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Lesson 15 of 42 · Part D · Level 2 · Explained

Checks and safety nets

Before a bank finances an open-account export, it checks the export is real and clean. Then come the safety nets: factoring guidelines, payment risk cover from local insurance companies, and how that cover can bring early money, even for documentary collections.

D-9D-10D-11D-12

In Lesson 14, Documents, deadlines and early money, Evelyn learned how her export documents can travel straight to her buyer in Hamburg, and how her bank can pay her early against a payment undertaking from a designated institution abroad. She left Habib's desk happy. By the evening, a worry had crept in, the way a mosquito finds the one gap in the net.

"Habib bhai," she says on the phone the next morning, "on open account I ship first and wait for my money. What if Hamburg simply doesn't pay? And who checks that everything is clean before the bank puts its money in?"

Habib laughs. "Two good questions, and I know who answers them best." That Thursday, his bank holds a training session for exporters. The speaker is Shirin: 35 years in banking, once head of trade and foreign exchange at a large bank, a certified documentary-credit specialist who now trains bankers. Evelyn repeats her worry. Shirin nods. "Every trapeze artist wants a net. But first, the bank checks the act is real. Let's start there."

Para D-9

Verification of export and compliance with KYC/AML standards

In plain words

Before a bank puts money into an export invoice, it has to be sure there is a real export behind it. D-9 gives the AD two jobs.

  • Check the export is genuine. The AD must be satisfied that the exports shipped from Bangladesh, whose invoices it is financing, are bona fide. In plain words: real goods, really shipped, to a real buyer, at a real price. An invoice with nothing behind it is just a nicely printed piece of paper.
  • Follow the clean-money rules. The AD must comply with KYC and AML/CFT standards. That means knowing who the exporter and the parties to the deal really are, and making sure the deal is not a channel for illegal money.
  • Mind the tax side too. These standards include the applicable tax regulations on relevant expenses payable abroad. If some cost of the deal is paid to someone outside Bangladesh, the tax rules that apply to it must be followed. The circular doesn't list which expenses it means, so the AD applies whatever tax rules cover each one.

Why does this come first? Because every safety net in the rest of this lesson rests on it. Insurance and early money only make sense when the export itself is real.

At the desk

A trader brings Habib an export invoice and asks for early money against it. Habib checks the file and can find no sign that the goods ever left Bangladesh: no matching shipment, nothing from Customs. He tells the trader politely that the bank can't finance the invoice until it is satisfied the export is genuine, and he notes the case for the branch's AML/CFT review.

Key words
Bona fide
Genuine; made in good faith.
KYC
Know Your Customer: checking who the customer really is.
AML/CFT
Anti-Money Laundering / Combating the Financing of Terrorism rules.
Read the rule as written (Para D-9)

ADs shall be satisfied with the bonafide of underlying exports shipped from Bangladesh for which export invoices are to be financed and shall comply with KYC and AML/CFT standards, including applicable tax regulations on relevant expenses payable abroad.

Source: Bangladesh Bank, FEPD-1 Circular No. 26, 30 July 2026, Part D, paragraph 9 (page 23). The original circular is the authority.

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Para D-10

Consultation on international factoring guidelines

In plain words

Factoring is like selling your unpaid invoices to get cash today, instead of waiting for the buyer to pay. It has its own technical side: who carries the risk, how the invoice is handed over, and so on.

D-10 gives ADs a helping hand. For technical support, ADs may consult the Guidelines on International Factoring, prepared by the technical committee on factoring.

Notice the word may. It is a reference book the bank can turn to, not an extra form to fill in. The circular doesn't reproduce the guidelines or say more about the committee, so this lesson doesn't either.

At the desk

Evelyn's buyer suggests that a finance company could buy her invoices. Habib has handled LCs for years but has never set up an international factoring deal. Before he advises Evelyn, he consults the Guidelines on International Factoring prepared by the technical committee on factoring, as D-10 allows, for the technical details.

Key words
Factoring
Selling your unpaid invoices to a bank or finance company (a "factor") to get cash now.
Read the rule as written (Para D-10)

ADs may, for technical support, consult with the Guidelines on International Factoring prepared by the technical committee on factoring.

Source: Bangladesh Bank, FEPD-1 Circular No. 26, 30 July 2026, Part D, paragraph 10 (page 23). The original circular is the authority.

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Para D-11New to the master circular

Payment undertaking/payment risk coverage from local insurance companies

In plain words

In Lesson 14, the payment undertaking came from a designated institution abroad. D-11 adds a home-grown option: ADs may also arrange a payment undertaking/payment risk coverage from insurance companies operating in Bangladesh. Think of it as insurance on the export money: if it doesn't come home, the insurer pays.

1. How the policy works (D-11(a))

  • The policy is issued in foreign currency.
  • The AD pays the premia (the price of the policy) from the exporter's own ERQ account.
  • If the export proceeds are not repatriated, the claim is realised in foreign currency. The arrangements for this must be in place with the insurer beforehand.

2. The insurer's own safety net (D-11(b))

  • An insurer giving this cover must get suitable reinsurance from external sources, as its own regulatory framework requires.
  • ADs may remit the reinsurance premia abroad under Part-H of FE Circular No. 37, dated 30 September 2025, and its later amendments. D-11 only points there; it doesn't repeat those rules.

3. Foreign currency accounts for insurers (D-11(c))

ADs may allow insurers to keep foreign currency accounts. These are parking accounts, used only for:

  1. receiving policy premia;
  2. sending money abroad for reinsurance cover;
  3. receiving money from abroad when claims are settled; and
  4. paying ADs to settle claims on particular exports.

Money in these accounts that is unencumbered (not tied to any of these jobs) must be encashed and moved to the insurer's Taka account. The car is parked, not living there.

4. Early money (D-11(d))

With this insurance cover in place, ADs may give exporters early payment as per paragraph 7 of this Part (D-7, from Lesson 14). The AD may also arrange it through its Offshore Banking Unit, under D(3) of FE Circular No. 11, dated 30 January 2025.

So the chain runs: exporter pays premia from her ERQ account, the insurer covers the risk and reinsures abroad, dollars move through the parking account, and the bank, now feeling safer, can pay the exporter early.

At the desk

Evelyn decides to insure her next open-account shipment to Hamburg with an insurance company operating in Bangladesh. Habib checks that the policy is issued in US dollars and pays the premium from Evelyn's ERQ account. Months later, if Hamburg defaults, the claim will be paid in dollars through the insurer's foreign currency parking account to Habib's bank. Meanwhile, with the cover in place, Habib offers Evelyn early payment as per paragraph 7 of Part D.

Key words
Payment risk coverage
Cover, here from an insurance company operating in Bangladesh, that pays in foreign currency if the export money is not brought home.
ERQ
Exporters' Retention Quota: the share of export earnings an exporter may keep in foreign currency, in an ERQ account.
Reinsurance
Insurance that an insurance company buys for itself, passing part of its own risk to another insurer.
Parking account
An account where money waits only for set purposes, and does not stay for good.
Read the rule as written (Para D-11)

ADs may also arrange payment undertaking/payment risk coverage available from insurance companies operating in Bangladesh.

(a) Operational modalities for such insurance coverage shall be as follows:

(1) Policy for insurance coverage shall be issued in foreign currency;

(2) Policy premia shall be payable by ADs from the ERQ accounts of the respective exporters; and

(3) In case of default in repatriation of export proceeds, insurance claims shall be realized in foreign currency, for which necessary arrangements must be in place with the insurance companies concerned.

(b) Insurance companies extending payment undertaking/payment risk coverage shall obtain appropriate reinsurance coverage from external sources as per their regulatory frameworks. ADs may remit reinsurance premia in terms of Part-H of FE Circular No. 37, dated September 30, 2025 and subsequent amendments.

(c) To facilitate transactions in foreign currency, ADs may allow insurance companies to maintain foreign currency accounts.

(1) The accounts will be treated as parking accounts for:

(i) Receiving policy premia;

(ii) Making outward remittances on account of reinsurance coverage;

(iii) Depositing inward remittances on account of claim settlements from external sources; and

(iv) Making payments to ADs for settlement of claims against respective exports.

(2) Unencumbered funds held in FC accounts need to be encashed and transferred to Taka accounts of respective insurance companies.

(d) Based on insurance coverage under the above authorization, ADs may extend early payment facilities to exporters as per paragraph 7 of this Part. Such early payment may also be arranged by ADs through their Offshore Banking Units in terms of D(3) of FE Circular No. 11, dated January 30, 2025.

Source: Bangladesh Bank, FEPD-1 Circular No. 26, 30 July 2026, Part D, paragraph 11 (page 23). The original circular is the authority.

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Para D-12New to the master circular

Payment undertaking/payment risk coverage for documentary collection

In plain words

Open account isn't the only road where an exporter waits for money. Under a documentary collection on usance terms, the buyer accepts a bill, takes the documents, and pays on a later date. No bank has promised to pay, so the same worry applies: what if the buyer doesn't?

D-12 says the same local insurance cover may also be used for exports under usance terms on documentary collection. And so all the provisions of paragraph 11 (D-11) apply to these exports too:

  • the policy in foreign currency, premia paid from the exporter's ERQ account, and claims realised in foreign currency;
  • reinsurance from external sources for the insurer;
  • the insurer's foreign currency parking accounts; and
  • early payment based on the cover.

One safety net, two roads.

At the desk

Evelyn wins a new buyer who wants to pay 90 days after accepting a bill under a documentary collection. She asks Habib whether the local insurance cover works here too. Habib says yes: D-12 allows it for usance exports on documentary collection, and all the D-11 rules apply, from the foreign currency policy to early payment.

Key words
Documentary collection
The seller's bank sends the shipping documents to the buyer's bank, which hands them over only when the buyer pays or accepts a bill. No bank promise to pay.
Usance
A credit period: the buyer pays a set number of days later, for example 90 days from sight or from the shipment date.
DA
Documents against Acceptance: the buyer accepts a bill to pay later and gets the documents now.
Read the rule as written (Para D-12)

Payment undertaking/payment risk coverage from insurance companies operating in Bangladesh may also be used for exports under usance terms on documentary collection. Accordingly, the provisions at paragraph 11 above shall be applicable for such export transactions.

Source: Bangladesh Bank, FEPD-1 Circular No. 26, 30 July 2026, Part D, paragraph 12 (page 24). The original circular is the authority.

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Putting it together

So far: before financing an export invoice, the AD must be satisfied the export from Bangladesh is genuine and follow KYC and AML/CFT standards, including the tax rules on expenses payable abroad. For technical help on factoring, it may consult the Guidelines on International Factoring. ADs may also arrange payment risk cover from insurance companies operating in Bangladesh: the policy is in foreign currency, premia come from the exporter's ERQ account, insurers reinsure abroad and may keep foreign currency parking accounts, and the cover can support early payment, including for usance exports on documentary collection.

That completes Part D of the export room.

Next: Part E, on electronic presentation of export documents under documentary collections, starts in Lesson 16, Paperless export documents: what's allowed.

Check yourself

30 questions, in 3 sets of up to 10. Nobody sees your answers but you.

Set 1 of 3

1. Before financing export invoices under D-9, what must the AD be satisfied about?
2. Under D-9, which standards must the AD comply with when financing export invoices?
3. What may ADs consult for technical support under D-10?
4. In which currency must a local insurer's payment risk cover policy be issued?
5. Who pays the policy premia, and from which account?
6. If export proceeds are not repatriated, how are the insurance claims realised?
7. Where must an insurer giving payment risk cover obtain reinsurance?
8. Under which rule may ADs remit reinsurance premia abroad?
9. How are the foreign currency accounts that ADs may allow insurance companies to keep treated?
10. Which of these is NOT a listed use of an insurer's foreign currency parking account?

Set 2 of 3

11. What must happen to unencumbered funds in an insurer's foreign currency account?
12. Based on local insurance cover, through which units may ADs also arrange early payment to exporters?
13. Under D-12, for which other exports may local insurers' payment risk cover be used?
14. Which provisions apply to export transactions covered under D-12?
15. What is reinsurance?
16. True or false: Under D-10, ADs must follow the Guidelines on International Factoring as a compulsory step before every export finance.
17. True or false: Under D-11, ADs may arrange payment risk coverage only from insurance companies abroad.
18. True or false: To make foreign currency transactions easier, ADs may allow insurance companies to maintain foreign currency accounts.
19. True or false: Based on local insurance cover, ADs may extend early payment facilities to exporters as per paragraph 7 of Part D.
20. True or false: Local insurers' payment risk cover can never be used for exports under documentary collection.

Set 3 of 3

21. A trader asks Habib to finance an export invoice, but Habib finds no sign that the goods were ever shipped from Bangladesh. What should he do?
22. Evelyn's financing deal includes a cost that must be paid to a party abroad. What must Habib's bank make sure of, under D-9?
23. Habib has never handled an international factoring deal and wants technical help before advising Evelyn. What does D-10 let him do?
24. Evelyn asks Habib to pay her insurance premium from her Taka current account. Under D-11, which account should the premium come from?
25. A local insurer offers Evelyn a payment risk cover policy written in Taka. What should Habib tell her?
26. A buyer defaults, and the insurer's reinsurer abroad sends claim money to Bangladesh. Where can the insurer receive it, under D-11?
27. An insurer's foreign currency account holds some dollars that are not tied to any premium, reinsurance or claim. What must happen to them?
28. Evelyn's open-account shipment is covered by a local insurer's payment risk cover, and she needs cash now. What may Habib's bank do?
29. Evelyn ships to a new buyer under a documentary collection, payable 90 days after acceptance. Can she use a local insurer's payment risk cover?
30. Under a covered documentary collection, Evelyn's buyer fails to pay at maturity. In which currency will the insurance claim be realised?
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