Eastern Bank (EBL) yesterday rolled out a novel export factoring solution -- just the day after the central bank issued the guideline for it -- as part of its efforts to reduce the risks that Bangladeshi exporters face when it comes to collecting their goods' worth.
Called the export factoring solution, the new method will also help exporters avail payments faster than what current practices allow.
EBL is the first lender in Bangladesh to introduce it. The bank signed a letter of intent with German-headquartered trade finance provider Tradewind GmbH on Wednesday to make the service initially available to the country's garment exporters.
Under the agreement, the bank will collaborate with Tradewind for export factoring where local exporters will be able to obtain their deferred receivables from overseas importers, said an official of the lender with a strong understanding on the matter.
The process is faster, more secured and will protect the interests of Bangladeshi exporters while supporting the garment sector's ambitions in becoming a leader in the textile manufacturing and sourcing world.
This new method is a form of payment guarantee for exporters.
The country's exporters currently have to undertake sales contracts without payment guarantees from foreign importers. As a result, exporters face the risk of payment defaults by importers.
Under the factoring solution, Tradewind will provide the payments to the exporters on behalf of the importers.
Exporters will get their earnings soon after their products are shipped.
The factoring solution would keep exporters free from the risk of a payment default.
This means Tradewind will provide the payments to the exporters irrespective of whether the importers make the payments on time or not.
Meanwhile, insurance companies will cover the risk of Tradewind.
An exporter currently has to wait for anything from 15 to 20 days to up to several months to get paid for their goods, but the latest method will help them avail it just after the products have been shipped.
The costs by exporters against payment undertaking or payment risk coverage and interest with relevant charges for early payment shall not exceed a six-month London Interbank Offer Rate (LIBOR) plus 3.50 per cent annually, according to the central bank notice.
The initiative will provide huge relief to the country's exporters as they will be able to conduct business without the fear of being left unpaid, said Ali Reza Iftekhar, managing director of EBL, whose export volume is now about $1.5 billion per year.
"Initially, we will provide the facility only to our clients. Customers of other banks will get support from the factoring in the near future by way of using our platform."
Tradewind is also a company with a good reputation and track record, Iftekhar said.
The company is regulated by the German Federal Financial Supervisory Authority, which began its journey 20 years ago and has since expanded its global presence to over 20 offices across 13 countries in four continents.
"We strongly hope that the amount will increase to a great extent riding on the latest method," said Iftekhar, also the chairman of the Association of Bankers, Bangladesh, a forum of bank CEOs.
EBL, which started its business in 1992, will try to introduce a domestic factoring solution in the days ahead.
Presently, the bank provides trade finance solutions at home and abroad through its Hong Kong subsidiary, named EBL Finance (HK), and has representative offices in Myanmar and Guangzhou, China.
EBL has won Euromoney Best Bank in Bangladesh on three consecutive years starting 2016 for its professionalism, prudence and growth.
It also won a Best Corporate and Investment Bank accolade from Asiamoney three times and the Best Bank in Bangladesh in 2017 and Best Investment Bank of Bangladesh in 2019 by FinanceAsia.