The State Bank of Pakistan (SBP - central bank) has granted permission to financial institutions that are authorised dealers in foreign exchange to proceed with import advance payments, without requiring prior approval from the central bank, provided they are backed by irrevocable letters of credit (L/Cs) or invoices.

According to an SBP notification, authorised dealers must only make advance payments against imported goods subject to appropriate due diligence and compliance with the central bank's trade-based money laundering (TBML) framework.

Terms and conditions

Amongst several terms and conditions in the TBML framework, dealers must ensure that the amount of the import advance payment is consistent with the customer's profile, the quantity and nature of goods being imported, and the pricing trends prevailing in relevant international or domestic markets.

Dealers will also be held responsible for ensuring that goods are imported within the stipulated time or the funds remitted in advance are repatriated back in a timely manner.

Bona fide and genuine

This means that authorised dealers need to take necessary measures to examine transactions and verify they are bona fide and that the beneficiary is genuine.

Authorised dealers should therefore obtain an undertaking from the importer and may seek appropriate collateral or guarantees from customers or beneficiaries.

The SBP notification, EPD Circular Letter No. 01 of 2024, together with links to relevant documentation can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.