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PrimaDollar signings show the beginnings of export finance revolution

Over the last few weeks, PrimaDollar, who are adapting their trade finance technology platform to provide export finance to their clients, has signed up eight of the banking groups in Bangladesh. (Combined these banks support 1,000s of export supply chains with an annual export volume of over US$7.5bn.)

COVID-19 impact on exporters in Bangladesh

Bangladesh is the second-largest garment manufacturer and exporter in the world with an annual export volume for garments in the region of US$28bn in 2019 with over 4,500 factories in operation (source BGMEA).

According to PrimaDollar, “Exporters in Bangladesh have been hit in three ways by the pandemic:

  1. Factories were left with stock that no one was buying: Because Most garments are exported to retailers, online and physical. As governments around the world closed down the shops, orders were cancelled by buyers. A large part of the cancelled orders that were in production or even already shipped. 
  2. For three to four months, orders dried up. Export volumes dropped 87% in Q2 2020 (source Chittagong Customs House).
  3. Buyers are returning, apart from nearly all new orders, to open accounts with deferred payment. No more LCs, no more payments upfront. "

They believe that international buyers are managing their working capital much more carefully now.

COVID-19 impact on banks in Bangladesh

Banks provide a vital and important service to the garment factories in Bangladesh due to the very nature of the garment industry:

  • Although the industry has the labour and skills, it does not grow its own cotton and has a limited industrial complex supporting man-made fabrics. 
  • Materials have to be imported, and this requires finance

For many years local banks have financed the imports of materials that drive the garment industry.

In the global pandemic, the liquidity crisis which has hit the factories hard has been compounded by the stresses in the bank balance sheets. 

Banks in Bangladesh are coping with these stresses by using an increasing volume of open account trades, but are still needing to find smarter ways to manage their risks and still deliver bring liquidity to their factory clients.

Driving change in Bangladesh

New players are emerging in the export finance business who providing new approaches to how to finance the garment industry.  One revolutionary supplier is PrimaDollar, who believe that supporting exporters is very simple. AS CEO Tim Nicolle, puts it:

  • “When the exporter ships, we pay him in cash
  • The buyer can pay later. We take the buyer credit risk.”

This very simple model is supported by a sophisticated trade finance platform that connects exporters, importers and local banks together. The PrimaDollar system allows the local bankers to review and monitor trades in real-time – uploading shipping documents, reviewing approvals, and checking cash flow and credit notes as buyers evaluate what they are receiving and make payments themselves.

These pressures on the banks and their clients have led Bangladesh Bank (the central bank) to authorise local banks to work directly with international platforms like PrimaDollar – see an article here – to support their manufacturing clients. With the regulator supporting the move, local bank groups have rapidly focussed on sourcing liquidity for their clients as can be seen by the eight recent signings.

CTMfile take: The scale of central and local bank support in a single country for any trading platform is unprecedented. Financing of export trade around the world is undergoing a revolution, and, as we shall see over the coming weeks and months, it doesn’t just include blockchain technology.

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