BB asks banks to expedite alternative trade mechanisms

The central bank has asked banks to expedite the use of alternative trade finance mechanisms, signaling a gradual shift from the country's heavy reliance on traditional Letter of Credit (LC) arrangements.
Under the new framework, authorised dealer (AD) banks are permitted to facilitate a broader range of trade finance instruments.
These include advance payments, open account exports, and documentary collection methods such as Documents against Payment (DP) and Documents against Acceptance (DA), according to notification issued by the Bangladesh Bank (BB) on Thursday.
While reaffirming that LCs remain a valid and widely accepted instrument, the central bank acknowledged the growing importance of complementary tools such as open account trade, documentary collection, and supply chain finance (SCF), including reverse factoring and supplier/buyer financing.
The circular also allows import transactions without LCs under purchase and sales contracts, subject to compliance with applicable regulations and without imposing payment obligations on banks unless separately contracted.
A key focus of the circular is the promotion of structured SCF solutions. Banks are encouraged to introduce reverse factoring arrangements, enabling suppliers to receive early payments against invoices approved by creditworthy buyers, thereby improving cash flow across the supply chain.
To modernize trade processes, the central bank has also encouraged the adoption of digital trade documentation systems. Electronic documents, including invoices and transport records, may be accepted subject to proper verification, legal validity, and appropriate risk assessment.
The initiative is expected to enhance efficiency in trade financing, improve liquidity for exporters and importers, and strengthen Bangladesh's integration into the global trading system, while maintaining necessary regulatory safeguards, according to business insiders.

siddique.islam@gmail.com