Buyer's credit and longer terms

Lesson 16 was about supplier's credit: the foreign supplier itself waits for its money. D-3 opens a second door: buyer's credit. Here a foreign bank or financial institution pays, and the importer repays that lender later.

What does D-3 say?

• Which goods: "the items stated above". In the circular, that points back to the list in D-1: industrial raw materials, LPG, spares, capital machinery and the rest, each with its own usance limit. D-1 itself already says that LPG and capital machinery may come in under supplier's or buyer's credit.
• Who lends: foreign banks and financial institutions.
• Who arranges it: the importer's own designated authorised dealer (AD) in Bangladesh. D-3 speaks of buyer's credits arranged this way, through the importer's AD.
• What interest: "the same interest level". This points back to D-2: usance interest, if any, may bear an all-in-cost ceiling per annum at a mark-up of 3.00 percent over the benchmark rate (such as SOFR or Euribor) for the relevant currency.

So buyer's credit is not a cheaper or looser back door. It is the same goods list and the same interest ceiling, with a different lender. Why might an importer choose it? Perhaps the supplier wants its money now, while a foreign bank is happy to wait. D-3 doesn't discuss the reasons; it simply allows the route, on the same terms.

Picture this. A supplier ships goods under a usance LC. The bill is accepted, so payment is now promised for, say, 180 days later. But the supplier would like the money now. D-4 lets the AD in Bangladesh step in.

What ADs may do

• Purchase (or discount) accepted usance or deferred bills and pay before maturity.
• This covers bills for imports, and for local deliveries under back-to-back LCs.
• Payment is made in foreign currency, or to non-resident Taka accounts where applicable. The circular doesn't list when the Taka route applies; it just says "where applicable".

Why the circular calls it credit

Look at who has paid and who hasn't. The bank has paid early, but the LC applicant in Bangladesh pays only at maturity. In between, the bank's own money is waiting. D-4 says it plainly: these deals effectively are extensions of credit facilities to the parties in Bangladesh. The bank is lending to its customer, even though no loan form was signed.

The guard rails

ADs may discount or purchase such bills:

1. based on the banker-customer relationship;
2. following normal banking practice;
3. subject to due diligence.

Think of a neighbour who asks you to pay his gas bill today, promising to repay you at the end of the month. You'd happily do it for a neighbour you know well, after a quick thought about whether he has ever let you down. A bank does the same, with more zeros and more paperwork.

D-4 itself sets no number here, no limit and no rate. It leaves the decision to the bank's judgement, inside its normal credit discipline.

D-5 is short. Its heading is Reporting on buyer's credit, and it is about sending data to Bangladesh Bank.

The rule

• Who: the Head Offices or Principal Offices of all AD banks. Not each branch on its own.
• What: upload the related data.
• Where: to the Enterprise Data Warehouse.
• How: "as usual manner", following the requirements of the Statistics Department, Bangladesh Bank.

Notice what D-5 does not say. It gives no format, no deadline and no list of fields. Those come from the Statistics Department's requirements, which sit outside this paragraph. The word "usual" also tells us this is not a brand-new job: it is reporting that carries on in the normal way.

One small puzzle: the heading speaks of buyer's credit, while the sentence itself only says "related data". The circular doesn't list exactly which data that covers.

What does this mean for a branch officer? The branch doesn't upload anything itself. But a head office can only report what it is given. A buyer's credit that lives only in someone's notebook is invisible. Complete, correct details sent from the branch are what make the head office's upload right.

D-6 is about longer usance terms. Its sentence, in short, reads: instructions regarding opening import LCs on longer usance terms against supplier's credits obtainable by industrial enterprises in the private sector, as per general or specific approval of the Bangladesh Investment Development Authority (BIDA) or Bangladesh Bank, as the case may be.

This paragraph is short. It names the topic, but it doesn't spell out the instruction in detail, and it doesn't say how long "longer" is. So let's stick to what it clearly links together:

• What: import LCs on longer usance terms.
• Backed by: supplier's credits. D-6 mentions supplier's credits only.
• For whom: industrial enterprises in the private sector.
• On what basis: approval from BIDA or Bangladesh Bank. The approval may be general (a standing approval) or specific (given for one case). "As the case may be" means it depends on the case; the circular doesn't say which case needs which.

How does this fit with D-1? D-1 sets fixed periods, such as 270 days, 360 days and up to 3 years. D-6 speaks of "longer" terms tied to an approval. The circular doesn't spell out the link between the two, so a desk shouldn't invent one.

A simple desk habit follows: when a private industrial customer asks for an unusually long usance and points to D-6, the first question is, "Which approval covers this: general or specific, from BIDA or Bangladesh Bank?"