The Karachi Chamber of Commerce and Industry (KCCI) has called on the authorities in Pakistan to intervene over what it describes as the persistent refusal of the country's commercial banks to open letters of credit (L/Cs).

The chamber says this is causing severe problems for traders and manufacturers that need to import raw materials to maintain production, and it is a problem that is impacting on several South Asian frontier economies.

Surging complaints

Complaints about banks refusing to provide L/Cs are surging, but there is little sign of banks being willing to open L/Cs according to reports in Pakistan.

President of KCCI, Tariq Yousuf, has therefore called on the finance minister Ishaq Dar and the governor of the State Bank of Pakistan, Jameel Ahmed, to intervene and address what he describes as the "ongoing violations by the banks".

Deep concerns

"The continuous denial of L/C openings by banks is causing deep concerns for traders and industrialists dealing with raw materials," Yousuf told local media."It appears that banks have been granted a free hand in their actions, and even the State Bank is not taking any action to rectify the situation," he added.

The problem is affecting all kinds of businesses in Pakistan, including prominent motor companies, Indus Motors, Pak Suzuki Motors and Honda Cars. They have experienced several shutdown days in recent months due to issues with opening L/Cs and supply problems from certain foreign vendors.

US dollar alternatives

And the problem is not confined to Pakistan. Sri Lanka, Nepal and Bangladesh have also seen severe difficulties accessing L/Cs over the last two years, mainly due to weak currencies and US dollar shortages. This has caused problems for all manner of operations.

Unilever Bangladesh,for example,depends on imports of raw materials. Around 40 per cent of these come from India, the rest from China and other countries. So, Unilever, which controls over 50 per cent of the country's US$4 billion fast-moving consumer goods market needs US dollars to pay its import bills.

It is working on alternatives. "We are working on opening L/Cs for import in the Indian rupee. Indeed, we have already opened an L/C in rupee, but that one is very small," Unilever Bangladesh's chief executive officer and managing director, Mohammad Zaved Akhtar told local media.

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