The country’s apparel manufacturers and exporters, who use local raw materials, are facing difficulties in procuring inputs due to Bangladesh Bank’s mandatory rule to have bond licences for opening back-to-back letters of credit (L/Cs), industry people have said.
They have alleged that a number of banks have recently declined to allow knitwear, woven, terry towel, home textile and similar other manufacturers and exporters to open local L/Cs on the ground of not having valid bond licences.
In fact, the customs bond commissisionarate under the National Board of Revenue (NBR) issues such licence to exporters for securing bonded warehouse facility to import raw materials without duties and taxes.
However, a few banks are still serving their clients through ‘special’ arrangements, in case the validity of their bond licences expires or if they face other problems, according to a senior executive of a private commercial bank.
“As we understand, procurement of raw materials from local factories shouldn’t require bond facilities as the materials are directly shipped from one factory to another within the country. So, we don’t think any bond licence is required in these cases,” the banker explained to The Financial Express on Tuesday, requesting anonymity.
The bank executive acknowledged that a bond licence is a mandatory document under Bangladesh Bank rules to open a back-to-back LCs in foreign currencies against master export LCs for procurement of law materials, even from the local sources.
Given the exporters’ business challenges, the apparel sector trade bodies, in a joint letter to the Bangladesh Bank governor, Fazle Kabir, recently, urged relaxation of the rules for removing the complexities in procuring raw materials locally.
The trade bodies are: Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Bangladesh Textile Mills Association (BTMA) and Bangladesh Terry Towel and Linen Manufacturers and Exporters Association (BTTLMEA).
BGMEA president Rubana Huq, BTMA president Mohammad Ali Khokon and BTTLMEA chairman M Shahadat Hossain signed the letter that sought a meeting with the governor to discuss the issues.
BTMA president Mohammad Ali Khokon said that the requirement of a bond licence has slowed down the export process. “We want to get rid of these legal complexities.”
The exporters are required to have a bond licence for opening local back-to-back L/Cs in foreign currencies against export L/Cs, according to the Foreign Exchange Rule and Regulation-2018 [Chapter-7, section-III, Para-4- (a)].
The apparel exporters argued that perhaps there is no need to have bond licences to ensure whether they procure and preserve raw materials under special arrangement and use them as per procedure.
“Currently, some 40 per cent of woven exporters, 60 per cent of knitwear exporters, 70 per cent of home textiles exporters and 95 per cent of terry towel exporters procure 100 per cent of their raw materials from local sources,” the apparel exporters mentioned in the letter.
The industry insiders also alleged that the exporters have to face unusual harassment in obtaining bond licences from the customs as they have to bribe the officers to get the job done.
The NBR introduced the bond licence for facilitating export-oriented industries to import raw materials for manufacturing products under duty-free facility and export them.
“We think, the bond licence is necessary against export L/Cs for the importers of raw materials to ensure preservation of those under special arrangement, proper use and monitoring, and re-export,” the letter reads.
Many of the apparel exporters did not obtain bond licences as they do not need to import raw materials, it said.
The exporters said the country’s backward linkage industry is strong enough now to supply raw materials for the apparel sector.
Faisal Samad, senior vice president of BGMEA, said many of the industries are procuring yarn and other raw materials from local sources now.
The banks might have taken additional cautionary measures and enforced strictly the requirement as the exporters open back-to-back L/Cs under Utilisation Declaration (UD), he added.
BTTLMEA chairman M Shahadat Hossain said the exporters have been using local raw materials for the past 10-15 years. “We have written the joint letter to the governor requesting relaxation of the policy,” he said.
As per the BB rules, he said, the exporters will be able to claim cash incentives for using local raw materials.
According to section 40, subsection (a) of the foreign exchange regulation, the exporters having bonded warehouse licence can procure raw materials against their master L/Cs from local manufacturers-cum-exporters in foreign currency through opening local back-to-back L/Cs.
Under subsection (b), local manufacturers-cum-exporters having bond licences can procure raw materials against their local back-to-back L/Cs, if needed against foreign back-to-back L/Cs, under certain conditions.
In keeping with the regulations, a manufacturer-cum-exporter can procure packaging, hanger, plastic products against export order by opening usance L/Cs and sight L/Cs in foreign currency.
Under the policy, 100 per cent export-oriented industries or direct exporters can procure raw materials from local manufacturers-cum-exporters by opening back-to-back L/C in foreign currencies.
However, they will have to use local currency for procuring raw materials from local suppliers or businessmen.