Bangladesh Bank has introduced a new policy framework to expand the use of alternative trade finance tools, a move expected to modernize the country`s trade ecosystem and bring it closer to international practices.
In a circular issued on Thursday, the central bank said the initiative will give exporters, importers and banks greater flexibility in conducting international trade while ensuring adequate regulatory oversight and risk management.
While Letters of Credit (LCs) will remain a key component of cross-border trade transactions, Bangladesh Bank noted that global commerce is increasingly relying on financing options such as open-account trade, supply chain finance and factoring. The new guidelines are intended to support the gradual adoption of these alternatives in Bangladesh.
Under the framework, Authorized Dealer (AD) banks have been granted broader powers to facilitate a range of trade finance instruments.
For imports, banks can now process advance payments of any amount when backed by a repayment guarantee from a foreign bank. Without such guarantees, advance payments of up to $20,000 will be allowed, while payments of up to $50,000 may be made using funds from Export Retention Quota (ERQ) accounts.
The central bank also said urgent requests exceeding these limits will be reviewed on a case-by-case basis, with decisions generally expected within 48 hours.
The policy opens new opportunities for exporters as well. Businesses will be allowed to ship goods under open-account credit arrangements, provided they comply with existing rules on repatriating export earnings.
Bangladesh Bank has also encouraged wider use of documentary collection methods, including Documents against Payment (DP) and Documents against Acceptance (DA), in accordance with internationally accepted trade practices.
A major focus of the new framework is the development of Supply Chain Finance (SCF), which has become an increasingly important financing tool in global trade.
Banks will be able to introduce financing products linked to genuine trade transactions, including reverse factoring facilities that enable exporters to receive early payment against approved invoices. Financial institutions may also provide funding for eligible importers involved in usance trade and discount accepted import bills on a non-recourse basis.
To launch Supply Chain Finance products, banks must first obtain regulatory acknowledgment from Bangladesh Bank`s Foreign Exchange Policy Department-1 and submit detailed product structures along with risk management plans.
The central bank is also pushing for greater digitalization in trade finance. Banks have been encouraged to adopt electronic processing systems and accept digital trade documents, including electronic invoices and transport records, to improve efficiency and reduce transaction delays.
Despite introducing greater flexibility, Bangladesh Bank emphasized the importance of prudent risk management. Banks have been instructed to carry out proper credit assessments, maintain exposure limits and comply with anti-money laundering, counter-terrorism financing, tax and foreign exchange regulations.
Industry experts believe the framework could help improve liquidity, lower trade costs and strengthen supply chains while boosting the competitiveness of Bangladeshi businesses in international markets.
Bangladesh Bank clarified that the new measures are designed to complement, not replace, Letters of Credit. LCs will continue to play a central role, particularly in higher-risk transactions and new business relationships.
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