In the perspective of Bangladesh, a back-to-back LC is one which is issued on behalf of an export oriented industrial unit against the security of an export LC for procurement of raw materials either locally or from abroad.
Back-to-back LC is subject to observance of domestic value addition requirement prescribed by the ministry of commerce from time to time. To open back-to-back LC issuing bank requires no margin but keep the export LC lien with the bank.
A back-to-back LC is a Triangle of Trust among the parties including the garments factory, the fabric & accessories supplier, and the bank. Thus, with the help of back-to-back LC a garment factory can works without working capital.
Bangladesh Bank’s Instructions to Open of Back to Back Import LC
The following instructions should be complied with while opening back to back import LCs
(i) Only recognized export oriented industrial units operating under bonded warehouse system will be allowed the back-to-back LC facility.
(ii) The master export LC (against which opening of back to back LC is requested) should have validity period adequate to cover the time needed for importation of inputs, manufacture of merchandise and shipment to consignee.
(iii) The back-to-back LC value shall not exceed the admissible percentage of net FOB value of the relative master export LC.
(iv) The back-to-back import LCs shall be opened on usance basis for a period not exceeding 180(one hundred eighty) days. Interest for the usance period shall not exceed the LIBOR rate.
(v) All amendments of the master export LC should be noted down carefully to rule out chances of excess obligation under the back to- back import LC.
(vi) Back-to-back import LC should not be opened against LCs received for export under Barter/STA, without prior approval of Bangladesh Bank.
In trade, barter is a system of exchange where participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money.
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