Open Trade Bangladesh
Home / Import room / Part G
Lesson 20 of 39 · Part G · Level 2 · Explained

Opening a back-to-back LC

How a garment exporter can use her export LC to open import LCs for fabric and accessories: who qualifies, the value addition limit, net FOB value, usance terms, amendments and the Barter/STA rule.

G-1G-2

In Lesson 19, Software by e-delivery, tenders and export-funded imports, Part F of the import room ended with three special cases. Part G turns to something every garment factory in Bangladesh knows by heart: the back-to-back LC.

Evelyn, who owns a garment factory in Gazipur, has good news. Her long-time buyer in Hamburg has sent a fresh export LC for a big order of T-shirts. Now comes the tricky part. She needs fabric from abroad and a box of accessories before a single shirt can be sewn. "My money is in the Hamburg LC," she tells Habib, the trade officer at her bank's AD branch in Dhaka. "But the fabric supplier wants an LC now. Can my export LC carry my import LC on its back?"

Habib smiles. "That is exactly what a back-to-back LC does. And we have the right guest today." In the meeting room sits Shohag, founder of a garment and textile group and a former leader of an exporters' association. He has opened more back-to-back LCs than he has had cups of tea, which is saying something. "Back-to-back is a gift to exporters," Shohag says, "but it comes with a few strings. Learn the strings, and the gift keeps working."

This lesson covers the first two paragraphs of Part G: the general rule (G-1) and the conditions for opening a back-to-back import LC (G-2).

Para G-1

General

In plain words

G-1 sets the basic permission. An AD may open back-to-back import LCs against export LCs received by export-oriented industrial units that operate under the bonded warehouse system.

So three things must line up:

  • the customer is an export-oriented industrial unit (a factory that makes goods for export);
  • it works under the bonded warehouse system; and
  • it has received an export LC from its buyer abroad, which becomes the base for the import LC.

There is one big condition: the domestic value addition requirement. The Ministry of Commerce sets it from time to time. It is written as a permissible limit: the value of the imported inputs may be only up to a certain percentage of the FOB export value of the finished goods.

Why? Think of a T-shirt sold for 100 dollars' worth of value. If the imported fabric and buttons ate up all 100, Bangladesh would only be a post office for other countries' goods. The rule makes sure part of the value is added here, by local work and local inputs. G-1 doesn't give the percentage itself; that comes from the Ministry of Commerce.

At the desk

Evelyn shows Habib her Hamburg export LC and asks for a back-to-back LC for fabric. Habib first checks that her factory is an export-oriented unit working under the bonded warehouse system. Then he looks up the value addition limit currently set by the Ministry of Commerce for her product. Shohag tells her that the import can be big, but never bigger than the share the rule allows.

Key words
Back-to-back LC
An import LC opened on the strength of an export LC, common in garments.
Bonded warehouse system
A customs arrangement under which an export-oriented factory keeps its imported inputs in a licensed warehouse under customs watch, to be used for making export goods.
Value addition requirement
The limit, set by the Ministry of Commerce, on how much of an export's FOB value the imported inputs may take up, stated as a percentage.
Read the rule as written (Para G-1)

ADs may open back to back import LCs against export LCs received by export oriented industrial units operating under the bonded warehouse system, subject to observance of domestic value addition requirement (stated in terms of permissible limit of value of imported inputs as percentage of FOB export value of output) prescribed by the Ministry of Commerce from time to time.

Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part G, paragraph 1 (page 24). The original circular is the authority.

Ask about this paragraphReport a mistake
Para G-2

Opening of back to back import LC

In plain words

G-2 adds six conditions. They come on top of the general import LC instructions in the earlier sections of the circular, which still apply.

(a) Who qualifies

Only recognised export-oriented industrial units under the bonded warehouse system get the facility. The unit must hold both a valid registration with the CCI&E and a valid bonded warehouse licence. One out of two is not enough.

(b) Enough time on the master LC

The master export LC must stay valid long enough to cover three jobs: importing the inputs, making the goods and shipping them to the consignee. A master LC that expires before the shirts can sail is a weak base.

(c) Not more than the allowed share

The back-to-back LC value must not exceed the admissible percentage of the net FOB value of the master LC, in line with the value addition requirement. The price of the imported goods must also be competitive.

To find the net FOB value, take the master LC value and deduct:

  • the freight charge;
  • the insurance cost; and
  • the commission, if the exporter pays it.

If the master LC doesn't show freight separately, the bank should ask for a certificate from the shipping company or shipping agent.

A quick sum: a master LC of USD 100,000 with USD 6,000 freight, USD 1,000 insurance and USD 3,000 commission paid by the exporter has a net FOB value of USD 90,000. The limit is the admissible percentage of that 90,000, not of the full 100,000.

(d) Pay later, as a rule

Back-to-back import LCs are opened on a usance basis, for a period as set in paragraph 1(1)(a) of Part D. Interest for the usance period must not exceed the rate in paragraph 2 of Part D. (This room met Part D in Lesson 16, Buy now, pay later: supplier's credit.) Two exceptions may be on a sight basis, under the relevant instructions: back-to-back LCs opened against the Export Development Fund (EDF) run by Bangladesh Bank, and/or against balances in NFCD accounts.

(e) Watch the amendments

Every amendment to the master LC must be noted carefully, so the back-to-back LC never promises more than the master LC can support.

(f) Barter and STA

No back-to-back LC against export LCs received under Barter/STA without Bangladesh Bank's prior approval. The circular uses only the short form "STA" here and doesn't spell it out.

At the desk

Evelyn's master LC is for USD 100,000 on CFR terms, but the freight is not shown separately. Habib asks her for a certificate from the shipping agent, which shows USD 6,000 freight. She pays no commission and no insurance under this LC, so the net FOB value is USD 94,000, and Habib applies the admissible percentage to that figure. "Exporters love to quote the big number," Shohag says with a grin. "Banks must work from the net one." He has quoted big numbers himself, so he knows.

Key words
Master LC
The export LC on whose strength a back-to-back LC is opened. Also called the export LC.
Net FOB value
The master LC value minus freight, insurance and any commission paid by the exporter. The back-to-back limit is worked out on this figure.
Competitive price
A price in line with what the same goods sell for in the international market at that time.
Barter
Paying for goods with other goods instead of money.
Read the rule as written (Para G-2)

Further to the relevant general instructions in the foregoing sections of this chapter, the following instructions should be complied with while opening back to back import LCs:

(a) Only recognized export oriented industrial units operating under bonded warehouse system will be allowed the back to back LC facility. The unit requesting for this facility should possess valid registration with the CCI&E and valid bonded warehouse license.

(b) The master export LC (against which opening of back to back LC is requested) should have validity period adequate to cover the time needed for importation of inputs, manufacture of merchandise and shipment to consignee.

(c) The back to back LC value shall not exceed the admissible percentage of net FOB value of the relative master export LC (as per prescribed value addition requirement) and the price of goods to be imported must be competitive. For computation of net FOB value of a master export LC, the freight charge, insurance cost and commission if payable by the exporter shall be deducted from the LC value. If the freight element is not shown separately, a certificate from the shipping company or the shipping agent should be asked for.

(d) The back-to-back import LCs shall be opened on a usance basis for a period in accordance with the provisions stipulated in paragraph 1(1)(a), Part-D of this circular. Interest for the usance period shall not exceed the rate as prescribed at paragraph 2 of Part-D. Back to back LCs opened against (a) Export Development Fund (EDF) administered by Bangladesh Bank and/or against (b) balances on Non-Resident Foreign Currency Deposit (NFCD) Accounts may be on sight basis subject to relevant instructions in this regard.

(e) All amendments of the master export LC should be noted down carefully to rule out chances of excess obligation under the back to- back import LC.

(f) Back to back import LC should not be opened against LCs received for export under Barter/STA, without prior approval of Bangladesh Bank.

Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part G, paragraph 2 (page 24). The original circular is the authority.

Ask about this paragraphReport a mistake
Putting it together

So far: an AD may open back-to-back import LCs for export-oriented industrial units under the bonded warehouse system, within the value addition limit the Ministry of Commerce sets. The unit needs valid CCI&E registration and a valid bonded warehouse licence; the master LC must have enough validity; the back-to-back value stays within the admissible share of net FOB value at a competitive price; the LC is on usance under Part D (sight only for EDF or NFCD-funded cases); amendments are tracked; and Barter/STA cases need Bangladesh Bank's prior approval.

Next: Lesson 21, Inland back-to-back and Taka LCs. What happens when the inputs come not from abroad but from a mill down the road.

Check yourself

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

Set 1 of 3

1. Under G-1, against what may an AD open back-to-back import LCs?
2. Who prescribes the domestic value addition requirement mentioned in G-1?
3. How is the domestic value addition requirement stated in G-1?
4. True or false: G-1 permits an AD to open back-to-back import LCs for eligible units; it does not say the AD must open one for every request.
5. Which kind of customer does G-1 have in mind for back-to-back LCs?
6. What is a back-to-back LC?
7. A trading house with no factory and no bonded warehouse holds an export order and asks Habib for a back-to-back LC. What fits G-1?
8. Evelyn wants a back-to-back LC for imported fabric worth almost the whole FOB value of her export LC. What does Habib check first?
9. Under G-2(a), which two documents must a unit hold to get the back-to-back facility?
10. Evelyn's bonded warehouse licence expired last month and the renewal is still pending. She asks Habib to open a back-to-back LC today. What should he do?

Set 2 of 3

11. True or false: a unit with a valid CCI&E registration but no bonded warehouse licence can still get the back-to-back facility under G-2(a).
12. Under G-2(b), the master export LC's validity must be long enough to cover what?
13. Evelyn's master LC expires in three weeks, but her fabric will take six weeks just to arrive. What is the problem under G-2(b)?
14. When working out the net FOB value of a master LC, which items are deducted from the LC value?
15. A master LC is for USD 100,000. Freight is USD 6,000, insurance USD 1,000, and the exporter pays USD 3,000 commission. Habib works out the net FOB value for Evelyn. What is it?
16. Evelyn's master LC is on CFR terms, but it doesn't show freight separately. What should Habib ask for?
17. Under G-2(c), the back-to-back LC value must not exceed what?
18. True or false: under G-2(c), as long as the back-to-back value fits within the limit, the price of the imported goods doesn't matter.
19. A fabric supplier quotes Evelyn a price far above what the same fabric sells for in the world market, though the total still fits within her limit. What does Habib point out?
20. In the net FOB sum, when is commission deducted from the master LC value?

Set 3 of 3

21. On what basis are back-to-back import LCs normally opened under G-2(d)?
22. For the usance period of a back-to-back import LC, which provision does G-2(d) point to?
23. What does G-2(d) say about interest for the usance period?
24. Which back-to-back LCs may be on a sight basis under G-2(d)?
25. True or false: a back-to-back LC opened against the Export Development Fund may be on a sight basis, subject to the relevant instructions.
26. Evelyn's fabric supplier wants a sight LC. The LC won't be funded from EDF or NFCD balances. What fits G-2(d)?
27. The Hamburg buyer amends Evelyn's master LC to cut the quantity by a fifth. What should Habib do under G-2(e)?
28. Why must all amendments to the master LC be noted carefully, according to G-2(e)?
29. A customer brings an export LC received under a Barter arrangement and asks for a back-to-back import LC. What must Habib's bank have first?
30. True or false: an AD may open a back-to-back LC against an export LC received under Barter without Bangladesh Bank's prior approval, as long as the value addition limit is met.
Found this useful? Pass it on.

Brain feeling full? Take a tea break.