Hundreds of local knitting units are facing trouble with opening inland letters of credit (LCs) as some banks are putting pressure on manufacturers under the foreign exchange guideline. As a result, an estimated 600 knitting factories are missing a window of opportunity to explore business. A letter recently sent by the apex body of knitters to the central bank governor painted this dismal picture. When local units use domestic raw materials to produce exportables, they need not any bonded warehouse facility. But they require inland back-to-back LCs to procure some inputs to meet buyers’ requirements. In this context, banks suggest that manufacturers obtain bond licences from the National Board of Revenue (NBR) as per the existing guideline. The guideline says inland back-to-back LCs, denominated in foreign exchange, may be opened in favour of local manufacturers-cum-suppliers of inputs against master export LCs received by export-oriented units operating under the bonded warehouse system. “But almost all authorised dealer banks have so far ignored it and they are pushing us to comply,” said Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) acting president Mohammad Hatem. “Most of our members don’t need such a bond licence as this is necessary for those who import raw materials from abroad,” he told the FE. “We’ve sat with the NBR and commerce ministry several times to resolve the issue as it has been impacting on the shipment of knitting products.” Mr Hatem said around 600 of their members do not need bond licences as they mostly use local raw materials. They need not open back-to-back LCs, sometimes inland LCs. Apart from this, the business leader said, getting the bonded warehouse facility has some hassle and huge costs are also involved. “However, EXP/IMP form won’t be applicable to such cases unless EPZ/EZ (export processing zone/economic zone) unit is associated as mentioned in the guideline.” The BKMEA in its letter has requested the governor to make necessary amendments to vol-1, 40 (a) of section 03 of the Foreign Exchange Guidelines 2018. In the fiscal year 2018-14, knitwear’s contribution to the national export earnings was 41.66 per cent, according to the BKMEA data. In the letter on January 05, the BKMEA requested the Bangladesh Bank for issuing a directive to the banks so that knitwear makers could open such LCs without any bond licence. The association said this is rational because most of the exporters collect raw materials from local sources. Mohammad Hatem said the guidelines were framed in the 1980s and it made the provision of bond licences mandatory for opening back-to-back LCs as the sector was depended on imported raw materials during that period. But a strong backward linkage of the knitwear sector has now been established in the country and nearly 60 per cent of manufacturers have no need to import raw materials for producing export goods, he noted. Bond licence has been made mandatory for ensuring the import of duty-free raw materials and its re-export but it should not be mandatory for the exporters who were collecting materials from local sources and adding 100 per cent value, he added.
