The central bank will introduce international factoring soon to help both exporters and importers run their global trade smoothly, said its Deputy Governor Ahmed Jamal yesterday.
In factoring, banks play a limited role and exporters and importers settle their business with mutual understanding.
International factoring will give a boost to the country’s export and it will also allow importers to settle imports at a lower cost, he said at a workshop on factoring at the Pan Pacific Sonargaon hotel in the capital.
Bangladesh Institute of Bank Management (BIBM) and Factor Chain International (FCI) jointly organised the workshop to educate lenders on how to settle international factoring appropriately.
Some 400 lenders in 90 countries are now using factoring as an alternative to letters of credit.
Factoring takes less time and cost than the existing LC process while settling payments for exports and imports.
In Bangladesh, domestic factoring has been in existence for the last two decades.
A guideline titled ‘Operational Guideline on Domestic Factoring’ prepared by the Bangladesh Bank in 2005 was provided to lenders in order to introduce the financial service locally.
“There is scope for the introduction of international factoring in the country,” Jamal said.
To this end, the central bank has formed two committees: one is core committee and the other technical committee. Both committees are currently working on it, he said.
The technical committee of the BB has already submitted a policy guideline to the authorities, he said.
“We have a plan to issue a circular on international factoring very shortly,” Jamal said.
FCI has observed that there is a continuing and growing interest in factoring in Bangladesh, said its Secretary General Peter Molroy.
“We have been speaking with many of the lenders here over the past few years and we see huge potential for factoring in the market.”
However, there are many obstacles as well, Molroy said.
Factoring plays a very significant role in financing economic activities, said Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a platform of the managing directors of private banks.
Traditionally, it is the SMEs that use factoring, but now many others are following suit.
“International factoring is an important service for companies engaged in the import and export of goods and services,” said Rahman, also the managing director of Dhaka Bank.
North American and European countries now have a fully mature factoring industry.
Factoring has been spreading over time in South America as financial institutions continue to join the industry.
International factoring is present in 10 of the 18 South and Southeast Asian countries.