Banking Principles & Practices

Back to Back LCs Impact on Export Business of Bangladesh

Economy of Bangladesh
More than 5% average growth during last five years GDP of the country stood up at US$ 68 billions.
The manufacturing sector recorded more than 11% growth

Export performance

Export Performance

Product Wise Export in FY 2009-2010

Export Trends of Bangladesh

Annual and monthly trends in Exports

BANGLADESH'S RMG EXPORTS TO WORLD AT A GLANCE

Total Mn US$ Month Growth %
2009 2010

Jul

1173.60 1042.55 814.39 748.22 927.05 884.76 5590.57

1469.94 1435.45 1066.13 1266.02 1179.81 1531.63 7948.98

25.25 37.69 30.91 69.20 27.26 73.11 42.19

Aug

Sep

Oct

Nov

Dec

Total

Back To Back LC:

Two letters of credit (LCs) used together to help a seller finance the purchase of equipment or services from a subcontractor

Back to Back LCs Impact on business compare to other

2004-05
Description Imports Share million % $

2005-06
Imports in million $ Share in %

2006-07
Imports Share in million $ %

2007-08
Imports million $ Share in %

2008-09
Imports million $ Share in %

Imports from World

Basic Raw Materials
758 11.5 29.3 25.7 903 2,082 2,874 10.8 24.9 34.4 852 2,169 2,592 9.1 23.3 27.8 1,015 2,445 2,795 10.7 25.8 29.5 1,409 2,702 3,197 12.8 24.5 29.0 1,936 Intermediate Goods: DomesticConsumption 1,696 Intermediate Goods: Back-to-Back-L/C & EPZ Imports Capital Goods 1,165 1,057

17.6 16.0

1,463 1,036

17.5 12.4

2,555 1,151

27.4 12.3

1,447 1,775

15.3 18.7

2,016 1,720

18.3 15.6

Final Consumer Goods: Total

Imports from India

Basic Raw Materials Intermediate Goods: Domestic Consumption Intermediate Goods: Back-to-Back-L/C Capital Goods
117 276 11.1 26.3 84 227 10.4 28.2 126 264 13.0 27.1 135 340 11.2 28.1 218 336 16.8 25.9

165 125

15.8 11.9

178 115

22.0 14.3

136 176

13.9 18.1

95 156

7.9 12.9

112 178

8.6 13.7

Impact of Back to Back LC on Export

Problem of working capital was greatly solved with the introduction of back-to-back letter of credit About 90% of woven fabrics and 60% of knit fabrics are imported to make garments for export Bangladeshi apparel exporters import fabrics at international prices using back-to-back letter of credit Bangladesh imports about 90% of the machinery from Japan to run the apparel industry through LC.

Conclusion
Important tool used in international trade

helps to the exporters to run their business and keep the momentum of the economy as well.