Export financing : Pre-shipment & Post-shipment

          Export financing : Pre-shipment & Post-shipment                                                  

Mizanur Rahman Talukder

Vice President & Manager, SIBL, Babubazar Branch

                       

Pre-shipment:

• Bai Salam/ Packing Credit /Cash Credit (Hypothecation/Pledge).
• Back to Back L/C.
• Musharaka pre shipment /Packing Credit

Post-shipment :

• Negotiation of Export Bills.
• Baim com (Single term)/Time Loan.
• Quard against Cash Incentive / Duty Draw Back.

Pre-shipment export finance

Bai Salam/Cash Credit (Hypothecation/Pledge) :

To Procure raw materials for manufacturing the finish products to execute the export, bank may finance in advance to the exporter under this mode.

BB L/C :

Bank extends Back to Back L/c facility to exporters to procure/import raw-materials for producing/manufacturing exportable goods at pre-shipment stage under the mode against Export L/c/ Sales contract. The BB L/C is an import L/C opened against lien of  Export L/C or Sales contract received by export oriented industrial units subject to observance of domestic value addition requirement prescribed by the Ministry of Commerce from time to time.

In our country in export of garments, this method of finance is widely used and is well known to the manufacturers of garments. Suppose, a Bangladeshi exporter received an irrevocable L/C from an American Bank for supply of ready made shirts. For manufacture of the ordered shirts, the exporter does not have the required materials and cloths. To execute the order he is to import fabrics & materials  from China. Then, the Bangladeshi exporter will have to open an import L/C favouring the Chinese supplier for import of fabrics and other materials. This L/C opened by the Bangladeshi Bank, keeping the American Bank L/C in the ‘Back” as security is called “Back to Back L/C”.

Musharaka pre shipment /Packing Credit:

This is a short term investment with a fixed repayment date granted by the bank to an eligible exporter for the purpose of workers salary, packing and shipping of the goods @ 10-15% of FOB value of export LC/ sales contract. When the export order is executed, the packing credit gets paid off from the proceeds of the export bill.

 

Post-Shipment Finance

Negotiation of documents:

There is a time gap between export of the goods and realization of the proceeds. The actual period of time gap depends on the payment terms.  So exporter may require finance in that period to continue his business.

On completion of export, the exporters submit export documents to the negotiating Bank  and request to negotiate the documents. After careful and thorough examination of the documents, the negotiating bank may classify the documents as follows:

a)      With no discrepancy

b)      With minor discrepancy

c)      With major discrepancy

·         Documents without discrepancies, Bank may negotiate the documents at first sight. 

·         Documents with minor discrepancies that cannot be removed at once may be negotiated on submission of indemnity bond by the exporter.

·         Documents with major discrepancies that cannot be corrected or removed should be sent on collection basis with the permission of the exporter. These documents should not be negotiated against indemnity bond.

In practice Bank also consider the things in negotiation:

Ø  The Buyer is bonafide.

Ø  Party’s past performance is satisfactory

Ø  Any other security in case of export under contract

Quard Against Cash Incentive:

In order to increase the inflow of foreign exchanges into Bangladesh, Exporters have been given many sorts of incentives/cash assistances by the government such as:

·         Bonded Warehouse Facility

·         Duty Drawback Facility

·         Cash Incentive

The term ‘’Cash Incentive’’ is somewhat self explanatory. In Export business, it means incentives provided by Bangladesh Bank on behalf of Bangladesh government in favor of the exporters following accomplishment of export  given certain terms and conditions are met. 

Currently Government is offering cash incentives to exporters for export of 35 different items. Items against which cash incentives has been availed frequently are as follows:

·         Incentives offered to export oriented RMG industry using local fabrics/yarn in lieu of Bond facility/Duty drawback  facility                                                          ------4%     

·         For above mentioned  Export oriented RMG industry

 (second pronodona )                                                                          ……..4%

·         New market Exploration (RMG Sector)                                                          ……..4%

               Etc. (Details as per Circular Sheet)

Quard procedure :

 Since it takes few days, sometimes, months after placing a claim to receive cash incentive fund from B.Bank, and Exporters often need finances for smooth operation of export process, Banks, now-a-days, keeps a provision for the exporters to offer quard against their claim of cash incentive. In such cases, AD branches, upon receipt of certification from the audit firm and application for advances from the client, applies for quard to our TF&RMG Division, Head office with the support of the Audit firm certification. TF&RMGD then, after administering certain formalities, accords the approval for quard up to 90% of the certified amount.