Bangladesh Bank yesterday introduced international factoring, a development that can be viewed as a mode of accelerating the country’s exports and reduce exporters’ risk of collecting their products’ worth.
This new method is a form of payment guarantee for exporters, according to a central bank notice.
The country’s exporters currently have to undertake sales contracts without payment guarantees from foreign importers. As a result, exporters face the risk of payment defaults by importers.
From now on, banks dedicatedly running foreign exchange related businesses will be allowed to let exporters ship goods on sales contracts under open account credit terms within the statutory period, if otherwise not extended, from the date of shipment.
This means exports will be executed against payment undertaking or payment risk coverage by international factoring companies or foreign banks for settlement of export bills.
The policy is a simplified version of financing under factoring and supply chain to exporters against their export with external payment undertaking.
The costs by exporters against payment undertaking or payment risk coverage and interest with relevant charges for early payment shall not exceed a 6-month London Interbank Offer Rate (LIBOR) plus 3.50 per cent annually, the notice said.
The policy would keep exporters free from the risk of payment default, said Prashanta Kumar Banerjee, a professor and director of the Bangladesh Institute of Bank Management.
Businesses are now forced to go for exports on sales contracts without payment guarantees where some risks remain on getting their earnings.
But the factoring will cover the risk and the importer’s bank will provide the payment in case of failure of the importer to make the payment on time, he added.
The factoring helps importers as they do not need to invest money before receiving the products. This is why a good number of foreign importers had earlier showed reluctance to import goods from Bangladesh due to the absence of the factoring method.
But from now on they will show interest in importing products from Bangladesh due to the latest initiative.
The policy will help exporters have access to appropriate finance up to the need in terms of local value addition. Back-to-back payment will be settled on receipt of final payment on maturity, the central bank said.
Banks have been allowed to extend early payment facilities to exporters on non-recourse basis out of their own funds against payment undertaking and payment risk coverage from external sources, as per the notice.
