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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:
- 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
q Receipt of shipping
documents
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 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
- 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
(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
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:
- Limit US$500,000.00 for single import bill.
- Aggregated amount US$100,00,000.00 to single importer.
- Interest LIBOR + 1% and 10% for interim period
- 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
Ø L/C opening statement under
EDF daily
Ø 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)
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Dr. MBL General Account on Nostro (for interest
amount)
Cr. I/A interest on EDF
Cr. I/A Exchange gain
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