RMG buyers' dominance leaves exporters at bay
Saturday, 21 July 2007
Jasim Uddin Haroon
Bangladesh's export market is increasingly becoming buyer-dominant while the country is subjected to sellers' market terms and conditions.
This was revealed in a research study conducted by the Bangladesh Institute of Bank Management (BIBM).
As result, local exporters are facing problems in receiving international payments as the overseas buyers and suppliers are choosing payment methods that are best suited for them.
But, the overseas suppliers prefer transaction through safety method like documentary credit or L/C as they export or supply raw materials.
Local banks are also losing income from fees and charges by following such methods, which is cost effective for overseas sellers or buyers, the study claimed.
There are four kinds of international payment methods, such as cash in advance, open account, documentary collection and documentary credit or LC.
The study shows that there are mainly two dominating prevailing collection methods in the country. These are documentary collection and documentary credit or L/C.
Apart from this, limited use of open account and cash in advance are also existed despite the fact that the country's existing foreign exchange manual does not approve it.
The greater use of LCs in the country as the main method of payment is required by the country's regulation.
In 2005, some 89 per cent of import payment was made through LCs and more than 11 per cent of import payment was settled through the documentary collection, the report claimed.
Toufic A Chowdhury, professor of the BIBM, who conducted the study jointly with Shah Md Ahsan Habib said documentary collection was below 5.0 per cent few years back.
Some 76 per cent export payment was made through documentary credit and 23 per cent through documentary collection, the study report said.
This means the use of documentary collection method is much prominent in case of export receipts.
The documentary collection is cheaper but less protective from the sellers (exporters) point of view.
The research was made through a sample survey and four sets of questionnaire circulated to the banks, exporters and importers.
The survey has been administered in nine major branches of nine commercials commercial banks and authorised dealers branches of two nationalised commercials banks and one private commercial bank.
Managing director of National Bank Limited M Aminuzzaman said the sample survey area was enough for such a study.
The local traders do not normally incorporate dispute clauses in the contract payment systems or documentary collection system, said bankers.
"I found that most of the contracts lacked dispute clauses. So, the overseas buyers have chances to skip payment," Toufic A Chowdhury elaborating the risks involved in the collection method said.
Mamun Rashid, managing director and country officer of Citigroup Bangladesh, said the world's leading buying houses are dictating local exporters and raw material importers for following short-cut methods to cut their costs.
Bangladesh's export market is increasingly becoming buyer-dominant while the country is subjected to sellers' market terms and conditions.
This was revealed in a research study conducted by the Bangladesh Institute of Bank Management (BIBM).
As result, local exporters are facing problems in receiving international payments as the overseas buyers and suppliers are choosing payment methods that are best suited for them.
But, the overseas suppliers prefer transaction through safety method like documentary credit or L/C as they export or supply raw materials.
Local banks are also losing income from fees and charges by following such methods, which is cost effective for overseas sellers or buyers, the study claimed.
There are four kinds of international payment methods, such as cash in advance, open account, documentary collection and documentary credit or LC.
The study shows that there are mainly two dominating prevailing collection methods in the country. These are documentary collection and documentary credit or L/C.
Apart from this, limited use of open account and cash in advance are also existed despite the fact that the country's existing foreign exchange manual does not approve it.
The greater use of LCs in the country as the main method of payment is required by the country's regulation.
In 2005, some 89 per cent of import payment was made through LCs and more than 11 per cent of import payment was settled through the documentary collection, the report claimed.
Toufic A Chowdhury, professor of the BIBM, who conducted the study jointly with Shah Md Ahsan Habib said documentary collection was below 5.0 per cent few years back.
Some 76 per cent export payment was made through documentary credit and 23 per cent through documentary collection, the study report said.
This means the use of documentary collection method is much prominent in case of export receipts.
The documentary collection is cheaper but less protective from the sellers (exporters) point of view.
The research was made through a sample survey and four sets of questionnaire circulated to the banks, exporters and importers.
The survey has been administered in nine major branches of nine commercials commercial banks and authorised dealers branches of two nationalised commercials banks and one private commercial bank.
Managing director of National Bank Limited M Aminuzzaman said the sample survey area was enough for such a study.
The local traders do not normally incorporate dispute clauses in the contract payment systems or documentary collection system, said bankers.
"I found that most of the contracts lacked dispute clauses. So, the overseas buyers have chances to skip payment," Toufic A Chowdhury elaborating the risks involved in the collection method said.
Mamun Rashid, managing director and country officer of Citigroup Bangladesh, said the world's leading buying houses are dictating local exporters and raw material importers for following short-cut methods to cut their costs.