Import under Back-to-Back Arrangement in Bangladesh: Rules, Process and Bangladesh Bank Guidelines

-

Back-to-back Letter of Credit (BTB LC) is one of the most important trade financing tools supporting Bangladesh’s export-driven economy. The mechanism allows export-oriented industries to import raw materials and accessories against confirmed export orders or export LCs without immediate cash outflow. This article provides a comprehensive guide on “Back to back LC Bangladesh”, strictly aligned with Bangladesh Bank regulations, especially FE Circular No. 33 dated 14 August 2025.

Understanding Back to Back LC in Bangladesh

A Back to Back LC refers to an import LC opened by an exporter on the strength of an underlying export LC or export contract. In Bangladesh, this facility is widely used by export-oriented industries operating under bonded warehouse licenses, enabling them to import inputs required for producing export goods.

Import under Back to Back Arrangement Bangladesh

Import under back to back arrangement in Bangladesh is permitted only for recognized export-oriented units. The import must be directly linked with a specific export order. Settlement of import liabilities is expected to be made from export proceeds, ensuring foreign exchange neutrality.

Back to Back Letter of Credit Rules Bangladesh

Bangladesh Bank governs back to back LC operations through Foreign Exchange Circulars and the Import Policy Order. The most comprehensive and updated regulatory framework is provided under FE Circular No. 33 dated 14 August 2025. Key rules include:
• Existence of a valid export LC or export contract
• Import value must remain within the allowable percentage of net FOB export value
• Usance period generally not exceeding 180 days
• Mandatory settlement at maturity even if export proceeds are delayed

Back to Back LC Garment Industry Bangladesh

The garment industry is the largest user of back to back LC facilities in Bangladesh. Garment manufacturers import fabrics, yarn, accessories, and trims under BTB arrangements against confirmed export LCs from international buyers. This mechanism significantly reduces working capital pressure and enhances global competitiveness.

Bangladesh Bank Back to Back LC Guidelines

According to FE Circular No. 33, Authorized Dealer (AD) banks may open back to back import LCs subject to:
• Verification of bonded warehouse license
• Compliance with Import Policy Order
• Proper valuation and HS code classification
• Online reporting through Bangladesh Bank’s Import Monitoring System
Banks are also responsible for ensuring AML/CFT compliance and preventing misuse.

Back to Back Import LC Value Addition Requirement Bangladesh

Value addition is a critical compliance parameter. Bangladesh Bank requires that back to back import value remains within a prescribed percentage of the net FOB export value, ensuring minimum domestic value addition. AD banks must calculate net FOB value carefully excluding freight, insurance, and commission where applicable.

How to Open Back to Back LC Bangladesh

The process of opening a back to back LC typically includes:
1. Receipt of export LC or export contract
2. Verification of exporter eligibility and bonded license
3. Determination of permissible import value
4. Opening of BTB LC on usance basis
5. Reporting to Bangladesh Bank’s online systems
6. Monitoring shipment, production, and export realization

Back to Back LC Import Policy Bangladesh

Back to back imports must comply with the prevailing Import Policy Order of Bangladesh. Restricted or banned items are not permissible even under BTB arrangements. AD banks must ensure consistency between LC terms, policy provisions, and customs regulations.

Export LC vs Back to Back LC Bangladesh

An Export LC is issued by a foreign buyer in favor of a Bangladeshi exporter, whereas a Back to Back LC is issued by a Bangladeshi bank in favor of a foreign supplier. The export LC serves as the primary security for opening the BTB LC. Both instruments are interdependent but legally separate.

Back to Back LC Documentation Bangladesh

Essential documents include:
• Export LC or export contract
• Back to back import LC
• Commercial invoice and packing list
• Transport documents
• Bill of Entry
• Export realization certificates
Banks must ensure timely submission and matching of documents to avoid regulatory non-compliance.

Risk Management and Compliance

Back to back LC transactions carry risks such as export non-realization, over-invoicing, and misuse of bonded facilities. FE Circular No. 33 emphasizes strict monitoring, timely reporting, and enhanced due diligence by banks.

Conclusion

Back to back LC Bangladesh remains a cornerstone of export trade financing. When properly structured and monitored in line with Bangladesh Bank back to back LC guidelines, it ensures smooth import of raw materials while safeguarding foreign exchange discipline. For bankers, exporters, and policy professionals, understanding import under back to back arrangement Bangladesh is essential for sustainable trade growth.

Comments

Post a Comment

Popular posts from this blog

Import on “FOC” or “No Cost Basis” by Export-Oriented Industries in Bangladesh

-
Image
FOC sounds like the Incoterms, FOB. However, it is a trade term not a recognized Incoterms. People dealing with import business may have seen various types of imports. In most of the cases payments must be made for the items imported. In some cases no payment is made. Every country has its own import policies and guiding rules for international trade. Procedures for import on FOC basis also differs based on those policies and rules. In Bangladesh this procedure is guided by the Import Policy Order (in force) from Ministry of Finance. It is also termed as Import on “No Cost Basis”. What is FOC or Free of Cost Import FOC or Free of Cost import means the process of importing goods for which no payment has to be made from the importing country. When goods are sent from abroad as a gift, free sample, replacement or raw materials for producing the ordered produce in the receiving country, no payment is required to be made by the importer. There are some limits for maximum amount of such impo...
Read more

Is Your Export Contract Legally Enforceable Contract

-
Image
You’ve owned a big export sales contract. So, you are going to invest a considerable amount. But, is your export contract is legally enforceable?   If it is not legally enforceable, you are running a higher risk of nonpayment by the buyer. The question is, how you can be sure that the contract is enforceable by Law?   We will discuss the straightforward way to understand whether your contract is a valid contract for legal enforcement in case of any breach. When You Will Need Legal Enforcement   Many of the exporters and importers are dealing with their businesses depending on the contract. The question of legal enforcement comes only when any of the parties breaches the contractual obligations.   For example- export is done as per terms of the contract, but payment is not received. Or, export is done, and payment is made, but quality and quantity of the export goods are not as per contract, etc.   Common Elements of a Legally Enforceable ...
Read more

Understanding UPAS LC: Features, Benefits, and Costs

-
Image
    Introduction In international trade, the Usance Payable at Sight Letter of Credit (UPAS LC) is a pivotal instrument that balances the interests of both importers and exporters. It offers a combination of features from both usance and sight letters of credit. UPAS LC provides a flexible payment mechanism that facilitates smoother transactions across borders. This article explores the UPAS LC's characteristics, advantages, and associated costs, offering insights into its operational mechanics and impact on trade finance. What is UPAS LC? A UPAS LC, or Usance Payable at Sight Letter of Credit, represents a hybrid financial instrument used primarily in international trade. It operates under an agreement where the exporter can receive payment immediately upon presenting compliant documents, despite the letter of credit stipulating usance terms. This arrangement allows for prompt payment to exporters while extending the payment timeline for importers. Essentially, it mer...
Read more