank (Opening Bank)
3. The Advising Bank (Notifying Bank)
4. Exporter/Seller (Beneficiary)
5. Confirming Bank
6. Negotiating Bank
7. The Paying/Reimbursing/Accepting/Remitting Bank
1. Applicant: The person/body who requests the bank (opening bank) to issue letter of credit. As per instruction and on behalf of the applicant, the bank opens L/C in line with the terms and conditions of the seller contract between the buyer and the seller.
2. Opening bank/Issuing Bank: The bank which open/issue letter of credit on behalf of the applicant/ importer. Issuing bank’s obligation is to make payment against presentation of documents drawn strictly as per terms of the L/C.
3. Advising/Notifying Bank: The bank through which the L/C is advised/forward to the beneficiary (exporter). The responsibility of advising bank is to communicate the L.C to the beneficiary after checking the authenticity of the credit. It acts as an agent of the issuing bank without having any engagement on their part.
4. Beneficiary: Beneficiary of the L/C is the party in whose favor the letter of credit is issued. Usually they are the seller or exporter.
5. Confirming Bank: The bank which under instruction in the letter of credit adds confirmation of making payment in addition to the issuing bank. It is done at the request of the issuing bank having arrangement with them. This confirmation constitutes a definite undertaking on the part of confirming bank in addition to that of issuing bank.
Reimbursing/Paying Bank: the bank nominated in the letter of credit by the issuing bank to make payments stipulated in the document, complying with reimbursing bank.
Documents Submitted by the Importer before opening of the L/C:
- Trade License (Valid).
- Import Registration certificate (Must be kept in the bank custody).
- Passbook import.
- Income Tax declaration.
- Membership certificate.
- Memorandum of Articles (In case of Ltd. Co.)
- Registrar deed (In case of partnership firm)
Bank will supply the following papers/documents before opening of the L/C
a) L/C application form.
b) LCAF Form.
c) IMP Form
d) Murabaha agreement.
e) Charge documents paper.
The above paper must be completed duly filled and signed by the party and verified the signature.
Import Procedure under IBBL
1. Selection of Clients On the basis of
a. Credit Report.
c. CIB Report.
(To association of liability if any with other bank.)
2. Induction of client as Importer.
3. L/C a. Conditional Undertakings of bank payments.
b. .Processing to open
C. Permissibility and marketability of the item.
d. Price competitiveness.
e. Credit report of the supplier.
f. Fixation of the cash security.
h. Preparation of vouchers.
i. Realizations of the cash security, commission and other charge.
4. Thronging of L/C
a. SWIFT is a worldwide community. It has over 7500 financial institution over 199 Countries as its member.
b. Air mail/Telex through advising Bank.
a. Checking of import documents upon receipt from negotiating or collecting banks.
B.Entry the bills register.
c. Passing the voucher.
d. Purchase of FC. Fund for payment of the bills.
a. Preparation of cost memo.
b. Intimation to importer regarding arrival of shipping document.
c. Asking the bill paying bank’s dues showing in the cost memo.
d. Delivery of the documents against receipt of payment
7. Post Import Finance
a. At the request of importer bank undertakes clearing of the imported goods paying duty. VAT and other relevant charges stores the same under control
b. Delivers to importer against payment as per prior arrangement.
8. Enlistment of C&F agent
a. For C&F purpose. C&F agents are enlisted under different categories.
a. To Bangladesh Bank
b. Monthly returns statement to the Head office.
Modes of Sales of Goods
Cash in advance: Risk is low. The Proforma invoice is used
1. Open Account: Goods are sent first and payment is made afterwards. There are no intermediaries. Proforma invoice is used here as well.
2. Documentary Collection: Same as an open account but the use of bank as an intermediary. Here the risk is zero. Here the bank acts like an agent.
3. Documentary Credit: L/C
Here modes 1, 2 and 3 are built on good faith and relationship, but mode 4 comes with a third party guarantor.
Correspondent Banking means establishing and maintaining a network of relationships with financial institutions. Correspondent Banking is one of the most important services of a bank engaged in international business. Basically, Bank cannot run alone in the foreign exchange arena without having wide network of correspondents.
Correspondent banking plays very important role in building relationship through utilization of existing scopes, coping with innovative foreign exchange products and consolidating strategic partnership with the counterparts scattered throughout the world. IBBL since its inception has concentrated on linking with the major financial institutions for facilitating growing volume of international trade business.
Major Functions of Correspondent Banking
Major functions related to Correspondent Banking are:
Operating NOSTRO/VOSTRO Account(s)
LC advising, confirming, negotiation and reimbursement
Credit Line operation (Financing, Overdrawn, Guarantee issue )
Cash Letter Services
LC Re-issuance services
AML & other regulatory compliance
Exchanging control documents
Supplying Annual Reports & other corporate information
Service level agreement
MIS on Correspondents
Correspondent Banking of IBBL
- No. of Correspondents network : 870
- Relationship with 250 internationally reputed banks
- NOSTRO Account with 28 Banks
- Number of Accounts is 44
- Drawing arrangement with 57 banks and Exchange Houses
- Account in major currencies such as USD, GBP,EURO & JPY
- Sharing revenue with the Correspondents
- Credit line facilities from Global banks
Revenue shared with Correspondents
Name of Correspondents
Amount in Taka
|American Express Bank, New York|
|American Express Bank, Kolkata|
|Citibank NA, New York|
|Citibank NA, Mumbai|
|HSBC , Karachi|
|HSBC, New York|
|Mashreq Bank PSC, Mumbai|
|Habib American Bank, New York|
|Arab Bangladesh Bank, Mumbai|
|ICICI Bank Ltd. , Mumbai|
|JP Morgan Chase Bank|
Share in Correspondent Banking
Among the correspondent banks American Express Bank, Citibank NA, HSBC, Bank of China, ICICI, Mashreq Bank are leading in terms of amount of business. These banks account for 90% of the total correspondent business.
Amount in numbers
|SL no.||Name of Correspondents||LC Advising||Reimbur-sement|
|01||American Express Bank||5632||9691||15323||41.31|
|04||Bank of China||2746||692||3438||9.27|
|07||Arab Bangladesh Bank||221||842||1063||2.86|
|08||State Bank of India||471||61||532||1.43|
|10||Bank of Tokyo Mitsubishi||196||172||368||.99|
|12||Agriculture Bank of China||131||17||148||.39|
|14||JP Morgan Chase Bank||38||81||119||.32|
|16||Habib American Bank||18||49||67||.18|
|17||Bank of Communication China||51||14||65||.17|
|18||Korea Exchange Bank||56||0||56||.15|
|21||Industrial and Comme. Bank of China||45||07||52||.14|
|22||Sonali Bank Ltd||21||17||38||.10|
|23||Habib Bank AG||29||0||29||.07|
|24||Bank of Australia||26||05||31||.08|
|26||Duetshce Bank AG||20||0||20||.05|
|28||Industrial Bank of China||15||0||15||.04|
List of Nostro Correspondents of IBBL
|Name of correspondent||Account Number||Currency|
|American Express Bank, NY|
American Express Bank, Frankfort
American Express Bank, Kolkata
|Commerz Bank AG, Frankfort||400871511200|
|Citibank N. A, NY|
Citibank Aktiengesellschaft, Frankfurt/Main
Citibank N.A, Mumbai
Mashreqbank PSC , Mumbai
|Habib American Bank, NY||20729963||USD|
|Arab Bangladesh Bank, Mumbai||300112||ACU|
|Standard Chartered, NY|
Standard Chartered, Karachi
|3582 066939 001|
|State Bank of India, Kolkata||09/9514||ACU|
|JP Morgan Chase bank||400809184||USD|
|Al Rajhi Bank, KSA||101270/4||SAR|
|The Bank of Tokyo Mitsubishi,||653 0426644||JPY|
|LIoyds TSB Bank PLC, UK||01015940||GBP|
|Wachovia Bank, NY||2000193008247||USD|
|Unicredito Italiano SPA, Italy||995 1648||EUR|
|Sonali Bank, Kolkata|
Sonali Bank (UK) Ltd.
010 0000 401 400
020 0000 401 400
060 0000 401 400
|Peoples Bank, Colombo, Sri Lanka||796302100240838||ACU|
|Nepal Bangladesh Bank||011141D||ACU|
|Bank Saderate Iran||216/1/1/4190||ACU|
|Bank of Bhutan||34008||ACU|
|Korea Exchange Bank, Seoul||963-THR-295-01-4||USD|
Import financing is one of the three major functions in foreign trade. Import financing services helps importers to perform their trading activities safely and in a legal way.
Upon receipt of the import documents from the foreign correspondent bank, two persons should verify their accuracy. At that time an entry should be made in the Bill Register and the necessary voucher (Reverse the liability entry) should also be logged, if it is found in order. This process is known as Lodgment of Documents. It should be done within 72 hours.
Import Financing Products
An importer can retire the lodged import documents by:
Cash payment from his own resources
Bai-Murabaha Post Import (MPI) basis or bank financing
Trust receipt (TR) on Bai-Muajjal.
Musharaka Documentary Bill (MDB) on Partnership basis
After the goods have been received, the importer can request the bank, by completion of the appropriate form to clear the goods from the port. Before clearance, the bank can charge a fee to cover the duty and sales tax. A definite repayment schedule for retirement of the debt is agreed upon prior to the importer taking delivery of the goods. A Bai-Murabaha agreement should be executed at the time of the signing of the L/C, to be in place until delivery is made to the exporter. This agreement shall become operative from the date of purchase of the relative foreign currency fund at the request of the client or from the date of involvement of the bank’s fund; as the case may be. The period of deal should be six months to one year depending on the item and other related factors. A rebate may be allowed if the deal is closed before the due date. The sale price should include the cost as per the indent/proforma invoice, all other anticipated costs and expenses, plus a profit for the bank as mutually agreed upon. The profit on the bank’s investment in the purchase of the foreign currency funds or involvement of the bank’s funds, as the case may be, should not be charged separately. It may however, be taken into account while negotiating and determining the rate of profit with the client at the time of the application for the L/C. The importer client may also be allowed to take delivery of the documents of title of the imported consignment.
Trust Receipt (TR) on Bai-Muajjal
Just as in the MPI, an application is made for TR facilities, and the importer is required to offer sufficient tangible securities acceptable to the bank equivalent to investment amount.
To summarize, Bai-Murabaha is applied to L/C in the following manner in Islamic banks:
The customer requests the bank to open a letter of credit to import goods from abroad through an application enclosing a proforma invoice and providing all the necessary details and information.
After securing the necessary guarantee and scrutinizing the application, the bank opens a letter of credit in favor of the client and sends copies to the correspondent bank abroad and to the exporter.
The customer endorses a “Promise to Buy” the merchandise. The cost of the goods and the conditions of delivery are negotiated.
The exporter makes arrangements to export the goods and delivers the documents to the correspondent bank abroad. The shipment of the goods takes place and the correspondent bank advises the bank and sends the documents.
Once the bank takes ownership of the goods, an agreement of sale is signed with the client.
Musharaka Documentary Bill
The contract is essentially the same as the one discussed above in terms of the sale and purchase of domestic goods, but differs in some details. The importer requests the bank to participate in the import and sale of certain goods. The total cost of importing the goods is declared and the capital contribution of each party is specified. The cost of the whole transaction is designated in the appropriate foreign currency. The importer pays a part of his contribution immediately after the contract has been signed and pays the rest after receiving the invoices. A special Musharaka account is opened at the bank. The bank then opens a letter of credit at the request of the importer and pays the full amount to the exporter after receiving the shipment document. The cost of insurance is charged to the transaction account. The importer is responsible for the import, clearance and final sale of the goods in question. The net profits are distributed among the partners in the agreed proportion and any loss is shared in the same proportion as the actual capital contribution.
Meaning of Export
Export means lawful carrying out of anything from one country to another country for sale.
Definition of Exporter
The importers and exports trade of the country is regulated by the Imports Exports Control Act 1950. No person /firm is allowed to export any thing from Bangladesh unless he is registered with CCI and E under the registration order (Importer and Exporter) 1952. To become an exporter an ERC (export Registration Certificate) must be obtained from the office of CCI & E.
Procedure for Obtaining Export Registration Certificate (ERC):
For obtaining Export Registration Certificate (ERC), intending Bangladesh Exporters are required to apply to the CCI & E authority in the prescribed from along with the following documents:
a) Nationality Certificate.
b) Copy of valid Trade License.
c) Income Tax Certificate.
d) Bank Certificate.
e) Copy of rent receipt of the business firm.
f) Registered Partnership Deed in case of partnership concerns.
g) Memorandum of Articles & Association and Incorporation certificate in Case of Limited Company.
On satisfaction of the CCI & E the potential exporter is advised to deposit export registration fee of Tk. 1,000/- through Treasury Chelan to Bangladesh Bank/ Sonali Bank for enabling them to issue ERC. The ERC may be renewed every year on payment of renewal fee of Tk. 1,000/- through Treasury Chelan as started.
Different Types if Export
A. Export under L/C
Exporters are allowed to export the commodity under irrevocable letter of credit. Under this type of export, exporter will ship the goods as pr terms of the credit and will get payment as per arrangement of the credit.
b. Consignment basis export:
Exports are allowed against firm contract. As per contract, importer will ship the goods and the buyer will make payment after selling the consignment.
c. Export against advancement payment:
Sometimes exporter receives payment in advance. In that case Authorized Dealer should obtain a declaration from the exporter on the “Advance receipt voucher” certifying the purpose of the remittance. Then the exporter will export the goods against the advance payment.
General Rules for Export
There are some rules, which are mandatory for export of any goods form Bangladesh. The rules are as under:
(1) No Person can export any goods from Bangladesh, unless he is duly registered as an exporter with the CCI & E.
(2) All export must be declared on the EXP form, which is consisting of 4 copies.
(3) Export mush is against any of the following:
a) Export L/C.
b) Firm Contract.
c) Advance Payment.
(4) Transport documents related to land route or sea and any other Author8ized Dealer. The Airway Bill and any other documents of title to car4go may be drawn to the order of a Bank in the country of import. However in case of advance payment, transport document may be drawn to the order of Foreign Importer Bank endorsement of transport documents is prohibited. Directions under Sl. No. shall not apply in the following cases:
a) Export of Trade sample.
b) Personal Effects.
c) Goods shipped under the order of Govt.
d) Export of fresh fish, vegetable and fruits.
e) Gift package for less than Tk. 50/-.
(5) ‘EXP’ must be submitted to the Bank by the exported and Bank will submit the Duplicate Copy to the Bangladesh Bank within 14 days from the date of shipment.
(6) Payment for goods exported should be received through an authorized dealer in freely convertible currency.
(7) Export proceeds must be received by the exporters within 4 months.
(8) Overdue export bills statement to Bangladesh Bank should be submitted by the 15th of the month, following quarter to which it relates.
(9) In case of short shipment, exporter should give a notice of short shipment of\n the prescribed from in duplicate, the prescribed from in duplicate, the customs, who will forward a Certified copy of the notice, to the Bangladesh Bank.
Issuance of EXP Forms and Number
Bank will certify EXP Form only after confirming the following:
a) Arrangements have been made for realization of Export proceeds.
b) Bona-fides of the importer/ consignees abroad.
c) Arrangements have been made for receipt by Authorized dealer of documents of title to goods.
d) The EXP has been signed by the exporter
Stages & Mechanism of Export
1) Exporter will make the goods ready for shipment.
2) Arrangements have to be taken for inspection of the goods by the competent authority as per credit terms.
3) Exporter will declare on EXP form against export L/C/Firm Contract/ Advance payment.
4) Exporter have to arrange approval for export from custom authority on EXP from by submitting Export L/C, Export permission from CCI & E, Quota clearance from EPB, U.D. in case of garments, invoice, packing list along with shipping bill prepared by C&F agent.
5) After completion of custom formalities, shipping company will receive the goods and will issue B.L.
6) Exporter will collect visa/ license and certificate of origin for final documentation.
7) Exporter will submit the full set of documents to the negotiating bank for negotiation.
8) Negotiation bank will dispatch the documents to the issuing bank for clearance of the goods from destination against payment as per credit terms.
Export Documents Checking
After submissions of export documents by the exporter, Bank must check, whether the entire required document submitted or not. Bank must examine all documents stipulated in the credit with reasonable care to ascertain whether or not they appear, on their face to be in compliance with the terms and conditions of the credit. The Banks will not examine documents not stipulated in the credit. To examine documents Bank must follow the L.C terms and international standard banking practice. Automated or computerized carbon copies to be treated as original documents if it is marked ‘original’ Copy documents need not be signed. Multiple documents means one original and remaining copies, Signature, Mark, Stamp or label is sufficient for authentication of document. Bank will accept a prohibited in the L/C.
Sometimes exporters are required to submit to the Govt. Agency evidence of goods and realization of their proceeds. In such cases proceeds realization certificate (PRC) may be issued.
Negotiation/ Purchase of Bill without L/C:
In our country exports are also made on the basis of contract between the buyer and the seller with out the cover of L/C. In such case document are delivered to the buyer through the intermediary of foreign correspondent of the A.D against payment. Limit (post shipment finance) is usually sanctioned from Head Office to such exporters to boost up export of the Country.
Document sent on Collection Basis:
When the bank refuses to negotiate the document due to major discrepancies, the bill is sent by bank on collection basis under written instruction from the beneficiary. To handle such transaction as per ICC Publication No. 322 named “Uniform Rules for Collection”
All export from Bangladesh must be declared by the shipper on EXP form to the Bank enabling them to submit the duplicate within 14 days from the date of shipment.
The shipper is required to repatriate the export proceeds within 4 months from the date of shipment otherwise penalty is imposed upon them. A careful watch is to be dept to ensure that the sale proceeds are received on due date. A due date diary must be maintained to pursue the individual case.
Shipping & Customs Formalities:
International transfer of goods are made through the Letter of Credit which issued by the foreign bank at he request of Importers in favor of exporter. Such Export L/Cs is enrooted through the Bangladeshi Banks by the foreign banks who have correspondent relationship.
The foreign issuing banks may advise a credit in the following manner:
- By short cable/ Telex followed by Airmail.
- By full telex (No airmail confirmation).
- Airmail L/C.
- Advising of L/C after adding confirmation.
Keep the goods ready for dispatch (shipment):
On receipt of the order from the importer, the exporter is to take immediate steps to manufacture the goods if they are not already in stock according to the specifications desired and keep them ready for dispatch.
Inspection of Goods:
The goods should be kept ready for inspection of the competent authorities and issue a certificate of quality control required under regulation: for example:
1. Export promotion Bureau.
2. Custom Authorities who will inspect the goods under Sea Customs Act.
3. Chamber of Commerce and Industry.
4. Other agencies authorized to inspect the goods before shipment.
Getting shipping space:
In order to export the goods, the shipping companies or their agent must be approached by the exporter for booking space, to know the freight etc. So that shipment may be made conveniently. In this regard, the services of clearing and forwarding agents may be taken conveniently for actual shipment of goods; commission etc. is also to be paid to the agents for this works.
Get in touch with port Authorities:
Who will have to allow the goods to move into the port and make arrangements for loading and unloading and keeping the goods in godown.
Shipment of Goods and other documents to C & F Agents:
To handle the goods for export in the port of shipment banks nominate clearing agents to handle the goods to pass on custom formalities. Clearing agents are appointer by the bank from amongst the C & F agents of custom authority. The clearing agent on behalf of the bank arrange shipping space in the overseas vessel as per shippers instructions and also pays all the relevant dudes payable to the custom authority shipping company as freight. Bank or the shipper is to reimburse these to the C & F agent to the debit of party account.
A: Papers are requirement in regard to export of goods subject to L/C stipulation:
1. Commercial Invoice.
2. Certificate of origin.
3. Negotiable bill of lading.
4. Pre-shipment inspection certificate.
5. Quantity & quality certificate.
6. Fumigation certificate depending o the nature of cargo.
7. Phytosanitary certificate depending on the nature of cargo.
8. Gross revenue proceeds (GFP), export price check (EPC)/ Incase of jute shipment etc.
Export Procedure under IBBL at a Glance
1. Selection of Clients On the basis of
a. Export Registration Certificate. (ERC)
b. Membership of an authorized trade association.
c. Credit report.
d. Export L/C.
e. Checking and Advising.
f. EXP certification.
g. Pre shipment facility.
h. Processing for Export
j. Submission of Export documents.
k. Checking: Preparation of offering sheets for negotiation or Collection.
2. Negotiation and Collection.
a. Purchasing documents.
b. Sending documents to L/C opening banks or correspondent for collection of proceeds .After collection adjustment of negotiation value.
a. Duplicate EXP to Bangladesh Bank.
b. Triplicate EXP after relation of proceeds to Bangladesh Bank.
c. Monthly statement to Head office.
4. Export Under Back to Back System.
a. Export L/C advising.
B .Proposal for BB L/C
d. Process to open BB L/C
e. Formalities time gap between Import and Export credit.
f. Report Buyer and Supplier.
5. Thronging of BB L/C
a. Advising bank or Foreign correspondent add confirmation.
6. Lodgment of BB Bills
a. Shipping documents.
b. Evidencing dispatch.
c. Goods acceptance of import bills.
d. Conveying of due date to negotiating bank.
e. Clearance of Raw materials.
f. Storing in Bonded Warehouse.
g. Manufacturing of the product.
h. Pre shipment Extension
7. Negotiation of Export Bill.
a. Execution of Export
b. Submission of Export Documents.
e. Disbursement of funds to different heads of A/C including F/C held account for payment of BB Bill.
8. Relation of Proceeds and Reporting
a. Crediting NOSTRO A/C.
b. Adjustment of negotiation value.
c. Payments of BB Bills.
d. Export Incentives
e. Reporting of Export.
Back-to Back L/C
Back -to -back L/C means one credit backs another. It is new credit in favor of another beneficiary. Sometimes beneficiary seller of a credit himself is unable to supply goods specified in the L/C and required to purchase from another supplier by opening second credit. Besides, the formalities and requirements for (L/C opening) the following formalities and documents are also required for opening back-to-back L/C
1. Master L/C
2. Valid bonded ware house license
3. Quota allocation for quota items
4. ERC in addition to IRC
6. NO objection form previous banker
7. Factory inspection certificate
8. BGMEA Membership
Problems of Back-to Back L/C
1. Shipment time gap: Sometime time is shorted for exporting against import L/C, kit may be caused.
2. Terms and rules violations: IBBL cannot violate the rules & term of Shariah council.
3. Selling violation: Out of agreement IBBL cannot receive excess wanted.
4. Payment of back to back L/C bill: No stock bills are supported against Shariah.
5. Gaps of International rules & regulations.
Banks bears the responsibility of being a development partner for the economy, not only for the purpose of boosting exports at a national level for earning foreign exchange, but also to make the small exporters financially solvent.
Export Financing Products
An exporter requires financing at two stages namely:
The procedures of Islamic Bank Finance at these stages are discussed below:
A: Musharaka Mode
Pre-shipment investment covers credit facilities extended to the exporters by IBBL prior to the actual shipment of goods. The purpose of such investment is to meet working capital requirements starting from the point of purchasing the raw materials to transportation of goods for export to foreign countries. Before extending a loan to an exporter, the bank takes into consideration the credit worthiness; export performance of the exporter together with all the other necessary information required for sanctioning the Investment in accordance with existing rules and regulations of the bank. Financing at the pre-shipment stage is generally called ‘Packing Credit’. It is also referred to as Pre-shipment Investment (PSI) or Pre-shipment finance (PSF). Islamic Banks follow the Musharaka mode of Investment to sanction this kind of finance.
Generally, Islamic banks extend pre-shipment investment against irrevocable and unrestricted L/Cs in favor of its clients after ascertaining their credit worthiness and reputation. As per existing laws of the land, the bank may invest as much as 90% (including BB L/C) of FOB value of the credit (Export L/C).
A-1: Pre Shipment Investment under Musharaka
In this case, the bank finances an export trade normally by opening a L/C on behalf of the exporter/export houses or Agency who has received an Export L/C from an overseas buyer. Since the L/C is opened on the strength of, and backed by the export L/C, it is technically called a ‘Back to Back Letter of Credit’.
A-2: Post Shipment Investment under Musharaka
Exporters may require post-shipment financing to cover operation expenses. This is the case because they have to wait a long time to receive payment from abroad for the exported goods, depending on the terms of payment stipulated in the respective Export L/C. Islamic banks also utilize the Musharaka agreement to provide for these types of financing:
Negotiation of documents under L/Cs
Purchase of D.P. and D.A. Bills
Bai-Salam is defined as an advance purchase of a commodity or product by the bank on execution of a written contract wherein it is clearly mentioned that the commodity shall be delivered as per specification, size, quality, and quantity at a fixed future time in a particular place. The burden of the cost of transportation and storage is also specifically mentioned in the contract to avoid confusion. Generally, industrial and agricultural products are purchased in advance under the Bai-Salam mode to provide the capital necessary to produce the purchased goods.
Financing of the import of raw-materials for the manufacturing, processing, is done under a Back to Back L/C for ultimate export under a deferred payment through a L/C. Furthermore, the payment under the L/C is obligatory on the bank for making payment if the documents are drawn strictly in accordance with the terms of L/C. As such the ownership of raw materials in fact lies with the bank. Moreover, the Bill of Lading and bill of exchange are made to the order of the bank. The L/C application and agreement should also contain the clause regarding ownership of goods by the bank.
Immediately after opening a L/C, the consignment should be sold to the client under a Bai-Muajjal arrangement for a period of some years by executing the necessary charge forms including the Bai-Muajjal agreement. The accounting effects of said Bai-Muajjal investment should be recorded when the bank’s funds are involved. In addition, an adjustment for rebates due to early payment should be made to the profit calculation.
Since the client is the owner of the consignment by way of executing a Bai-Muajjal agreement, and will sell the finished goods to the bank, this transaction is considered a violation of the Shariah principles. It is not permissible by the Shariah to extend financing under a Bai-Salam arrangement, without an executed agreement. The sale or export should be done through the client. This should be clearly mentioned in the Bai-Salam agreement unless otherwise settled and prescribed. The purchase price should include/ the bank’s profit as per the rate prescribed from time to time.
In the Bai-Salam agreement, the description, specification, quality, size, time and place of delivery of goods should be mentioned in the schedule keeping in mind the requirements mentioned in L/C contract. Normally the client should be authorized as per the terms of the Bai-Salam agreement to deliver and receive the goods to and from the other party as per the L/C contract on behalf of the bank. In the event payment is delayed for whatever reason, compensation should be imposed.
Society for Worldwide Inter-bank Financial Telecommunication (SWIFT) was established in 1973 by 239 Banks of 15 European countries with Head Quarter in Belgium – is the industry-owned co-operative supplying secure, standardized messaging services and interface software to nearly 8000 Financial Institutions in 206 countries & territories.
SWIFT provides complete solutions covering every aspect of financial service processing which include – payments & cash management, treasury & derivatives, trade services, securities pre-trade/trade, pre-settlement, clearing & settlement, custody services and reporting.
SWIFT in Bangladesh
Bangladesh entered into the era of SWIFT Connectivity in 1999 with membership of 7 Banks including Islami Bank Bangladesh Limited. Other banks are –
Arab Bangladesh Bank Ltd.
BASIC Bank Ltd.
International Finance Investment and Commerce (IFIC) Bank Ltd.
National Credit & Commerce Bank Ltd.
Prime Bank Ltd.
United Commercial Bank Ltd. (UCBL)
Presently 35 Banks in Bangladesh have got membership & connectivity of SWIFT. In terms of network, message volume & share holding, Islami Bank Bangladesh Limited enjoys number 1 position amongst all users of SWIFT in Bangladesh. Islami Bank Bangladesh Limited is an active participant holding a seat in the Executive Committee of SWIFT User Group in Bangladesh.
SWIFT Share of IBBL
Islami Bank Bangladesh Limited became member of SWIFT with a single share in 1999. The re-allocation of SWIFT shares took place at the beginning of 2003 based on share holders financial contribution from network based services invoiced in 2002.
Different Categories of SWIFT Message
Customer Payments & Cheques.
Financial Institution Transfers
Treasury Markets -Foreign Exchange, Money Markets & Derivatives
Collections & Cash Letters
Treasury Markets -Precious Metal & Syndications
Documentary Credits & Guarantee
Cash Management & Customer Status
Benefits of SWIFT
Confidentiality – Information is only disclosed to authorize persons at authorized locations.
Integrity – Information can be relied upon to be complete, accurate and unchanged.
Availability – Information and associated service is accessible and usable when needed.
Accountability – Every individual authorized to use the system is accountable.
Confidentiality and Integrity – Are ensured by means of security of transmission, delivery and message storage; by validation of messages; and by user-to-user authentications.
Importance of SWIFT
Reliable & secure, service – (99.999 % reliability).
Electronic authentication of messages.
Structured communication between users.
Speed & accuracy.