An Insight into Import Financing in Bangladesh - ICMAB



An Insight into Import Financing in Bangladesh Adiba Nazia

Lecturer, Department of Marketing, Premier University, Chittagong

Abstract Import financing is a vital requirement of the import firms for smooth handling of operations. Commercial banks of all types are involved in various degrees of import financing based on their availability of foreign exchange and attitude towards risks. Various firms of import financing programs can be availed by the import firms subject to their credit worthiness and bank-client relationship. Bangladesh has to make more import payments to the Asian overseas suppliers than those of suppliers from other developed countries. Import financing problems are found to vary from the bank and client's point of view. Clearly, well-thought policy measures can help the financially unsound import firms to utilize the available import financing facilities in Bangladesh. Keywords: Creditworthiness, L.C. margin, liquidity of commercial banks, core competencies, PAD, LTR, LIM, charter party and exchange control.


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Introduction: Import financing accounts for the lion's share of a country's foreign trade financing. It needs to be made available by banks on easy terms and conditions to facilitate the smooth import operations in a country. Each import deal has huge amount of financial involvement, which many import firms cannot afford to arrange from their own or institutional fund. This is why, they are to rely heavily on banks or other financial institutions for the supply of import finance. Keeping this in view, most commercial banks have devised import financing programs on various terms and conditions. These banks have designed programs to offer import credit to the clients at various stages of import transaction. In essence, import firms must possess sufficient creditworthiness to make use of the import financing facilities of banks. A cordial bank-client relationship is also a sine-qua-non for availing import financing of the commercial banks. In Bangladesh, public banks have been working side by side with the foreign commercial banks and local private banks to serve the financial market. Most of these banks are found to offer import credit through the letter of credit mechanism. These banks have established relationship with the foreign banks to handle import financial transactions smoothly and efficiently. The entire import financing operations are guided and controlled by Bangladesh Bank's foreign exchange control operations and import policy.

The Research Problem: Despite the fact that banks tend to have positive attitude towards providing import credit to the clients because of comparatively less perceived risks in such credit, all import firms cannot avail the import financing programs of banks smoothly as per their needs. The paucity of foreign exchange at the disposal of banks often creates bottlenecks in providing LC-based import financing. In case of margin to be paid to the banks by clients for opening letter of credit, commercial banks are found to show discriminatory behavior. LC margin is found to vary from 10 to 100 percent depending upon the bank-client relationship and perceived risk in each export transaction. Clearly, this is contrary to the interest of small importers and natural justice. The import of goods in planned quantity atthe right time is inhibited due to strict foreign exchange and customs rules. Rathor B.S. and Rathor J.S. (1993) comment that the


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Government of India has simplified the customs laws and procedures as a part of its trade liberalization policy. But the scenario in Bangladesh is not similar. As a consequence of failure of the importers to import in right time; scarcity is often created in the domestic market of Bangladesh for many essential goods. Many import firms complained that price stability in the market is hampered due to non-availability of import finance from the banking channel. Some banks also experienced liquidity problems making it difficult to assist the import firms financially. In the interest of steady national growth, this problem of liquidity shortage needs to be addressed at the earliest opportunity. It is true that banks possessing executives with adequate knowledge and strong skill-base in foreign exchange handling are capable of rendering efficient import financing services. The number of bank branches equipped with such core competencies is extremely limited resulting in import financing problem for the clients. Newspaper reports reveal that the import firms are dissatisfied with high interest rate on different types of import financing along with various miscellaneous charges, which definitely lead to the escalation of import costs and resulting eventually in price hike of the imported goods in the domestic market. The inflation witnessed sharp increase during the past days due to increase in the price of imported goods. Under such situation, consumer sufferings can be easily understood. Bangladesh is an import-dependent country. It has to import goods for catering to the national scarcity in the supply of essential goods, import of raw materials, accessories and machineries to foster the industrialization process. Its import expenditure has been increasing rapidly. In the backdrop of the situation, the country is in need of efficient, diversified, effective and time befitting import financing programs. But at present, it seems to be lacking greatly in the country. It can be said that our banking system is lagging far behind the expectations of our import firms in respect of import financing. Large import firms also allege that their import financing needs cannot usually be met without syndicate import financing. The above scenario clearly hints that an exhaustive study on import financing in Bangladesh may be undertaken to enrich the existing literature. This induced the researcher to embark upon this study.

Literature Review: Daniels J.D., Radebaugh L.E. and Sullivan D.J. (2009) define, "Importing is the process of bringing goods, services into a country and results in the importer paying money to the exporter in the foreign country". Import financing is an integral part of import operations, which aims at procuring the needed fund at the right time from the bank or specialized financial institution for meeting the financial obligation to the foreign supplier or export firm for the import of goods. Goldsmith H. R. (1980) opines that at the time of approaching bank for import financing, the firm should give an accurate personal financial statement along with definite projection of cost and profit analysis so as to convince the bank about the firm's capability to avail import financing. In the opinion of Das U.C., Mozumder M. A., Rahman M. M. and Islam S.M. M. (2006), the major portion of import financing is extended through letter of credit which is comprised of the following five major steps: 1) 1) Issuing of letter of credit through issuing bank. 2) Advising of letter of credit through the negotiating bank. 3) Amendment in letter of credit through mutual negotiation between the import and export firms. 4) Presentation of letter of credit through the issuing bank. 5) Settlement of claims of exporter through the issuing bank. The post-import financing facilities are also rendered by commercial banks. The following four forms of post-import finance are commonly found: ■ ■ ■ ■

PAD (Payment against document) LTR ( Letter against trust receipt) HP (Hire purchase) Contract sale

to the C&F agents. ■ Internal transportation costs after the clearance of goods from the port to destination. ■ Bank's interest and other service charges payable on import financing. ■ Margin to be deposited to the bank for the issue of letter of credit. ■ Warehousing charges for the imported goods. ■ Costs associated to deal with the exchange rate fluctuation risks. From the above lists of cost heads for imports, it is evident that the financial requirements for imports must be precisely estimated, collected from most appropriate sources that minimize the costs and ensure smooth handling of import transactions of the import firms. However, Khan A.R. (2009) is of the opinion that before extending any form of loan including import financing, bank authority should undertake critical examination of the eight step credit analysis including: "a) collecting loan information of the applicant, b) collecting business information for which loan is sought, c) collecting the primary risks related information, d) assembling all credit information together, e) analyzing sensitive risky credit information, f) analyzing refined and very essential risk information, g) making decision on the basis of loan analysis, h) design the appropriate loan structure according to the positive decision."

Research Objectives of the Study: This study aims at highlighting the focal aspects of import financing in Bangladesh. Specifically it intends to achieve the following research objectives: ■

Clearly, import firms are to depend on the bank's import financing programs to meet the following import costs:■

■ ■

Costs of import goods to be paid to the foreign supplier. Freight charges involved in transporting imported merchandise. Insurance cost on the imported goods. Import duties and port charges for the imported merchandise. Commission and other charges to be paid


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To bring into focus the different import financing programs offered by the commercial banks of Bangladesh. To examine the different categories of import financing payments that is in vogue in the country. To analyze the L.C. based import financing performance of commercial banks of the country. To identify the problems faced by banks and customers regarding import financing. To suggest some measures that may help improve the overall import financing in Bangladesh.

Research Methodology: In order to conduct the study in compliance with the pre- determined research objectives, the researcher mainly used secondary sources of data. The publications of Bureau of Statistics, Bangladesh Economic Review, Annual Publications of Commercial banks, Bangladesh Bank Reports, research articles and text books concerning the research issue furnished useful secondary data. The collected data were verified to make sure that these are reliable and usable. The collected data were properly analyzed to derive relevant findings. A standard format was followed to present the findings in a research paper. This article is based on these findings written in a systematic manner.

Importance of the Study:

import financing. This made the research efforts very difficult. ■ This study had to be completed in the midst of serious academic pre-occupations of the private university in which the researcher has been working. As such, ample devotion was not possible to complete the study within short time. ■ There is a severe shortage of research articles on import financing not only in the context of Bangladesh, but also from the perspective of other countries. This made the task of literature review on the research issue in a systematic way quite arduous. ■ The study could not cover all important aspects of import financing of commercial banks operating in Bangladesh due to nonavailability of concerned data..

In view of acute shortage of literature on import financing in Bangladesh, students pursuing higher studies in Finance and Marketing cannot acquire up-to-date practical knowledge on the subject. Hopefully, this study may help to reduce this shortage of literature in the field and is expected to enlighten the students. In fact, import financing programs and practices need to be well-designed to meet the needs of import firms in Bangladesh. The findings of this study may assist in achieving need-based qualitative improvement in the import financing programs and procedures so that large and small import firms in Bangladesh may gain the easy access to the import credit facilities and thereby complete the import transaction properly for the benefit of the import firm and the nation as a whole.

Types of Import Financing Program Offered by Different Commercial Banks:

It is often complained that a lot of manipulations occur in the process of import financing. In a bid to overcome this problem, this study may provide invaluable inputs for making right decision at the right time. Moreover, as the maiden research study, this is expected to improve the research capability of the author.

At first, the import firm has to apply for the issue of Letter of Credit Authorization Form (LCAF) to its bank. The bank will issue LCA Form if it is satisfied regarding the business status and reputation of the applicant. It must be accompanied with the following required documents:

Limitations of the Study: The study was conducted in the midst of various constraints. The following limitations of the study are worth mentioning: ■

It has been found difficult to elicit classified statistics on import financing from the banks. Other publications also do not provide detailed data on various aspects of


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LC-based Import Financing: Import financing to the clients is basically extended by means of letter of credit mechanism. Under this method, letter of credit is opened in favor of import firm to provide financial guarantee to the foreign supplier of goods or export firm regarding the payment of necessary import dues to the beneficiary on compliance of certain terms and conditions as stipulated in the letter of credit. To avail LC-based import financing, the importer is required to follow certain formalities as specified in the exchange control rule of Bangladesh Bank.

Pro-forma" Pro-forma Invoice supplied by the export firm or indent issued by indenting firm. Import Registration Certificate (IRC) duly renewed. Marine Insurance Policy issued by an approved General Insurance Company regarding the coverage of marine risks of the imported merchandise with money

receipt and KHA form. ■ Assigned documents of the applicant that the bank is authorized to have the pledge of document and goods covered by the credit. ■ IMP form duly signed. ■ Attested copy of TIN and Vat Certificate. Then the bank will evaluate the LCA Form along with the supporting documents to ensure that the financial position and credit worthiness of the importing firm is quite satisfactory and the imported merchandise has good demand in the market. Meanwhile the credit report of the overseas supplying firm will also be procured through the exporters' bank or negotiating bank. Based on satisfactory report from the Trade Financing Department, the bank authority will accord permission to open letter of credit subject to LC margin decided by the bank authority depending upon the bank-client relationship and business reputation of the client. The finalized letter of credit is then typed in several copies so that this can be sent to the exporters' bank or any other negotiating bank and the import firm. The letter of credit must be signed by the authorized executives of the bank before dispatching it to various parties through registered air mail or any other telecommunication mode. After receiving LC the exporter bank will ask the export firm to verify LC conditions thoroughly to make sure that these are in conformity with the import/export contract. Any point of discrepancies needs to be identified, raised and settled with the import firm through the issuing bank of LC. If all points of disagreement are settled amicably between the export firm and importer, then the exporter will confirm the letter of credit through its bank. The confirmed letter of credit will then guide all phases of the import transaction. In this regard, the export firm should be extremely careful to ensure strict compliance of letter of credit terms and conditions to complete the transaction successfully and receive the payment from importers. The payment is made in foreign exchange as specified in the letter of credit. For this purpose, the importer is asked by the concerned bank to deposit the balance amount after deducting LC margin from total amount of payment to be made to the foreign supplier. The importer is also in need of paying interest due on credit and other charges to the bank. It is the responsibility of the issuing bank to convert the local currency into specified foreign currency for


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onward payment to the export firm by using banking channel. Notably, the import firm may often need postimport finance because of its inability to make due payment. In such case, the import firm may pray any of the following forms of post-import financing facilities subject to compliance of documentary formalities. This should be completed before opening letter of credit for avoiding future eventualities in paying to foreign suppliers. The programs are: ■

Loan against Imported Merchandise (LIM): This is basically an import loan provided to the clients against the imported merchandise. Under this arrangement, the bank asks for a margin from the client and the ownership of the imported goods will be retained by the bank until the full payment of loan by the client. Loan against Trust Receipt (LTR): In case of inability of a renowned importer to make payment in due date, the bank extends loan against trust receipt.Under this credit arrangement, the import documents are handed over to the import firm without any amount or paying partial amount on the signing of a trust receipt. The import firm commits to make the payment of loan within 60 to 90 days from the sale proceeds of the imported merchandise. Hire Purchase: Under this form of financing, the loan becomes operative from the date of purchase of relative foreign currency or from the date of investment of bank funds, as the case maybe and is provided for a period of 180 days to 360 days. The import firm gets the opportunity to pay the loan amount on a fixed installment basis. Payment against Document (PAD): This form of import loan is created for 21 days, the time being the tolerance for taking documents for the import firm. If the import firm fails to take delivery of the documents, the imported merchandise can be sold by the bank to recover the loan amount.

Non LC-based Import Financing: All import transactions do not take place under the coverage of letter of credit. There exists other forms of import financing in the business world, but in all import transactions where foreign exchange transfer is involved, the services of

authorized foreign exchange dealing bank are used. The non LC-based alternative forms of import financing are elucidated below: ■

Financing From the importer's own fund: These are many wealthy import firms possessing adequate foreign exchange in their foreign currency accounts. These firms have accumulated the amount from their profit in import transaction or export transaction or from their purchase of foreign remittance. If such firms have sufficient trading reputations, the foreign supplier may be willing to supply merchandise without LC coverage. In such case, the importer will import the goods by following the import rules or import policy guidelines or enter into import contract without LC coverage. If the supplier does not perceive business risks in such transaction, goods will be shipped as per the contract, documents will be sent to enable the importer in clearing the goods from the port. The import firm will then send the payment from its foreign exchange account by means of draft or pay order by using the bank services.

Supplier's credit to the import firm: There are import firms which are capable of enjoying the supplier's credit facility because of their business acumen or marketing prudence. The supplier may also like to depend on such firms for their export marketing. Under this arrangement, the export firm will supply the goods and send the export documents to the import firm to facilitate clearance from the port. Here the importer gets the opportunity to make the payment after marketing the goods in domestic market within the credit period. This is most beneficial form of financing for the importer, although it enhances the credit risks of the export firm.

Import financing under the baggage rules: Bangladeshi citizens working abroad can import certain goods into Bangladesh at different time intervals under the baggage rules as specified in the import policy. Bangladeshi people travelling abroad are also provided with the opportunity to import certain household, usable goods up to a certain amount provided they stay abroad for certain specified period. This importer pay for the goods by using traveler cheque or foreign exchange that they have earned abroad or foreign currency endorsed in the passport from the domestic commercial bank. Table-1: Import Payments by Category of Financing: Modes of Import Payment A B C D E

Import under Cash (C&F) Import under Loans and Grants (C&F) Import under IDB Loan Other Unclassified Imports (C&F) Import of EPZ (C&F) Grand Total

2008-2009 (Taka in crore)

2009-2010 (Taka in crore)

2010-2011 (Taka in crore)

2011-2012 (Taka in crore)

Total of Four Average Years Import Percentage Payment of Four years







578.0 4782.2

376.4 5764.9

322.1 9651.3

1711.5 13950.7

2988 34149.1

0.36% 4.06%

509.7 8956.0 154821.2

564.4 9774.9 164243.4

931.5 15273.1 240027.9

862.2 16774.3 280965.7

2867.8 50,778.3 840058.2

0.34% 6.04% 100%

Source: Computed from Bangladesh Bank Statistics Import financing under switch trading: Under switch trading transaction, an import firm enters into import contract with a foreign supplier for the procurement of foreign merchandise. In order to facilitate payment to the export firm from foreign source, the import firm then finalizes another export deal with a foreign buyer and asks the buyer to make the payment to the foreign supplier after the receipt of the merchandise. In such transaction, the import firm can earn certain margin of profit, if the export deal is made at reasonably higher price.

From the above table, it is evident that import under cash (C&F) is the main form of financing imports contributing 89.20% of import payment in Bangladesh. It is followed by import of EPZ(6.04%), import under IDB loan (4.06%) and import under loans and grants (0.36%) respectively.


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Basically banks provide finance to the import under cash through letter of credit mechanism. Import under IDB loan is used for meeting public sector imports. The export firm operating in EPZ performs import operations under back to back letter of credit facility. Imports under loans and grants are used mainly by the public sector but some private sector import firms also conduct import operation under this financing mode. Table-2: Import Payments of Bangladesh with top 10 countries Sl no. 1 2 3 4 5 6 7 8 9 10

Major countries 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Total of Average % of 5 years total 5 years (In million US Dollar) India 3393 2864 3214 4569 4743 18783 13.71% People's Republic of China 3137 3452 3819 5918 6440 22766 16.61% Singapore 1273 1768 1550 1294 1710 7595 5.54% Japan 832 1015 1046 1308 1455 5656 4.13% Hongkong 821 851 788 777 703 3940 2.87% Taiwan 478 498 542 731 792 3041 2.22% South Korea 620 864 839 1124 1544 4991 3.64% USA 490 461 469 677 709 2806 2.05% Malaysia 451 703 1232 1760 1406 5552 4.05% Other countries 10134 10031 10239 15500 16014 61918 45.18% Total 21629 22507 23738 33658 35516 137048 100%

Source: Computed from Bangladesh Bank Statistics Table-2 depicts that China is the main supplying country representing 16.61 percent of total imports for Bangladeshi imported goods during the period from 2007-08 to 2011-2012. India secured second position (13.71%), Singapore third (5.54%), Japan fourth (4.13%) and Malaysia fifth (4.05%) position in respect of supplying imported goods to Bangladesh. In fact, major portion of import expenditures are made to the Asian countries. Affluent western countries occupy insignificant position as the supplying nations of Bangladeshi imported goods. This is mainly because of cost considerations. Table-3: Import LC opened by Commercial Banks in Bangladesh (In million Taka) Public Banks Name of the Bank Sonali Bank Janata Bank Agrani Bank Rupali Bank Total Foreign Banks Name of the Bank Standard Chartered Bank Habib Bank State Bank of India Commercial Bank of Cylon National Bank of Pakistan City Bank N. A Uri Bank HSBC Bank Alfalah Total

Import LC Opened 2011 2012 307478 287287 197285 188283 268768 189628 69263 45108 842794 710306

Total of Two years Average Percentage

2011 126085 3576 2245 19568 4477 69699 8678 195900 4899 435127

Total of Two years Average Percentage 295104 29.74% 6369 0.64% 6796 0.68% 43007 4.34% 11299 1.14% 125892 12.69% 18425 1.86% 474896 47.86% 10395 1.05% 992183 100%

2012 169019 2793 4551 23439 6822 56193 9747 278996 5496 557056

594765 385568 458396 114371 1553100

38.3% 24.83% 29.51% 7.36% 100%

Source: Computed from Bank and Financial Institution Division, Ministry of Finance, GOB Statistics The above table depicts that two types of commercial banks are involved in opening letter of credit for the import firms of different categories. Four public banks have strong involvements in import LC opening despite some variationsAmong the public banks,Sonali Bank represented(38.30%), Agrani Bank(29.51%), Janata Bank(24.83%) and Rupali Bank(7.36%) of public banks' L.C. opening. Amongthe total contributions of foreign banks in this regard,HSBC accounted for 47.86%,followed


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by Standard Chartered(29.74%), City Bank N.A.(12.69%), Commercial Bank of Cylon(4.34%) and other foreign banks represented less than 2% of L.C.opening of that category. Table-4: Import LC opened by Commercial Banks (Private Banks) in Bangladesh (In million Taka) Name of the Bank Pubali Bank Uttara Bank AB Bank The City Bank Islami Bank IFIC Bank UCBL ICB Islami Bank EBL NCC Bank Prime Bank Southeast Bank Dhaka Bank Alarafa Islami Bank Social Islami Bank Dutch Bangla Bank Merchatile Bank Standard Bank One Bank Exim Bank Bangladesh Commerce Bank Mutual Trust Bank Premier Bank Bank Asia Trust Bank Shahjalal Islami Bank Jamuna Bank Brac Bank Total

Import LC Opened 2011 2012 90569 108120 33038 35419 79463 100370 43474 58420 301207 284587 71517 80710 90920 94844 549 992 100639 103171 55044 45283 174384 168532 99509 111537 71377 76650 76112 71930 34975 42712 83434 108878 95008 113434 45356 48500 53831 57690 128446 143314 7389 5426 36945 39426 44165 35357 99414 106746 38429 43138 82341 111837 55907 57705 5610 11203 2099052 2208241

Total of Two years

Average Percentage

198689 68457 179833 101894 585794 152227 185764 1541 203810 100327 342916 211046 148027 148042 77687 192312 208442 93856 53831 271760 12815 76371 79522 206160 81567 194178 113612 16813 4307293

4.61% 1.59% 4.18% 2.37% 13.6% 3.53% 4.31% 0.04% 4.73% 2.33% 7.96% 4.9% 3.44% 3.44% 1.8% 4.46% 4.84% 2.18% 1.25% 6.31% 0.29% 1.77% 1.85% 4.79% 1.89% 4.51% 2.64% 0.39% 100%

Source: Computed from Bank and Financial Institution Division, Ministry of Finance, GOB Statistics It is found from Table-4 that twenty eight commercial banks in Bangladesh played very crucial role in opening letter of credit for the import firms. Among them, the share of Islami Bank of Bangladesh was (13.6%), Prime Bank (7.96%), EXIM bank (6.31%), Southeast Bank (4.90%) Merchantile Bank (4.84%), Bank Asia (4.79%), EBL (4.73%), Pubali Bank (4.61%), Shahjalal Islami Bank (4.51%) and AB bank (4.18%) were found to have major involvements in import LC opening. Other private commercial banks have less than 4% contributions to L.C. opening of this segment. The above scenario is due to less perceived risks in import financing. It is true that opening letter of credit does not necessarily mean the extension of import financing by commercial banks. When the import firms are incapable of making payments to the foreign suppliers even after complying all the LC conditions and provisions of import contracts, the commercial banks usually come forward to extend import loan to the concerned import firms.


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Problems of Import Financing in Bangladesh: There existsome inhibiting factors of import financing both for the commercial banks and import firms dealing with such banks. These bottlenecks hinder the smooth functioning of the import firms to perform import operations. It is true that many import firms become discouraged in import trade due to these impediments. The problems of import financing in Bangladesh are discussed from the above two perspectives:

Margin of LC

Firms' Bankruptcy

Inadequate fund position Breach of commitment

Problem of opening large LC

Absence of advisory services

export documentation

Paucity of skilled executives

Non co-operation by commercial banks

Import Financing Problems faced by commercial banks a. Problem of depositing margin of LC: Commercial banks normally charge high margin for opening letter of credit from the import firms especially when banks are not satisfied with the credit-worthiness after making financial and economic analysis of the clients. The import firms intend to open letter of credit with reasonable margin because they may not possess adequate ready cash to deposit as L.C margin in the bank. b. Problem of paying fund to the export firm due to breach of commitment: The problem arises when the export firm does not comply with the terms and conditions of letter of credit. In such case, payment of money as per LC commitment becomes different for issuing banks of letter of credit. This often results in litigation problem for the import firm.


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c. Bankruptcy of the import firms: If the import firm becomes bankrupt for various reasons, the LC issuing bank has to face enormous problems to recover its outstanding dues. Sometimes, the bank is compelled to sell the imported merchandise under its pledge or any other mortgaged assets to recover the money. This process is also not so easy to handle. These problems affect the bank's financial solvency, if the bank is not careful about maintaining the security aspects of the import loans. d. Paucity of highly qualified and skilled executives to handle import financing: Many commercial bank branches are not well-equipped with qualified and competent executives capable of dealing in import financing related foreign exchange operations. So, it may not be possible for such bank branches to provide time-befitting and need-based import financing services to their clients. Obviously, such banks loose the opportunity of earning significant amount of revenue from import financing operations in such situations.

Import Financing Problems faced by the import firms: a. Inadequate fund position: Import firms need to posses sound financial background to handle import trade smoothly. But some firms cannot spend needed fund for this purpose. These firms do not have adequate credit worthiness to attract the commercial banks in lending for import trade. Traditionally, commercial banks come forward to open letter of credit (LC) for the wealthy and large importers where banks do not perceive so much credit risks. b. Problem of opening letter of credit of large amount: There are someimportfirms associated with bulk import of goods like charter party. Such import transaction calls for opening letter of credit of unusually large amount. Most commercial banks cannot provide such huge amount of L.C. opening facility without syndicate financing. Paucity of foreign exchange/ liquidity problem in banks usually creates such problem.

c. Problem of export documentation resulting in bottlenecks in import financing: Import firms are to face problem in the clearance of goods from the Customs & Port Authority, if there exists errors in export documentation. This eventually creates problem in the completion of import transaction through payment to the foreign suppliers by LC opening bank. When the goods are not at the disposal of the bank authority, release of import finance from the bank cannot be ensured. d. Non co-operation and procrastination in the opening of letter of credit by commercial banks: Reportedly, import firms do not often get proper support from the bank officials regarding the opening of letter of credit despite possessing credit worthiness by the clients. This happens when the bank officials intend to gratify their selfish ends through speed money. This is definitely very undesirable act. The bank officials should also recognize that this may hamper their institutional business reputation in the competitive banking sector. e. Absence of proper advisory services on import financing: New and experienced import firms are in need of proper advisory services to simplify the processing of import financing. Very few banks usually render such services for the benefit of importers. As a result, such import firms are found to commit various mistakes in complying with documentary formalities for import financing. This causes delay in the opening of letter of credit for import along with their natural consequences.

Some Recommendations for Improving the Effectiveness of Import Financing in Bangladesh: As a matter of fact, public and private commercial banks in Bangladesh are largely involved in import financing. In view of ever increasing demand for import finance in Bangladesh, the whole process needs to be streamlined. Towards this end, the following recommendations may be worthmentioning:


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Improvement of supply position in the foreign exchange market: It is true that paucity of foreign exchange hinders import operations. The imbalance between demand and supply position gives rise to increasing price of foreign exchange making imports relatively more expensive. As such, Bangladesh Bank may come forward to enhance the supply position of different foreign currencies in the foreign exchange market to improve the position. Margin for opening letter of credit should be rationalized: Presently, importers are found to face discriminatory behavior from the banks as regards to the margin to be deposited for opening letter of credit, which is found to vary from 10 to 100 percent. Bangladesh Bank may prepare a set of well-thought guidelines to overcome this problem of LC margin for the benefit of importers. Capacity building of banks in the handing of foreign exchange operation including import financing: Foreign exchange operations represent a vital component of bank services. For extending this service efficiently, bank executives must be equipped with modern knowledge, skills and technical know-how by means of offering tailor-made training programs by the authorized foreign exchange dealing banks. This will help in the capacity building of banks in the area of foreign exchange transaction and in avoiding mistakes as far as possible. Malpractices of banks regarding import financing must be ironed out: It has been found that import firms are to suffer due to various malpractices of the bank officials, willful delay in the opening of letter of credit, use of speed money for processing of import financing application, unreasonable charges from the importers, lack of supportive mentality can be avoided if the bank authority enforces strong code of ethics in dealing with in import financing cases. Introduction of modern communication and service rendering devices in the foreign exchange department: In various facets of import financing, modern IT devices should be introduced for increasing overall efficiency of the service. Communication of letter of credit to the negotiating banks, negotiation regarding LC conditions, conformation of letter of credit and payment of import bills are the areas where modern IT devices should be employed specially in those banks where there exist room for improvement.

Developing hearty banking relationship with foreign banks in important parts of business world: For handling import trade systematically and effectively, there is a need for developing sound relationship with foreign banks which can operate as negotiating banks for the bank issuing letter of credit. This relationship building can facilitate prompt handling of import operations including the payment aspects. Strict adherence to Bangladesh Bank guidelines in processing import financing: The foreign exchange department of the bank must follow the Bangladesh Bank guidelines strictly to avoid any future problem in the management of import financing. Bank officials dealing in foreign exchange must be thoroughly conversant with these rules and in evaluating application for letter of credit. All points must be examined with utmost care and prudence. This may also help to protect national interest. Strengthening advisory services by the bank for the new and inexperienced import firms: New and inexperienced import firms experience problems in handing various aspects of import financing. These firms need sound advisory services from banks to handle all technical aspects precisely. Bank officials in the foreign exchange department can work as helping hand to assist these firms. For this purpose, technically sound team must work in the advisory cell of the foreign exchange department of the bank.

Conclusion: Import trade in Bangladesh is essentially bank financed business operations. This type of bank financing is extended to the import firms through the instrument of letter of credit, which reduces the foreign suppliers' business risk because of the financial guarantee of the importers bank for paying import duties on fulfillment of certain conditions as laid down in the letter of credit. Although banks have different forms of import financing programs, many small and financially unsound import firms cannot reap the benefits of such credit programs. The efficiency and timely conduct of import operations in Bangladesh depend largely on the availability of import financing on easy terms and conditions.


ISSN 1817-5090,VOLUME-43, NUMBER-3, MAY-JUNE 2015

Since Bangladesh has to rely heavily on import trade for meeting her deficiency in essential food items, various types of raw materials, machineries and accessories for industrialization and other logistic items for developing infrastructure, the issue of import financing should receive maximum attention of the national policy makers in the banking sector. If the present impediments in the flow of import financing can be overcome, the cherished goal of Bangladesh for achieving more than 7 percent growth rate in GDP may hopefully be materialized through the joint efforts of public and private sectors.

References: Rathor B.S. and Rathor J. S., (2005) "Export Marketing", Himalay Publishing House, Delhi, 3rd Edition, p-631 Daniels J.D., Radebaugh L.E. and Sullivan D.J. (2009), "International Business: Environments and Operations", Pearsons International Edition, 12th Edition, p-543. Goldsmith H. R.(1980) "Import/Export: A Guide to Growth, Profits and Market Share", Prentice Hall, Englewood Chiffs, New Jersy, USA, p-135 Das U.C., Mazumder M.A, Rahman M.M. and Islam S.M.M. (2006), "Export Import Management", CBO Publication (Pvt) Ltd, Dhaka, 2nd Edition, pp-486-487. Khan A.R. (2009) "Bank Management: A Fund Emphasis", Brothers Publications, Dhaka, 1st Edition, p-170. Ministry of Finance, Government of Bangladesh, "BankInsurance and Financial Institutions Operations: 20112012". Statistical Publication, Bangladesh Bank, Dhaka.

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An Insight into Import Financing in Bangladesh - ICMAB

IMPORT An Insight into Import Financing in Bangladesh Adiba Nazia Lecturer, Department of Marketing, Premier University, Chittagong Abstract Import...

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