Standard Chartered Bank, the International Finance Corporation (IFC) and the Dutch development agency, FMO have linked to support a US$52 million trade enhancement facility for Bangladesh.

Under the terms of the facility, IFC and FMO will jointly guarantee Standard Chartered up to $26 million of the total facility amount of $52 million. The facility is designed for privately owned Bangladeshi importers and exporters. Most of it will benefit small and medium enterprises (SMEs) that have found it difficult to obtain trade finance from local and international commercial banks.

The two-year revolving facility will give businesses in Bangladesh better access to letter of credit (L/C) confirmations by guaranteeing documentary credits.

Local bank involvement

London-based Standard Chartered will be confirming L/Cs issued by private sector businesses in Bangladesh while the credits will be originated by a group of selected private sector commercial banks. This will initially include six Bangladeshi banks: Dhaka Bank Limited, Dutch Bangla Bank Limited, Eastern Bank Limited, National Credit and Commerce Bank, Prime Bank, and South East Bank Limited. IFC and FMO will guarantee up to 50 percent of each transaction.

The project will increase the availability of short-term trade finance to Bangladeshi importers and exporters by supplementing country limits that restrict commercial banks operating in the country.

Longer tenors envisaged

The objective of the facility is to meet the increasing demand for trade finance and the need for longer tenors in the local market. Banks in Bangladesh have historically been reluctant to confirm L/Cs over 180 days, but tenors under this facility may stretch to up to 360 days.

The facility also aims to help build the reputation of Bangladeshi banks in international markets and promote confidence in the private and commercial banking sector, through which IFC and FMO can reach smaller businesses.

The facility will also ensure that local banks improve their reporting. A technical assistance package is being provided to help the banks move toward international accounting standards and strengthen corporate governance.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.