Drafts are unconditional order in writing showing exporter’s order for importer to pay at once

(sight draft) or in future (time draft) including three functions are clear evidence of financial
instrument (i.e. may be converted to a banker’s acceptance) Drafts are four types:

a. Sight
b. Deferred
c. Clean (no documents required)
d. Documentary

Open account

An arrangement between the buyer and the seller whereby the goods are manufactured and
delivered before payments is required. The benefits of open accounts are greater flexibility in
making a trade and lower transactions costs. On the other hand, the major disadvantage is
highly vulnerable to government currency controls.

3.3 Letter of Credit

Letter of Credit is a guarantee or undertaking or commitment to the beneficiary/exporter for
making payment issued by the issuing bank on behalf of the importer upon fulfillment of some
conditions. Central Banks, therefore, assure these things to happen simultaneously by opening
Letter of Credit guaranteeing payments to seller and goods to buyer. By opening a Letter of
Credit on behalf of buyer in favor of seller, commercial banks undertake to make payments to
a seller subject to submission of documents drawn on in strictly compliance with Letter of
Credit terms giving title of goods to the buyer. It is a conditional guarantee. The Letter of Credit
thus constitutes one of the most important methods of financing foreign trade. In the Import
Policy Order 2003-2006 Letter of Credit denoted as – “Letter of Credit” means a letter of credit
opened for the purpose of import under this Order.’’

The expression “Documentary Credit(s)” and “Standby Letter(s)” means any arrangements,
however named, or described, whereby a bank (“the issuing bank”) acting at the request and
on the instruction of a customer (the “Applicant”) or on its own behalf,

 Is to make a payment to or the order of a third party (“the Beneficiary”), or is to accept

and pay bills of exchange (Draft’s) drawn by the Beneficiary, or
 authorizes another bank to affect such payment, or to accept and pay such bills of
exchange (Draft(s)), or
  authorizes another bank to negotiate,
 Against stipulated document(s), provided that the terms and conditions of the Credit
and complied with.

On the other hand, Letter of credit can be defined as a “Credit Contract” whereby the buyer’s
bank is committed (on behalf of the buyers) to place an agreed amount of money at the seller’s
disposal under some agreed conditions.

3.3.1 Parties involves in L/C

Buyer/ Applicant Who applies for L/C

Issuing Bank It is the bank which open/Issues a L/C on behalf of the
importer
Advising/ Notifying Bank It is the bank through which the L/C is advised to the
exporters. This bank is actually situated in exporter’s country.
It may also assume the role of confirming and/or negotiating.
Bank depending upon the condition of the credit.
Seller/ Beneficiary The party, normally supplier of the goods, in whose favor the
L/C is opened.
Confirming Bank It is the bank which adds its confirmation to the credit and it
is done at the request of issuing bank. Confirming bank may
or may not be advising bank.
Negotiating Bank It is the bank, which negotiates the bill and pays the amount
of the beneficiary. The advising bank and the negotiating
bank may not be the same. Sometimes it can also be
confirming bank.
Accepting Bank It is the bank on which the bill will be drawn (as per condition
of the credit). Usually, it is the issuing bank.
Paying/ Reimbursing Bank It is the bank, which would reimburse the negotiating bank
after getting payment instructions from issuing bank.
3.3.2 Types of Letter of Credit

There are many types of Letter of Credits that are used in different countries of the world.

But International Chamber of Commerce (ICC) vides their UCPDC- 500, which denotes only
two types of Letter of Credits; mentioned:

A revocable credit may be amended or cancelled by the issuing bank at any moment and
without prior notice to the beneficiary. That is to say, this type of letter of credit can be revoked
or cancelled at any time without consent of or notice to the beneficiary. In case of seller
(beneficiary), revocable credit involves risk, as the credit may be amended or cancelled while
the goods are in transit and before the documents are presented, or although presented before
payments has been made. The seller would then face the problem of obtaining payment on the
other hand revocable credit gives the buyer maximum flexibility, as it can be amended or
cancelled without prior notice to the seller up to the moment of payment buy the issuing bank
at which the issuing bank has made the credit available. In the modern banking the use of
revocable credit is not widespread.

In this case the issuing banks must perform the following two roles:

 Reimburse another bank with which a revocable Credit has been made available for
sight payment, acceptance or negotiation – for any payment, acceptance or negotiation
made by such bank – prior to receipt by it of notice of amendment or cancellation,
against documents which appear on their face to be in compliance with the terms and
conditions of the Credit.
 Reimburse another bank with which a revocable Credit has been made available for
deferred payment, if such a bank has, prior to receipt by it of notice of amendment or
cancellation, take up documents which appear on their face to be in compliance with
the terms and conditions of the Credit.

Irrevocable Letter of Credit

An irrevocable credit is a documentary credit, which cannot be revoked, varied or

changed/amended or cancelled without the consent of all parties- buyer (Applicant), seller
(Beneficiary), Issuing Bank, and Confirming Bank (in case of confirmed Letter of Credit).
Irrevocable Credit gives the seller greater assurance of payments, but he/she remains dependent
on an undertaking of a foreign bank. In the issuance of Irrevocable Letter of Credit both the
Issuing and Conforming Bank have some liability, mentioned bellow, as per UCPDC -500:
The following types of Letter of Credits are used in the Pubali Bank PLC.

Deferred L/C

Under a deferred L/C the beneficiary does not receive payment when his presents the
documents but at a later date specified in the credit. On presenting the required documents, he
received the authorized banks written undertaking to make payment of maturity. In this way
the importer gains possession of the documents before being debited for the amount involved.

In terms of its economic effect a deferred payment credit is equivalent to an acceptance credit,
except that there is no bill of exchange and therefore no possibility of obtaining money
immediately through a descant transaction. In certain circumstances, however, the banks
payment undertaking can be used as collateral for an advance, though such as advance will
normally only be available from the issuing or confirming bank. A discountable bill offers
wider scope.

3.3.3 Documents needed from Importer for opening L/C

 Prescribed L/C Application and Agreement form duly stamped and signed.
 A set of LCAF duly filled & signed.
 MP form in duplicate duly signed.
 Pro-forma Invoice (PI) Indent duly accepted.
 Marine Insurance Cover Note along with original Money Receipt in case of import
under CFR/FOB
 Valid membership Certificate from a registered local Chamber of Commerce &
Industries or any registered association where the respective Importer belongs.
 IRC evidencing payment of fee for current year i.e. duly renewed.
 Tax Identification Number (TIN) Certificate
 PSI related papers (where PSI) required.

3.3.4 Procedure of opening L/C

There are some steps involves in L/C process. These are describing here below.

 The importer and exporter have made a contract before opening a L/C.
 The importer applies for a L/C from his banker known as the issuing bank. He may
have to use his credit lines.
 The issuing bank opens the L/C that is channeled through its overseas correspondent
bank, known as advising bank.
 The advising bank informs the exporter of the arrival of the L/C.
 Exporter ships the goods to the importer or other designated place as stipulated in the
L/C.
 Meanwhile the exporter also prepares his own documents and collects transport
documents or other documents from relevant parties. All these documents will be sent
to the banker, which is acting as the negotiating bank.
 Negotiation of export bills happens when the banker agrees to provide him with finance.
In such case he obtains payment immediately upon presentation of documents. If not
the documents will be sent to the issuing bank for payment or on an approval basis as
in the next step.
 Documents are sent to the issuing bank for reimbursement or payment.
 Issuing bank honor, it’s undertaking to pay the negotiating bank on condition that the
documents comply with the L/C terms and conditions.
 Issuing bank releases documents to the importer when the letter makes payment to the
former or against the letter of trust receipt. The importer takes delivery of goods upon
presentation of the transport documents.

3.3.5 Important features of an L/C Charges

 Country of origin of goods.

 Currency and amount.
 Date and place of expiry of the documentary credit.
 Description of goods and quantity.
 Documents required for negotiation.
 Instruction for negotiating bank.
 Last date of shipment.
 Letter of credit authorization (LCA) number, IRC (Import Registration Certificate)
number and Harmonized System (H.S.) Code.
 Mode of carrying Air/Ship/Truck Name and address of beneficiary Name and
address of advising bank.
  Name and address of the applicant.
 Name of issuing bank and branch
 Number of letters of credit and date of opening
 Payment term-sight/Deferred.
 Period of negotiation
 Period of presentation
 Port of loading and port of discharge
 Reimbursing bank and payment mode
 Terms and conditions regarding transshipment and partial shipment
 Insurance clause
 B.L clause
 Other clauses as required as per Import Policy Order and as per contract executed
in between buyer and seller.

3.3.6 Documents used in Documentary Credit

1. Bills of lading
2. Airway bill
3. Truck receipt
4. Commercial invoice
5. Bills of exchange
6. Insurance cover note
7. Inspection certificate
8. Certificate of origin
9. Packing list
10. Pro-forma invoice

Bills of Lading

Bills of Lading are showing „shipped on board‟ and it has to be properly endorsed to the bank.
A bill of lading specified states that goods are loading for ultimate destination specifically
mentioned in the credit. It also constitutes a document that is, or may be, needed to support an
insurance claim.
The Bills of lading includes:

 A description of the goods in general terms consistent the credit

 Identification of marks and numbers, if any.
 The name of carrying vessel Evidence that the goods have been loaded on board.
 The names of shipper, consignee and name & address of the notifying party
 Whether freight has been pain or is payable at destination.
 The number of original bills of loading issued the date of issuance.

Commercial Invoices

 It has to be verified that the commercial invoice has been properly drawn and signed
by the beneficiary according to the terms and conditions of L/C.
 The beneficiary should properly invoice
 The merchandise date.
 Name and address of the buyer and the seller.
 The importer license or IRC number of the importer indents registration number and
number letter of credit Authorization number are incorporated in the invoice

Bills of Exchange

The most important instrument in international trade by which seller can obtain the payment
from the buyers for the invoice value of goods is bill of exchange.

Inspection Certificate

This is usually issued by an independent inspection company located in the exporting country
certifying or describing the quality, specification or other aspects of the goods, as called for in
the contract and/or the L/C. the buyer who also indicates the type of inspection he wishes the
company to undertake usually nominates the inspection company.

Packing List

This is unique documents and not combined with other documents. This is a listing of the
contents of each package, cartoon etc. and other relevant information.
Insurance Document

Insurance is a contract whereby the insurer is undertaking to indemnify the assured to the
agreed manner and extent against fortuitous losses. Insurance document generally contains the
following information:

 The name of the insurer or his agent

 The name of the ship/carrier
 The name of assured.
 The subject matter of insurance
 The time and/or voyage insured.
 The peril (s) insured against

Pro-forma Invoice

Pro-forma Invoice (PI) is the sale contract between seller and buyer in export-import business.
There is slight difference between indent and PI. The sales contract, which direct
correspondence between importer and exporter, is called Pro-forma Invoice (PI).

Pro-forma Invoice/indent is a form of quotation to a potential buyer, inviting him to buy the
goods on stated terms. It should be clearly stated that it is Pro-forma and if it is accepted the
details are normally transferred to a commercial invoice.

Certificate of Origin

A certificate of origin is a signed statement providing evidence of the origin of the goods. The
chamber of commerce of the importing country usually issues this certificate.

3.3.7 General condition of import of goods

• Import Trade Control Schedule Number

For import purpose, use of ITC Number (H.S. Code) with at least six digits corresponding to
the classification of goods as given in the Import Trade Control Schedule 1988, based on the
Harmonized Commodity Description and Coding System shall be mandatory. The seven Digit
H.S. Code published by Bangladesh Bureau of Statistics may also be mentioned in the Letter
of Credit Form, Letter of Credit and other relevant paper within a bracket in addition to normal
H. S. Code as mentioned above. No bank shall issue Letter of Credit Authorization form or
open Letter of Credit without properly mentioning I. T. C. number (H. S. Code) thereon.

NOC (No Objection Certificate) On the basis of ROR (Right of Refusal)

a. No Objection Certificate on the basis of Right of Refusal (ROR) form any authority shall not
be required for import of any freely importable item by any Public Sector agency.

b. In case of import of banned/restricted items for approval projects financed under foreign aid
the concerned Government Department/Agency will approach the Chief Controller of the
Import and Export directly for necessary permission together with a list of items duly certified
under proper seal and signature giving description, quantity/number, price and H.S.

• Restriction regarding source of procurement of goods

a) Goods form Israel or goods originating from that country shall not be importable.
Goods also not are importable in the flag vessels of that country.
b) All kinds of import form and export to Serbia and Montenegro, fragments of former
Socialist Republic of Yugoslavia, shall be banned.

• Pre-shipment inspection

Unless otherwise specified, pre-shipment inspection of imported goods shall not be obligatory
in case of import by private sector importers.

• Shipment of Bangladesh Flag Vessels

Goods weighing up to 20 MT for import

a. By individual importer and up to 100 MT import by group importers can be shipped on a

non-Bangladeshi vessel. While exceeding said quantity shipment to be made on Bangladeshi
vessel, otherwise general waiver from the Director General, Shipping Directorate to be
obtained.

b. In case of import and export of goods by export-oriented industries shipment may be made
in non-Bangladeshi flag vessel

• Import by Mentioning “Country of Origin”

1. In all cases of import, “country if origin shall be mentioned clearly on goods,

package/container. A certificate regarding “country of origin” issued by the concerned
Government agency/approved authority/organization of the exporting country must be
submitted, along with import documents to the Customer Authority at the time of release of
goods. Besides, 100% export-oriented industries, which are recognized by Custom Authority,
shall be waived from the restriction of “country of origin” subject to the conditions imposed
by the Foreign Exchange Regulation Act, Bangladesh Bank and Commercial bank.

In case of import of Limestone, in different consignments/lot by the rope-way or by river, as

raw-materials for Cement Factory, “country of origin” certificate from the exporting country’s
Government/approved authority/organization shall be submitted once to the Customs authority
at the time of release of goods, instead of each consignment/lot for the quantity mentioned in
Letter of Credit in case of river way and as per supplied carrying list as case of rode-way.

3.3.8 The Mechanism of Letter of Credit is as follows:

INDETOR

SELLER/ EXPORTER
BUYER/ IMPORTER
/BENEFICARY

Issue L/C

ISSUING BANK ADVISING BANK/

NEGOTIATING BANK

Forward
Instruc on Pays of
market
to pay or payment
reimburse
REIMBURSING BANK
3.4 IMPORT
Import is the purchase of foreign goods and services from abroad by Consumer, Firms,
Companies Government, and Semi-Government organization in Bangladesh. It is an
international Trade. It is also called Cross-Border Transaction.

3.4.1 Import Trade Control

Physical imports of goods into Bangladesh are regulated by the ministry of commerce. Govt.
of Bangladesh in accordance with Import Control Act 1950 and public notifications issued
there under from time to time, through the Chief Controller of Imports & Exports (CCIE) while
Bangladesh Bank through its Exchange Control Dept. Controls the financial aspects, such as
payments for imports, rates of exchange, methods of remittances against imports, under the
provision of F.E.R. Act 1937.

On the other hand, the customs authorities at the import points physically supervise the imports
of goods and ensure that the items of goods imported are permissible under I.T.C. regulations
before release of the same for consumption in the country on payment of import duty, sales
taxes etc. where applicable.

3.4.2 Import Policy

Import Policy of the Govt. is embodied in the Import Policy order issued by the Govt. at the
end of June or at the beginning of each financial year in July. The CCIE announces the Import
Policy covering various aspects of imports during the relative shipping periods. The import
Policy order covers the following main issues:

A. Items eligible for imports during the shipping period including list of banned items.

B. Sources of finance and items permissible for import against:

1. Cash foreign exchange.

2. Foreign aids/credits/grants/barter and under.
3. Wage Earner's Scheme/Secondary Exchange Market Scheme.

C. The Procedure for imports by Industrial consumers, commercial importers, and actual users,
including formation of groups by smaller importers.

D. Basis of licensing for the category holders of various permissible items including repeat
licensing procedure.
E. The dates of opening of L/C and shipment and procedure for submission of Letter of Credit
authorization (LCA) forms covering various items of imports.

F. Conditions for entry of newcomers into Import Trade.

G. Conditions for Import by established Importers and Industrial consumers.

H. Procedure for imports under O.G.L., if any.

I. Import by TCB and other Govt. Agencies.

J. Validity of licenses with regard to L/C opening and shipment thereof.

K. Rules relating to revalidation of license (LCA FORM) and extension of L/C.

L. Change of items by the commercial Importers.

Before going to discuss the task of import section of the PBL Bank PLC., here I have given the
types of importers and import procedure at first.

3.5 Importer

The person who deals in import business obtaining Import Registration Certificate (IRC) in
terms of Importers, Exporters and Importers (Registration) Order-1981 from the CCI & E is
treated as Importer.

3.5.1 Registration of Importer

As per import and export control act, 1950, no person can indent, import or export any goods
into Bangladesh except in case of exemption issued by the government of Bangladesh. The
first thing one need to carry out a business of import is called Import Registration Certificate
(IRC). But registration is not required for import goods, which do not involved remittance of
foreign exchange like medicine; the users within monetary limit can import reading materials
etc. without registration.

3.5.2 Procedure for obtaining Import Registration Certificate

Through public notice or import policy the Chief Controller of Imports and Exports invites
applicants usually for registration of importers.
The following papers are required for submission to CCI and E

 Valid trade license

 Income tax clearance certificate
 Nationality certificate
 Asset certificate
 Tin certificate
 Bank solvency certificate
 Vat registration certificate

3.6 Import Procedure

To import through Sonali Bank PLC. a customer/credit required a set of documents which is
to be produce before the concerned official of the foreign department. The following are the
required documents:

 Bank account.

 Import Registration Certificate (IRC)

 Tax paying Identification Number (TIN)

 Proforma Invoice/indent

 Membership certificate

 L/C application form duly attested.

 One set of IMP form

 Insurance cover notes with money receipt.

 Others

The procedures that follow at the time of imports are as follows:

 The buyer and seller conclude a sale of contract provided for payment by
documentary credit.
 The buyer gives an instruction to his bank (the issuing bank) to issue a credit in favor
of the seller----