Export financing_ Pre-shipment and Post-shipment

Export financing: Pre-shipment and Post-shipment

Export financing: Pre-shipment and Post-shipment

Export financing: Pre-shipment and Post-shipment

Pre-shipment:

  1. Bai Salam/ Packing Credit /Cash Credit (Hypothecation/Pledge).
  2. Back to Back L/C.
  3. Musharaka pre-shipment /Packing Credit

Post-shipment :

  1. Negotiation of Export Bills.
  2. Baim com (Single term)/Time Loan.
  3. 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, the 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 the supply of ready-made shirts. For the 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 favoring the Chinese supplier for the 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 the export of the goods and the 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 a careful and thorough examination of the documents, the negotiating bank may classify the documents as follows:

  1. With no discrepancy
  2. With minor discrepancy
  3. With major discrepancy

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

  1. Documents with minor discrepancies that cannot be removed at once may be negotiated on the submission of indemnity bonds by the exporter.
  2. 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:

  1. The Buyer is bonafide.
  2. Party’s past performance is satisfactory
  3. Any other security in case of export under contract

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

  1. Bonded Warehouse Facility
  2. Duty Drawback Facility
  3. Cash Incentive

The term ‘’Cash Incentive’’ is somewhat self-explanatory. In Export business, it means incentives provided by Bangladesh Bank on behalf of the Bangladesh government in favor of the exporters following the accomplishment of export given certain terms and conditions are met.
Currently, the Government is offering cash incentives to exporters for the export of 35 different items. Items against which cash incentives have been availed frequently are as follows:

  1. Incentives offered to export-oriented RMG industry using local fabrics/yarn in lieu of Bond facility/Duty drawback facility                                                          ——4%
  2. For above-mentioned Export-oriented RMG industry (second pronodona)                          ……..4%
  1. Newmarket 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 funds from B.Bank, and Exporters often need finances for the smooth operation of the export process, Banks, nowadays, keeps a provision for the exporters to offer quard against their claim of the cash incentive. In such cases, AD branches, upon receipt of certification from the audit firm and application for advances from the client, apply 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.

Export financing: Pre-shipment and Post-shipment

Export financing: Pre-shipment and Post-shipment

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