Shipments under open account credit terms will help the exporters access the appropriate finance and back-to-back payment would be settled on receipt of final payment on maturity, ICC-B President Mahbubur Rahman said.
The open account credit policy is a modified version of financing under factoring and supply chain to exporters against their export with external payment undertaking.
Bangladesh Bank's circular issued on June 30 last year on "Conditional open account transactions" is a good initiative, Rahman said.
However, the only introduction cannot ensure benefits. All stakeholders need to work to optimise benefits, said the president of International Chamber of Commerce-Bangladesh (ICC-B).
The facility offered under the change policy has been in operation for the last seven months. "I understand that the exporters still prefer export through letters of credit instead of open account," Rahman said.
"We all know that the Covid-19 outbreak, which is still continuing, has shocked international trade. As a result, the serious challenges of international trade transactions are getting translated into the disruption and shrinkage of trade finance; the main driver of economic development."
Rahman made the comments in his written speech in a webinar on "Global Awareness on Open Account, Export Transactions and Recent Policy Changes in Bangladesh" on March 18.
Traders, exporters, and importers are facing difficulties with preparing, shipping, and receiving goods; making and receiving payments; cancellation of orders and commitment failures; huge cash crunch and failure to comply with lending institutions' obligations, he said.
In this evolving and increasingly uncertain environment, banks, traders, and policymakers have become anxious and skeptical about the interpretations of 'certain situations of commitment failures' within the regulatory frameworks and guidelines.
According to the ICC Global Trade Finance Survey 2020, global trade flows have trebled from $ 6.2 trillion to $18.1 trillion by end of 2019 – a growth now widely acknowledged as having been enabled by trade financing.
Trade finance is the oxygen that keeps trade flows alive particularly for emerging markets like Bangladesh.
According to Bangladesh Garment Manufacturers and Exporters Association (BGMEA), due to Covid shutdown, international buyers have either cancelled or suspended $3.16 billion worth of shipments involving 1,142 factories affecting 2.26 million workers.
In fiscal year 2019-20, export earnings have registered a sharp decline of nearly 17 per cent at $33.67 billion due to cancellation and/or reduced export orders of garments, which accounts for 84 per cent of total national exports and 14 per cent of gross domestic product.
During July-February period of the current fiscal year, export receipts have declined 1.45 per cent year-on-year to $25.86 billion as the surge in Covid pandemic continues to ravage demand.
With the celebration of 50 years of independence, Bangladesh has stepped into a new journey as it qualified to graduate into a developing nation from a least developed country (LDC).
Until 2026, the country will continue to enjoy the trade benefits as an LDC.
However, after graduation Bangladesh will lose the benefits for LDCs, such as soft loans and export facilities.
Around 70 per cent of Bangladesh's export is conducted under preferences given by some developed and developing nations under the LDC criteria. According to experts, export market diversification will be a major challenge for Bangladesh in post LDC era.
Simplicity and lower costs are among many advantages of open account trading but there are risks if things do not go right, said Syed Nasim Manzur, former president of Metropolitan Chamber of Commerce and Industry (MCCI).
The export credit guarantee scheme needs to be worked out to reduce the cost, he said.
Steven Beck, head of trade and supply chain finance of Asian Development Bank, said ADB continues to work with the central bank and ICC-B in the transition period from LC to open account.
Prashanta Banerjee, professor and director of Bangladesh Institute of Bank Management, presented a keynote paper on "Bangladesh Bank Policy on Open Account Export Transactions and its Impact on Exporters during July 2020 to February 2021.
Rubana Huq, president of BGMEA, said there is a need for underwriting the risks of Bangladeshi manufacturers right now considering Covid-19.
"So we are facing two aspects here, one we are welcoming open accounts for selling credit. On the other hand, we are exposing ourselves to further vulnerabilities."
She said they are going to propose buyers credit rating in order to balance the two sides.
Huq also said Bangladesh has $8 billion receivable at this point.
Muhammad A (Rumee) Ali, chairman of ICC Bangladesh Banking Commission and CEO of Bangladesh International Arbitration Centre, and Md Fazlul Hoque, former president of Bangladesh Knitwear Manufacturers and Exporters Association, also spoke.