Lesson 21 of 39 · Part G · Level 2 · Explained
Inland back-to-back and Taka LCs
When an exporter buys inputs from a local mill instead of from abroad: inland back-to-back LCs in foreign currency, the supplier's own import LC, the special NBR rule for exporters without a bond licence, and when the LC must be in Taka.
In Lesson 20, Opening a back-to-back LC, Evelyn learned how her Hamburg export LC can carry an import LC for fabric from abroad. She left Habib's branch with a neat checklist and a new respect for the words "net FOB value".
But not every input sails in on a ship. Evelyn's knitting section needs yarn, and the best yarn she knows comes from Arman, who owns a spinning mill in Narayanganj. Arman once sold yarn to a factory in an EPZ, so he is no stranger to export paperwork. "Can I pay Arman with a back-to-back LC too?" Evelyn asks Habib. "He is twenty kilometres away, not two thousand."
Arman has his own question. "If Evelyn's LC is in dollars, can I use it to import my cotton?"
Habib laughs. "Two questions, one answer: inland back-to-back LCs. And today we have someone who knows bonded factories from the customs side." The branch's guest is Shely, a retired Commissioner of Customs. "A bond is a promise," Shely says. "Goods come in for export, and they go out as exports. The circular has a few rules for when those goods change hands inside the country."
This lesson covers G-3 (inland back-to-back LCs, the supplier's own import LC, and exporters without a bond licence) and G-4 (when the LC must be in local currency).
In plain words
G-3 has three parts.
(1) Inland back-to-back LCs in foreign currency
An AD may open inland back-to-back LCs, denominated in foreign exchange, in favour of local manufacturer-cum-suppliers of inputs. They are opened against master export LCs received by export-oriented manufacturing units under the bonded warehouse system.
- The limit: up to the value limits under the prescribed value addition requirement/utilisation permit. The circular doesn't explain the utilisation permit further here.
- Forms: the EXP/IMP form is not applicable in such cases, unless an EPZ, PEPZ, EZ or HTP unit is associated. The circular doesn't say here which form is then used.
(2) The supplier's own import LC
A local manufacturer-cum-supplier working under the bonded warehouse system may, in turn, open a back-to-back import LC for the inputs it needs, against the inland back-to-back LC it has received. The rules of paragraphs 1 and 2 of this section (G-1 and G-2, Lesson 20) apply mutatis mutandis: the same rules, adjusted to fit. So it is a chain: the Hamburg LC supports Evelyn's inland LC to Arman, and Arman's inland LC supports his import LC for cotton.
(3) Exporters without a bond licence
By a decision of the NBR, a manufacturer-cum-exporter without a bonded warehouse licence may open:
- a usance LC, and
- a sight LC, against advance receipts of export proceeds,
in foreign exchange, but only in favour of packaging industries and manufacturers of hangers and plastic goods that themselves work under a bonded warehouse licence. The base may be any type of export contract from abroad: a sales contract, purchase order, proforma invoice and so on.
At the desk
Evelyn opens an inland back-to-back LC in US dollars in favour of Arman's mill, against her Hamburg master LC and within her value limit. Arman, who works under a bonded warehouse licence, then asks his own bank to open a back-to-back import LC for cotton against Evelyn's LC. Shely explains that his bank applies the G-1 and G-2 rules to him, with the details adjusted to fit. Neither factory is in a zone, so no EXP or IMP form is needed for the inland LC.
Key words
- Inland back-to-back LC
- A back-to-back LC in foreign currency opened in favour of a local manufacturer-cum-supplier of inputs, against a master export LC.
- Manufacturer-cum-supplier
- A local business that makes the inputs itself and supplies them, unlike a trader who only buys and resells.
- Mutatis mutandis
- A Latin phrase meaning "with the necessary changes": the same rules apply, with the details adjusted to fit.
Read the rule as written (Para G-3)
(1) Inland back to back LCs denominated in foreign exchange may be opened in favor of local manufacturer-cum-suppliers of inputs, against master export LCs received by export oriented manufacturing units operating under the bonded warehouse system, up to value limits applicable as per prescribed value addition requirement/utilization permit. However, EXP/IMP Form will not be applicable in such cases unless EPZ/PEPZ/EZ/HTP unit is associated.
(2) Back to back import LC against inland Back to back LC: Back to back LC may in turn be opened for import of necessary inputs, against inland back to back LC in favor of a local manufacturer-cum- supplier operating under the bonded warehouse system, in accordance with the instructions, mutatis mutandis, at paragraphs 1 and 2 above.
(3) Opening of LC in FC by exporters operating without bond license: As per decision of the National Board of Revenue (NBR), a manufacturer-cum-exporter operating without bonded warehouse license, may open usance LC and sight LC (against advance receipts of export proceeds) denominated in foreign exchange favoring packaging industries, manufacturers of hanger and plastic goods operating under bonded warehouse license against all types of export contracts (sales contract, purchase order, proforma invoice, etc.) received from abroad.
Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part G, paragraph 3 (page 24). The original circular is the authority.
In plain words
G-4 is short, but it decides the currency of the LC.
Foreign currency, for makers, in the G-3 cases only
Hundred percent export-oriented industries and direct exporters shall open and settle inland LCs in foreign currency in favour of manufacturer-cum-suppliers, and only in the cases set out above in G-3.
Taka, for traders
When they buy inputs from local traders or suppliers, the LC must be opened in local currency only, that is, in Taka.
So the key question at the desk is simple: did this seller make the goods, or just buy and resell them? Arman spins yarn in his own mill, so he is a manufacturer-cum-supplier. A shop in Islampur that buys thread from many mills and sells it on is a trader, so its LC is in Taka. Think of it like buying mangoes: from the orchard owner in Rajshahi, or from the man with the van outside your office. Both sell mangoes, but only one grew them.
At the desk
Evelyn needs sewing thread in a hurry and finds it at a trading shop in Islampur, which buys from several mills and resells. The shop asks for a dollar LC. Habib explains that under G-4, inputs from a local trader are bought with an LC in local currency only, so he opens a Taka LC instead. "The shop sells thread, but it doesn't make it," Shely says with a smile. "That decides the currency."
Evelyn makes a note: makers in dollars, traders in Taka.
Key words
- Taka LC
- An LC opened in local currency (Taka). Under G-4, it is the only kind an exporter may open to buy inputs from a local trader.
- Local trader
- A local business that buys goods and resells them, without making them itself.
Read the rule as written (Para G-4)
Hundred percent export-oriented industries/direct exporters shall open and settle inland LC in foreign currency favoring manufacturer-cum-suppliers in the above cases only. For procuring inputs from local traders/suppliers, LC shall be opened in local currency only.
Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part G, paragraph 4 (page 25). The original circular is the authority.
Putting it together
So far: an exporter under the bonded warehouse system can open an inland back-to-back LC in foreign currency for a local manufacturer-cum-supplier, within her value limit, and no EXP/IMP form applies unless a zone unit is involved. A bonded local supplier can, in turn, open its own back-to-back import LC against that inland LC, under the G-1 and G-2 rules mutatis mutandis. By NBR decision, exporters without a bond licence may open foreign currency usance LCs, or sight LCs against advance export receipts, for bonded packaging, hanger and plastic goods makers. Inputs from local traders are bought with Taka LCs only.
Next: Lesson 22, Paying back-to-back LCs and the input stock. When the bills fall due, what happens if the export goes wrong, and why banks keep an eye on the bond.