Bangladesh Bank lifts 10% retention of advance remittances received against exports

Bangladesh Bank has lifted 10% retention of advance remittances received against exports to facilitate small exporters.

From now on, banks can pay out hundred per cent of advance remittances received from importers against export contracts to the exporters, according to a circular the central bank issued today (25 September).

Advance payment against exports is a method of payment where the foreign buyer pays the exporter a portion or the full amount of the invoice before the goods are shipped, significantly reducing the exporter's risk of non-payment while increasing the buyer's risk.

This method is beneficial for exporters in high-risk situations, such as dealing with new or unreliable customers, and can be processed through wire transfers, credit cards, or other electronic platforms.

Bangladesh Bank eased the advance payment for trade facilitation, aiming to help exporters, said a senior executive of the central bank.

He said previously exporters had to retain 10% of their advance payment with banks until the execution of the export. It is difficult for small exporters as their profit margin is not high. As a result, it becomes difficult for them to execute exports.

In this perspective, the central bank allowed banks to disburse the full amount of advance payment to exporters subject to proper due diligence relevant export performance, he added.

According to the circular, before paying out money against advance payment, banks will maintain certain instructions including: the exporter has received irrevocable LC/contract to execute export against advance payment; the previous export performance of the exporter is satisfactory and the exporter shall have adequate capability to execute the export order; the payment in advance shall not bear any interest; export needs to be executed within a period not exceeding one year from the date of receipt of advance payment.

However, instruction regarding export execution within one-year period will not be applicable for advance payment received against performance bonds or bank guarantees/ standby LCs.

In case of non-execution of export, including issuance of EXP Form against advance payment, ADs may allow refund of advance payment. In this case, ADs shall utilise funds from the Exporters' Retention Quota (ERQ) account first and the remainder from Taka accounts, according to the circular.

Banks were advised to notify their export customers about the change.