1. What is EDF (Export Development Fund)?

Export Development fund available at Bangladesh Bank for export at a lower rate of interest. This fund administrated by the Department of Banking Operation and Development of Bangladesh Bank. BTB LC will be opened on deferred basis. Interest/additional amount the usance period shall not exceed LIBOR or the equivalent interest/additional in the currency of settlement.

After opening BTB LC, statement should be sent to Bangladesh Bank. Then Bangladesh Bank  will provide fund for payment of BTB LC subject to availability of the fund with them. The fund allotted in favour of AD branch for a period of 180 days to 270 days.

On execution of export as well as realization of proceeds the same to be refunded to BB with additional amount plus interest as per rate quoted by BB. The rate of additional amount is @ six-month LIBOR + 1% PA for up to 1.50 million and @ six-month LIBOR + 2.5% PA for above 1.50 million. Limit for EDF 400 million.

If the exporter fails to execution export, the AD will repay the same to Bangladesh Bank.

2. What is security?

Security means things deposited as a guarantee of an undertaking/loan, to be forfeited in case of default.

3. What is charge?

It is a legal transaction as a result of which the lender acquires certain rights over the property and the borrower is refrained from dealing in them.

4. Method of Creation of charge

Method of creating charge on security:   (i) Pledge, (ii) Hypothecation, (iii) Mortgage, (iv)

Lien, (v) Assignment & (vi) Set-Off.

Pledge: Pledge is the bailment of goods as security for payment of a debt or performance of a promise.

Bailment: Bailment is the delivery of goods by one person to another for some purpose, under a contract the goods   shall, when the purpose is accomplished, be returned or otherwise disposed of, according to the directions of the person delivering them.

• Always based on contract.
• Movable properties only (Money is excluded)
• Delivery of goods is essential (Transfer of possession)

Ownership is not transferred but only special right of retaining the goods until payment of debt.

Hypothecation: Hypothecation is a charge against property for an amount of debt where neither ownership nor possession is passed to the creditor.

It is floating charge, it is rather precarious & Borrower binds himself to give possession of the hypothecated goods to the bank when called upon to do so.

Mortgage: Mortgage is transfer of interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt or the performance of an engagement which may give rise to pecuniary liability.

Lien:  A lien is the right of a creditor in possession of goods, securities or any other assets belonging to the debtor   to retain them until the debt is repaid.

Negative Lien: The banker sometimes asks a borrower to execute a letter declaring that his assets are free from encumbrance at the time advance is made. The borrower is also undertaking that the assets stated in the said letter shall not be encumbered or disposed of without the Bank’s permission in writing so long the advance continues. This undertaking is a Negative Lien.

Set-Off:  A set-off is a right which enables a creditor to adjust wholly or partially a debt balance in the debtors account with any credit balance lying in his (debtors) favour.

Assignment: An assignment means a transfer of right of property or debt (existing or future) by one person to another person.

5. Articles of UCPDC

6. What is Cheque? Difference between promissory note, bill of exchange and cheque?

Cheque: According to section 6 of the NI Act “ a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.”

A cheque is a document of great importance in the business world. It can be passed from one hand to another easily and so it has become a popular mode of payment. A cheque is the most economical and safe method of money transaction because the transfer cost is very low and also the possibility of loss is very minimal.

Difference between promissory note, bill of exchange and cheque:

7. What are Holder and Holder in Due Course?

• Holder: As per section–8 of NIA the holder of a promissory note, bill of exchange or cheque means the payee or endorsee who is in possession of it or the bearer thereof but does not include a beneficial owner claiming through a benamidar.
• Holder in Due Course: Section 8 of NIA interprets “Holder in Due Course” as “Any person who for consideration becomes the possessor of a negotiable instrument if payable to the bearer, or the payee or endorsee thereof, if payable to order, before it become overdue and without notices that the title of the person from whom he derived his own title was defective.”

8. What are Payment and Payment in Due Course?

• Payment: Honoring an instrument as per apparent tenor of the instrument without observing due diligence.
• Payment in Due Course: Payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.

9. What is crossing?

CROSSING:

Crossing is a direction to the paying banker that the cheque should be paid only to a banker on whose favor the cheque is crossed or to some other bank and not to the holder at the counter. So to prevent any one but the payee from cashing, cheques are crossed. Crossing may be in written, stamped, printed or purported.

Purpose of Crossing:

Crossing provides security and protection to the true owner, since payment of such cheque has to be made through a banker. Cheques are crossed in order to avoid losses resulting from open cheques falling into the hand of undue persons. Crossing of a cheque does not affect its negotiability. Crossed cheques are negotiable by delivery in case they are payable to bearer and endorsement and delivery when they are payable to order. Holder of a crossed cheque, who has no account in the bank, can obtain payment by endorsing in favor of some persons who has got an account with a bank.

Types:

1. General Crossing

As per Section 123 of NI Act, where a cheque bears across its face an addition of the words “and company” or any abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with or without the words “not negotiable” that addition shall be deemed a crossing and the cheque shall be deemed crossed generally.

An account payee cheque also falls under the type of general crossing.

1. Special Crossing:

As per Section 124 of NI Act, where a cheque bears across its face an addition of the name of a bank, either with or without the words “not negotiable” that addition shall be deemed a crossing and the cheque shall be deemed crossed specially, and to be crossed to that banker.

Cheque crossed Account Payee:

As per Section 123(A) of NI Act, when a cheque crossed generally, bears across its face an addition of words “Account Payee”.

When a cheque is crossed “Account Payee”-

• It shall cease to be negotiable, and
• It shall be the duty of the collecting bank to credit the proceeds only to the account of the payee named in the cheque.

Opening of Crossed cheque:

The drawer or maker of a cheque only has the right to open a crossed cheque by adding his  Signature.

10. What is Bank Guarantee and its types?

Bank Guarantee

In the ordinary courses of business, client may request a banker to support a trading transaction by giving a guarantee to a third party which is known as Bank Guarantee. As a service to the clients, bankers issue various types of guarantee. By this, the bank undertakes a contingent liability on behalf of its clients.

1. Tender Guarantee/Bid bond Guarantee/Guarantee for earnest money or security deposit:

This is generally sought for 1 to 5 percent of the contract amount. In case of default of the tender at whose request the guarantee is extended, the beneficiary may encash the same. As such the guarantee should usually be executed against higher cash margin.

2. Performance Guarantee (PG):

Guarantees, which are extended in consideration of specific performance of contract, are called performance guarantee. Performance guarantees are given to Government or Corporation or any corporate body on behalf of contractors undertaking to make payment of penalty in the event of non-fulfillment of their performance of contract. This is generally sought for 10 to 20 percent of the contract amount. Performance guarantee would require high cash margin in addition to collateral security.

3. Advance Payment Guarantee (APG):

After awarding any work order to any contractor by work order giving agency, the contractor has to start the work. Just to start work smoothly, work order giving agency provides some portion of fund to the contractor as advance payment

For that advance payment, work order giving agency requires a guarantee from any bank so that the contractor does not breach or misappropriation of fund.

4. Customs Guarantee:

This guarantee is issued in favour of customs authority on account of customs duties and or excise duties on imported goods and machinery or export commodities on behalf clients. Our bank retains 100% margin against customs guarantee

5. Container delivery Guarantee:

Bank issues guarantee in favour of shipping agents in case of delivery of the containers (with cargo) for un-stuffing (from port to importers factory premises or offices) and to return the container as empty without any damage to the container yard of the shipping agent. Beneficiary may encash the same in case of damage or non- return of the container.

6. Guarantee on account of Foreign Correspondent:

This type of guarantee is required at the request, and on behalf of client of foreign correspondents in favour of beneficiaries in Bangladesh in the form of Bid/Earnest money guarantee or performance bonds. Foreign Bank’s counter guarantee is held for each guarantee issued.

7. Other/ Miscellaneous:

The Bank may issue Guarantee on behalf of the client for different purpose commensurate with the business of the client.

11. What types of terms and conditions we have to main in case of Land import?

Import through Land Port:

We have to comply the following terms and conditions, in case of importation through Land Port (as per FE circular no. 19 dated 15/12/2005 of BB) :

1. Only one specific Name of Land Port must be inserted in LC.
2. LC copy, Amendment copy and others necessary paper must be sent to Specific Land port Customs Authority.
3. Our Bank Authority must provide specimen signature booklet along with phone, Fax of AD Branch to all Land port Customs Authority.
4. Our Enlisted C& F agent must collect the list of commodities (Entry to our country) Certified Commercial Invoice and Bill of Entry from customs authority of specific land port as well as AD should maintain a database about the import information.
5. In Payment Clause of LC AD must mention the terms as “ upon receipt of documents complying with credit terms, we shall effect payment as per instruction of Negotiating Bank/ Collecting Bank” instead of “ reimbursement authority / debit authority”.
6. If LC value more than USD 5000.00, AD must issue LC through SWIFT.
7. AD must mention PA No. Name of Authorized official (along with Seal) in NOC.