Shipments under open account credit terms will help the exporters access
the appropriate finance and back-to-back payment would be settled on
receipt of final payment on maturity, ICC-B President Mahbubur Rahman
said.
The open account credit policy is a modified version of financing under
factoring and supply chain to exporters against their export with external
payment undertaking.
Bangladesh Bank''s circular issued on June 30 last year on "Conditional
open account transactions" is a good initiative, Rahman said.
However, the only introduction cannot ensure benefits. All stakeholders
need to work to optimise benefits, said the president of International
Chamber of Commerce-Bangladesh (ICC-B).
The facility offered under the change policy has been in operation for the
last seven months. "I understand that the exporters still prefer export
through letters of credit instead of open account," Rahman said.
"We all know that the Covid-19 outbreak, which is still continuing, has
shocked international trade. As a result, the serious challenges of
international trade transactions are getting translated into the disruption
and shrinkage of trade finance; the main driver of economic development."
Rahman made the comments in his written speech in a webinar on "Global
Awareness on Open Account, Export Transactions and Recent Policy
Changes in Bangladesh" on March 18.
Traders, exporters, and importers are facing difficulties with preparing,
shipping, and receiving goods; making and receiving payments;
cancellation of orders and commitment failures; huge cash crunch and
failure to comply with lending institutions'' obligations, he said.
In this evolving and increasingly uncertain environment, banks, traders,
and policymakers have become anxious and skeptical about the
interpretations of ''certain situations of commitment failures'' within the
regulatory frameworks and guidelines.
According to the ICC Global Trade Finance Survey 2020, global trade flows
have trebled from $ 6.2 trillion to $18.1 trillion by end of 2019 – a growth
now widely acknowledged as having been enabled by trade financing.
Trade finance is the oxygen that keeps trade flows alive particularly for
emerging markets like Bangladesh.
According to Bangladesh Garment Manufacturers and Exporters
Association (BGMEA), due to Covid shutdown, international buyers have
either cancelled or suspended $3.16 billion worth of shipments involving
1,142 factories affecting 2.26 million workers.
In fiscal year 2019-20, export earnings have registered a sharp decline of
nearly 17 per cent at $33.67 billion due to cancellation and/or reduced
export orders of garments, which accounts for 84 per cent of total national
exports and 14 per cent of gross domestic product.
During July-February period of the current fiscal year, export receipts have
declined 1.45 per cent year-on-year to $25.86 billion as the surge in Covid
pandemic continues to ravage demand.
With the celebration of 50 years of independence, Bangladesh has stepped
into a new journey as it qualified to graduate into a developing nation from
a least developed country (LDC).
Until 2026, the country will continue to enjoy the trade benefits as an LDC.
However, after graduation Bangladesh will lose the benefits for LDCs, such
as soft loans and export facilities.
Around 70 per cent of Bangladesh''s export is conducted under preferences
given by some developed and developing nations under the LDC criteria.
According to experts, export market diversification will be a major challenge
for Bangladesh in post LDC era.
Simplicity and lower costs are among many advantages of open account
trading but there are risks if things do not go right, said Syed Nasim Manzur,
former president of Metropolitan Chamber of Commerce and Industry
(MCCI).
The export credit guarantee scheme needs to be worked out to reduce the
cost, he said.
Steven Beck, head of trade and supply chain finance of Asian Development
Bank, said ADB continues to work with the central bank and ICC-B in the
transition period from LC to open account.
Prashanta Banerjee, professor and director of Bangladesh Institute of Bank
Management, presented a keynote paper on "Bangladesh Bank Policy on
Open Account Export Transactions and its Impact on Exporters during July
2020 to February 2021.
Rubana Huq, president of BGMEA, said there is a need for underwriting the
risks of Bangladeshi manufacturers right now considering Covid-19.
"So we are facing two aspects here, one we are welcoming open accounts for
selling credit. On the other hand, we are exposing ourselves to further
vulnerabilities."
She said they are going to propose buyers credit rating in order to balance
the two sides.
Huq also said Bangladesh has $8 billion receivable at this point.
Muhammad A (Rumee) Ali, chairman of ICC Bangladesh Banking
Commission and CEO of Bangladesh International Arbitration Centre, and
Md Fazlul Hoque, former president of Bangladesh Knitwear Manufacturers
and Exporters Association, also spoke
Source: The Daily Star, Bangladesh Monday, 22 March 2021