Import & Export Financing

Import & Export Financing

 

Legal framework of International Trade:

i. Import & Export (Control) Act –1950

(Sub Section 1 of Section 3)

  • Import Policy Order
  • Export Policy

ii. Foreign Exchange Regulation Act (FERA)-1947

iii. Guidelines for Foreign Exchange Transactions (GFET): Vol – I & Vol – II

iv. Directives of NBR

  • Customs Act- 1969
  • Pre-shipment Inspection (PSI) Act-1999

v. International Rules of ICC

  • UCPDC–600
  • eUCP–Version 1.1
  • URC-522
  • URR-725
  • ISBP-681
  • Incoterms-2000

Main Features of Import Policy:

Who can import-

  • Any Person having Import Registration Certificate (IRC)
  • Any Person exempted from having IRC

How IRC is obtained-

How IRC is renewed-

List of banned, restricted & permissible items-

 

How import can be done:

  • With LC & LCA
  • Without LC but against LCA
  • Without LC & LCA (Import permit or Clearance permit)

 

Main contents of Import Policy Order (IPO):

  • Banned items
  • Restricted items
  • Permissible items
  • Restriction of shipment

-Prior to opening of LC

-Expiry of the LC

  • Country of Origin (‘CO’ should be mentioned in package/goods)
  • Harmonized description of commodity & coding system (H.S. code)

 

H.S. Code: Customs Co-operation Council (CCC) was established in the year 1950 and started its operation on 26th January 1953. Presently it is known as World Customs Organization. Its Head Office is at Brussels, Belgium.

Harmonized description of commodity & coding system (H.S. code) was adopted by CCC. Under this coding system Main Head of a commodity is coded by 4 digits and subhead is coded by 6 digits. Respective country may increase the numbers of digits according to their need but in no case they can alter the 6 digits of WCO (CCC).

Carrying of goods by Bangladesh Flag Vessels

  • Pre-shipment inspection
  • Special conditions for food items
  • CFR/FOB/CIF
  • Insurance cover note.

 

 Main contents of GFET :Vol – I

 Import:

IRC & exemption

LCA

Supplier’s credit report

IMP

Requirement of Bond License for BTB LC

Advance payment against LC

Reporting of Bill of Entry

Requirement of Insurance Policy

 

Export:

ERC & Exemption

How to prepare transport document (BL, AWB, TR etc)

Certifying EXP

Reporting of Export proceeds within 120 days

Reporting of EXP

 

Remittance:

Inward remittance:

How to accept different types of inward remittance

Wage earners’ remittance

Buying House/ Agent commission

Indentor’s commission

Advance payment against export

Foreign investor’s fund

Reporting of C form

 

 

Outward Remittance:

Import payment

Traveling quota

Student expense

Medical expense

Expenses of attending Seminar, Workshop

Reporting of TM form

International Rules of ICC:

UCPDC–600

eUCP–Version 1.1

URC-522

URR-725

ISBP-681

Incoterms-2000

 

ICC at a glance:

Foundation           : In 1919

Objectives             : To serve world business by promoting trade and investment, open markets for goods and services, and the free flow of capital.

Membership         : ICC groups thousands of member companies of every size in over 130 countries.

Functions              :

·         Setting rules and standards

  • Arbitration under the rules – ICC International Court of Arbitration
  • Uniform rules for trade financing – UCPDC, URC, URR, URDG, Incoterms etc.
  • Promotion of Trade & Services globally.


Important sections of Foreign Exchange Regulation Act-1947 (FERA):

Main principle:

The State is the owner of Foreign Currency

(Sections: 3, 4, 9, 10)

Authorized Dealers: (Section – 3)

Bangladesh Bank has authority to authorize any person as AD

 

Restriction on dealing in FC: (Section – 4)

No person, other than an AD, is allowed to deal in FC except B Bank’s special permission.

 Acquisition of Foreign Exchange by Government: (Section – 9)

Government can acquire any or all FC in the country.

 

Power to call for information: (Section – 19)

The Government or Bangladesh Bank has power to authorize anybody to call for information/books/documents from any person.

Penalty and procedures: Section – 23)

Whoever Contravenes, attempts to contravene, shall be tried by a Tribunal constituted by Section 23A.

 

Import Financing

Import finances are:

  • Opening of LC
  • PAD
  • LTR
  • LIM

 

Import procedure under LC

 

  • Pre-assessment for the proposed import finance
  • Approval of LCA form
  • Submission of LC application form with following required papers:

– LCA form duly signed and approved

– Proforma invoice duly signed and accepted

– Insurance cover note

– IMP form duly signed

  • Passing vouchers:

–          Dr. CD Account (party account)

–          Cr. Margin on LC

–          Cr. Income account (commissions & charges)

  • Passing contra vouchers:

–          Dr. Customer’s liability on LC

–          Cr. Banker’s liability on LC

 

  • Drafting of LC
  • Transmission of LC

 

Amendments

  • Very often amendment is required after opening of LC

 

PAD (Payment Against Documents)

Lodgment of shipping documents

 

  •  Receipt of shipping documents
  •   Scrutiny of shipping documents
  •    Transmitting discrepancy notice (if any) to the foreign negotiating bank
  •    Issuance of discrepancy notice to applicant advising them to accord disposal instruction

q   Reversal of LC liability and creation of PAD liability

– Dr. PAD account

– Cr. ID Head Office (Nostro account)

q   Reconciliation of debit entry with the reimbursing bank.

q   Issuance of notice to the applicant for retirement of documents.

 

 

Retirement (Sight LC)

q   Balance fund collected from the applicant credited to the “margin on LC A/C” and thereafter credited to PAD A/C for adjustment by debit to “margin on LC A/C”.

 

q   Interest on PAD A/C is recovered from the applicant and credit to Income A/C. Transport document is endorsed in favour of the applicant for taking delivery of imported merchandise.

 

Lodgment (in case of usance LC)

 

q  Documents are lodged by creating IFBC by reversal of LC liability.

q  Scrutiny of shipping documents

q  Transmitting discrepancy notice (if any) to the foreign negotiating bank.

q  Issuance of discrepancy notice to applicant advising them to accord disposal instruction

q  After taking acceptance of the applicant on Bill of Exchange shipping documents are endorsed to the importer

q  Intimation of due date

 

 

 

Retirement ( in case of usance LC)

q  Reversal of IFBC liability

q  At maturity payment is made through Nostro accounts

q  Passing of vouchers:

–          Dr. Margin on LC account

–          Dr. Party account

–          Cr. ID Head Office (Nostro account)

 

LIM (Loan against Imported Merchandise)

Arranged LIM:

–          Dr. LIM account (PAD liability + customs duty + transportation cost

+ C&F agent’s commission)

–          Cr. PAD account

–          Cr. Bills payable for issuance payment order in favour of customs duty & others.

 

Forced LIM:

Sometimes clients may not release goods.Under the compelling situation forced LIM is to be created.

 

  • Imported merchandise is brought to Godown of the Bank by the C&F agent.

 

 


LTR (Loan against Trust receipt)

 

–          Dr. LTR account (PAD liability + customs duty + transportation cost

–                                                 + C&F agent’s commission)

–          Cr. PAD account

–          Cr. Bills payable for issuance payment order in favour of customs duty & others.

 

Reporting of IMP

– IMP is reported with monthly return

 

Matching of Bill of Entry

– Collection of BE from importer

– Matching with invoice

 

Export Financing

 

Pre-shipment:

  • Cash Credit (Hypothecation).
  • Cash Credit (Pledge).
  • Packing Credit.
  • Back to Back L/C.

 

Post-shipment :

  • Negotiation of Export Bills.
  • Time Loan.
  • Loan against Cash Incentive.
  • Loan against Duty Draw Back.

 

 

Export (RMG)

Pre-shipment Finance

Preliminary Assessment of proposal

– New factory

– Old factory

 

New factory:

Factory visit: Observations to be made on

  • Factory owned or rented, if rented Lease Agreement to be examined
  • Location
  • Machineries adequate or not
  • Manpower involved
  • Connection of service lines, Gas, electricity, water supply, Generator etc
  • Qualification and experience of Production Manager
  • Fire protection, emergency exit
  • Environment at position
  • Management capacity and their liability position with other banks
  • Bond license

 

Old factory:

  • Previous performance of the management as per bank’s statement
  • Yearly export turnover
  • Background of the old liability position
  • Factory visit:

–          Electric, Gas Water etc. bill outstanding

–          Salary bill outstanding

  • Behavioral pattern of the key persons of the management

 

 

Preliminary assessment of the export order

 

  • Buyer’s reputation / previous performance
  • Value addition
  • Calculation of profitability:

Ordered price – (cost of production + Buying Agent’s commission + Bank’s charge + C&F Agent’s commission)

 

Submission of BTB LC application with the following papers

 

  • LCA form duly signed and approved
  • LC application form duly signed
  • Proforma invoice duly signed and accepted
  • Insurance cover note
  • IMP form duly signed
  • Master LC / contract (export order)

Scrutiny of Master LC / Contract

  • Shipment validity
  • Expiry date
  • Payment terms
  • Verification of authenticity of Advising Bank and Transferring bank

 

Issuance of BTB LC

  • Approval of fact sheet
  • Draft of LC
  • Transmission of LC
  • Passing vouchers:

–          Dr. CD Account (party account)

–          Cr. Income account (commissions & charges)

  • Passing contra vouchers:

–          Dr. Customer’s liability on LC

–          Cr. Banker’s liability on LC

 

Issuance of amendment of LC (if any)

  • Application from the customer
  • Assessing demand/necessity of the amendment
  • Draft of amendment
  • Transmission
  • Passing vouchers (commission and contra vouchers)

 

Lodgment of shipping documents

  • Reversal of LC liability & creation of bills liability
  • Scrutiny of shipping documents
  • Transmitting discrepancy notice (if any) to the foreign negotiating bank.
  • Issuance of discrepancy notice to applicant advising them to accord disposal instruction
  • Endorsing documents to importer for taking delivery of goods
  • Calculation of due date
  • Intimation of due date to negotiating bank

 

Disbursement of PC (Packing Credit) as working capital

 

After receipt of imported goods (raw materials of readymade garments) at the factory PC is allowed for 10-15% of FOB value of export LC.

 

Export of Goods (RMG)

  • Certifying EXP forms
  • Receiving export documents with the following papers:

– Bill of Exchange

– Commercial Invoice

– Packing/weight list.

– Transport Documents (Bill of lading / Airway Bill ).

– Inspection Certificate

– GSP/Certificate of Origin

– Others

– EXP forms duly passed by customs

 

  • Forwarding documents to LC issuing bank and claiming reimbursement

 

Negotiation of Export Bill

  • Passing vouchers: At the time of negotiation/purchase

(Only when CM portion is purchased)

 

– Dr. FDBP account (@ OD sight export)

– Cr. CD A/C

– Cr. Packing Credit/ Others Loan A/C

– Cr. Income A/C Com

– Cr. S/D Tax

– Cr. S/D, Buying house commission

 

  • Realization of Export Proceeds:

Dr. ID, HO (CM portion @ TT Clean & rest portion @ OD Sight

Export)

Cr. FC Held for BTB payment ( @ OD Sight Export)

Cr. FBP A/C                               ( @ OD Sight Export)

Cr. I/A Exchange Earning

 

Payment of bills

  • At maturity payment is made through Nostro accounts
  • Passing of vouchers: (after realization of export proceeds)

–          Dr. FC held for BTB payment account (@ OD sight rate)

–          Cr. ID Head Office (Nostro account)

  • If export is not done or any non-repatriation of export proceeds:

–          Dr. Demand loan/SOD (export) @ BC rate

–          Cr. ID Head Office (Nostro account)

 

Reporting of IMP

IMP is reported with monthly return

Matching of Bill of Entry

  • Collection of BE from importer
  • Matching with invoice

 

Reporting of EXP

Immediately after negotiation Duplicate EXP will be reported to Bangladesh Bank

After repatriation of proceeds Triplicate copy of EXP will be reported to B.B in Monthly Return

 

EDF (Export Development Fund)

 

Objectives:

  • To help import financing for the exporters of non-traditional items, especially where high value addition is maintained.
  • To grow confidence of foreign suppliers.
  • To expedite high value added export where import is made under BTB LC under bonded warehouse system.

 

Features:

 

  1. Limit US$500,000.00 for single import bill.
  2. Aggregated amount US$100,00,000.00 to single importer.
  3. Interest LIBOR + 1% and 10% for interim period
  4. To be refunded within 180 days from the date of receipt of fund from Bangladesh Bank (may be extended to 270 days for special case)

Procedures:

Intimation to Bangladesh Bank:

  •  Intimation in a prescribed form stating details of LC to Bangladesh Bank
  • Claiming of disbursement of EDF after receipt of import bills
  • The branch will submit following returns/statements
    • L/C opening statement under EDF daily
    • Monthly statement of L/Cs opened under EDF (within 7 days of month following the month to which it relates)
  • Passing vouchers:

Dr. Customer’s liability on EDF LC

Cr. Bankers liability on EDF LC

 

Dr. Customer A/c

Cr. Income A/c commission, charges, etc.

 

Lodgment of Documents:

  • Reversal of LC liability & creation of bills liability
  • Scrutiny of shipping documents
  • Transmitting discrepancy notice (if any) to the foreign negotiating bank.
  • Issuance of discrepancy notice to applicant advising them to accord disposal instruction
  • Endorsing documents to importer for taking delivery of goods
  • Calculation of due date
  • Intimation of due date to negotiating bank

 

Payment of EDF LC:

Step-1

After lodgment of import bill, payment to the negotiating bank is settled by creating EDF Loan. then vouchers are passed as follows:

Dr. PAD EDF Loan (@ OD sight)

Cr. General A/C – ID, Head Office (IBCA)

A payment instruction is given to the bank through which payment will be settled.

At the same time requisition for fund is forwarded to Bangladesh Bank through ID.

Step-2

International Division, after getting requisition of other branches, forward an accumulated requisition to Bangladesh Bank.

Step-3

Getting fund from Bangladesh Bank, ID credit the same to branch by IBCA.

Then the branches respond IBCA as follows:

Dr. General A/C – ID Head office (Responding)

Cr. FC Held EDF

 Step-4

When export is done and proceeds are realized then the EDF Loan account is adjusted and fund is returned as follows:

Dr. FC Held EDF

Cr. EDF Loan A/C

At the time of realization of export proceeds.

Dr. ID/HO (Nostro A/C)

Cr. FC Held for BTB payment

Cr. FDBP A/C

 Step-5

Return of fund:

Dr. FC Held account for BTB payment (Bill value + intt. for interim + LIBOR                                                                +1%) (@OD sight export)

Cr. MBL General A/C (IBCA on Bangladesh Bank account)  (with interest @ libor rate)

Cr. MBL General Account on Nostro (for interest amount)

Dr. MBL General Account on Nostro (for interest amount)Cr. I/A interest on EDFCr. I/A Exchange gain

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