BB allows exports under open account credit terms with guarantee

Staff Correspondent | Published at 10:45pm on July 01, 2020

The Bangladesh Bank has allowed exports on sales contracts under open account credit terms with external payment guarantee.

On Tuesday, the central bank issued a circular in this regard, stating that authorised dealers of the country’s banks could allow exporters to ship goods on sales contracts under open account credit terms within statutory period, if otherwise not extended, from the date of shipment.

In such case, the exports must be executed against the payment undertakings or payment risk coverage for settlement of export bills or receivables within the statutory period.

The risk coverage must be covered by an international factoring company or by foreign bank or by foreign financial institution or by trade financier or by an insurance entity arranged in association with importers or exporters.

Under the policy, payment undertaker or insurer must arrange export payment in case of default by importers.

Early payment option may be included in the payment undertaking or in the payment risk coverage for which exporters can receive payment on non-recourse basis.

The cost to be incurred by exporters against payment undertaking or under payment risk coverage, and interest with relevant charges for early payment will be six-month USD LIBOR plus 3.50 per cent annually, the circular said.

Bangladesh Institute of Bank Management professor and director Shah Md Ahsan Habib told New Age that the policy introduced by the central bank could not be treated as pure open account credit terms.

Despite naming it as open account credit terms, the policy has covered all the risk factors and that was supposed to be, Ahsan said.

The export under open account credit terms is a modified version of financing under factoring and supply chain to exporters against their export with external payment undertaking, an official of the BB said.

The policy will help the exporters to access the appropriate finance up to the value addition portion, he said, adding that back to back payment would be settled on receipt of final payment on maturity.