Now a days various Trade Finance Services by banks are provided in different levels of foreign trade business. Exporters and importers need financing facilities to accomplish their cross-border purchase and sale. At different stages of production and payment, traders obtain financing facilities from banks. Financing pattern also vary in different methods of payments. Financing to the exporters can be grouped under pre-shipment and post-shipment financing; and financing to the importers can be categorized into pre-import and post-import financing.
Pre-Shipment and Post-Shipment Credit to the Exporter by Banks
Pre-shipment credit is obtained to meet expenses on purchasing raw materials, processing, transportation, insurance etc. These cash credit facilities are commonly provided against hypothecation, and against pledge. Packing Credit, the most popular form of pre-shipment credit, is extended against transport documents evidencing transportation of goods. Back- to-Back Letter of Credit is a financing arrangement between bank and exporter commonly to import Fund (EDF) 20 materials under back-to-back arrangement. EDF facility is now faster and bigger in terms of processing and fund availability as compared to any recent past. Exporter obtains Export Development facilities to meet foreign currency requirements mainly to import raw materials. Necessity of post-shipment credit arises as the exporter cannot afford to wait for a long time without paying suppliers or remain out of fund for long. Before extending such credit, it is necessary for banks to look carefully into the financial soundness of exporters and importers/buyers as well as other relevant documents connected with the export in accordance with the rules and regulations in force. Banks in our country extend post-shipment credit to the exports through Negotiation of documents under LC, Purchase of Deferred Payment & Deferred Acceptance bills, and Advance against Export Bills surrendered for collection. Under collection, documents submitted under DA or DP is also purchased by banks (remitting bank). Bank generally accept export bill for collection of proceeds even though documents drawn against an LC containing some discrepancies. Now a day, in post shipment export financing, supplier’s credit is getting popularity in Bangladesh. Supplier credit applies when the exporter’s bank lends the money direct to the seller. For importation, banks have been offering credit facilities to the importers both at the pre import and post import stage. LC is a financing technique for importers under which banks offer undertaking to make payment on behalf of importers. Bank extends credit facility to the importer for retirement and clearance of the consignment known as Loan against Imported Merchandise (LIM). Advances against a Trust Receipt or LTR obtained from the Customer are allowed to only first class tested parties when documents covering an import shipment of other goods pledged to the Bank as scrutiny are given without payment. The Advance allowed against Trust Receipt must be adjusted within the stipulated period. Practice of LTR as an import financing technique through ocean mode has now become very popular. Banks also offer shipping guarantee/ delivery order/airway releases to facilitate releasing of goods when goods arrived prior to the documents.
Some countyries Government has given Bonded Warehouse benefit for wide range of industries to expedite the export. A 100% export oriented manufacturing unit can get bonded warehouse. It is a secured facility supervised by custom authorities, where dutiable imports are stored to be used in producing export products and the import materials are free of import duties, taxes, and other charges. It is also called customs warehouse. Four Types of Bonded Warehouse Licenses are available Direct Export industry, Deemed Export industry, Diplomatic and Duty free Export Processing Zone. Only recognized export oriented industrial units operating under bonded warehouse system will be allowed to open back to back LC facility. The unit requesting for the facility should possess valid registration with the CCI&E and valid bonded warehouse license.