The Bangladesh Bank guideline on international factoring is designed to facilitate and regulate the practice of international factoring to boost exports. It provides a comprehensive framework for financial institutions and exporters in Bangladesh to engage in this financial service.
International Factoring Overview
International factoring involves a third party, called a factor, who manages the receivables of an exporter. This includes financing, credit protection, accounts receivable management, and collection services. The guidelines detail the different forms of international factoring, such as the Two Factor System, Direct Export Factoring, Direct Import Factoring, and Back to Back Factoring.
Procedures and Compliance
- Repatriation of Export Proceeds: Export proceeds must be repatriated within 120 days of shipment. This rule is in line with the Foreign Exchange Regulation Act (FERA) 1947, ensuring timely receipt of payments for exported goods.
- Shipping Documents: In international factoring, the title to the cargo should favor the importer/buyer. Bangladesh Bank may consider relaxing policies for open account trade to facilitate smoother transactions.
- International Rules: International factoring is governed by the General Rules for International Factoring (GRIF), while traditional export transactions use the Uniform Customs and Practices for Documentary Credits (UCP 600).
- Export Factor Role: Banks and financial institutions need permission to act as export factors. This involves membership in international factoring networks like Factors Chain International (FCI) and adherence to their guidelines.
Benefits
International factoring offers several benefits, including:
- Enhanced cash flow and liquidity for exporters.
- Credit protection against the importer’s inability to pay.
- Efficient receivables management.
- Ability to offer competitive credit terms to foreign customers.
Risk Management
The guidelines emphasize the need for financial institutions to understand the complexities of international factoring, including cross-border transactions and varying legal frameworks. Proper risk assessment and management procedures are essential to mitigate potential issues.
Legal and Documentation Issues
The guideline addresses legal issues pertinent to Bangladesh, noting that a comprehensive legal framework for international factoring is yet to be fully developed. Documentation requirements, including invoice processing and assignment of export invoices, are outlined to ensure clarity and compliance.
Training and Capacity Building
To support the implementation of international factoring, several training programs and workshops have been organized by entities like the Bangladesh Institute of Bank Management (BIBM) and the International Chamber of Commerce (ICC) Bangladesh. These initiatives aim to build the capacity of bankers and ensure they are well-equipped to handle this service.
Conclusion
The guideline by Bangladesh Bank is a strategic effort to integrate international factoring into the export financing ecosystem of Bangladesh. By providing a structured framework and promoting best practices, it aims to enhance the competitiveness of Bangladeshi exporters in the global market.
