Importers in Sri Lanka will only be allowed to finance purchases on letter of credit (L/C), documents against payment (D/P) or documents against acceptance (D/A) terms according to the island state's central bank governor, Nandalal Weerasing.

The move is part of the Central Bank of Sri Lanka's bid to curtail demand for unofficial transfers made through hawala and other informal money exchange systems by making it impossible to use these funds to finance imports in open account transactions.

Grey forex market

Outlining this latest aspect of the central bank's efforts to crackdown on the illegal foreign exchange market by insisting on imports on L/C, DP or DA terms, the governor said "any imports other than [by] these three methods will not be cleared by customs".

The move aims to dampen the grey foreign exchange market and stop unofficial remittance channels such as the hawala money exchange houses being used as a source of finance for open account import transactions.

Import financing

Around 25 per cent of Sri Lanka's imports are financed on open account terms and another 12 per cent on DA or DP terms according to central bank officials.

At a media briefing on the central bank's plans they added that the remainder of imports are financed on L/C terms and expressed concerns about settlements made outside the banking system.

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