Bangladesh Scraps Mandatory Letter of Credit for Many Imports Under New Trade Policy

Bangladesh Bank has quietly rewritten one of the more tedious rituals of doing business in the country: the mandatory letter of credit. Under fresh guidance issued this month to implement the government's Import Policy Order 2026-2029, businesses can now import many categories of goods through straightforward purchase and sale contracts, open account arrangements where the seller ships first and payment follows later, without opening an LC at all and regardless of the value of the shipment. For an economy where LC delays have long been blamed for everything from stalled factory lines to missed export deadlines, the change marks one of the more consequential pieces of financial deregulation to come out of Dhaka this year.

The policy itself, which runs through December 31, 2029, was finalised by the Ministry of Commerce in late August as part of a broader push to position Bangladesh as a regional trade and logistics hub as the country works through its transition out of least developed country status. It folds in an expanded role for central bonded warehouses and lays groundwork for free trade zones, changes officials describe as a major shift in the country's export strategy and investment facilitation efforts. What Bangladesh Bank's guidance does is translate that framework into the specific foreign exchange procedures banks and importers actually have to follow, and the timing, in the middle of both a stock market rout and a persistent energy crisis, suggests the central bank is eager to hand exporters at least one piece of unambiguously good news.

What actually changes for importers

The most significant shift is the removal of a blanket LC requirement for permissible goods brought in for industrial and commercial purposes. Previously, most import transactions of any real size required a bank-issued letter of credit, a process that involves documentation, bank fees, and processing delays that can stretch to weeks even when everything goes smoothly. Under the new instructions, buyers and sellers can instead settle directly through purchase and sale agreements, provided the transaction still complies with existing foreign exchange regulations and is channelled through an authorised dealer bank. Export-oriented industries get an additional layer of flexibility: they can now source production inputs domestically through back-to-back LC arrangements or on a free-of-cost basis, and the policy extends the bonded warehouse system's reach specifically for procuring the raw materials that feed export manufacturing.

A senior Bangladesh Bank official described the intent in blunt terms, saying the guidance is meant to harmonise foreign exchange procedures with the new import policy framework, enhance flexibility in trade transactions and facilitate export-oriented industries through simplified sourcing and payment arrangements. In practice, that means a garment exporter needing imported fabric or trims can now negotiate payment terms directly with an overseas supplier rather than tying up working capital in LC margins and bank charges months before a shipment even arrives. Businesses that have spent years navigating Bangladesh's LC bureaucracy describe the open account option as the kind of change that will not make headlines the way an interest rate cut does, but which quietly saves real money on every single shipment it touches.

A bigger trade infrastructure push behind the paperwork change

The LC relaxation is only the most immediately tangible piece of a much larger overhaul. The Import Policy Order 2026-2029 represents a significant expansion from its 2021-2024 predecessor, explicitly incorporating central bonded warehouses into the country's trade infrastructure for the first time in this form and laying the policy groundwork for dedicated free trade zones. Officials have described the combination as designed to address chronic supply chain delays, lower production costs for manufacturers and strengthen Bangladesh's competitive position in regional commerce at a moment when the country can no longer lean on the tariff preferences that came with its least developed country status. Seen in that light, easing the LC requirement is less a standalone gesture and more the first visible piece of a multi-year plan to rebuild how goods physically and financially move in and out of the country.

Why now, and why it matters for exporters specifically

The reform lands at a moment when Bangladesh's trade numbers are a genuine mixed bag. This publication reported on September 10 that merchandise exports rose 13.14 percent year on year in August to 4.43 billion dollars, led by a rebound in ready-made garments, though that reading came in 6.3 percent below July's total and industry leaders cautioned the annual growth partly reflects a weak base from the previous year rather than a genuine turnaround. Easing the friction and cost of importing the fabric, yarn, chemicals and machinery that feed export manufacturing is one of the more direct levers policymakers have to support that fragile recovery, since Bangladesh's garment sector in particular depends heavily on imported inputs that are then re-exported as finished goods within tight delivery windows.

The reform also follows years of criticism, including from Bangladesh's own exporters, that LC-based financing added cost and delay precisely where the country's manufacturers could least afford it, competing as they do against regional rivals such as Vietnam and India on speed as much as price. By allowing open account settlement and free-of-cost input sourcing, the central bank is effectively betting that the credit risk of trusting individual trade relationships is worth taking if it means factories can turn around orders faster. That is not a risk-free trade-off. Open account arrangements shift more of the payment risk onto exporters and importers themselves rather than the banking system, and some trade finance specialists have cautioned in earlier coverage of the broader Import Policy Order that easier imports will need smarter oversight to prevent the kind of underinvoicing or capital flight that looser LC rules can sometimes enable.

A cautiously welcomed change

Reaction from the business community so far has been broadly positive, with trade groups framing the move as long overdue relief rather than a radical experiment, since open account trade is already the global norm in many markets Bangladesh competes in. Bankers, for their part, note that authorised dealer banks retain oversight responsibility even without an LC in the loop, meaning the paperwork burden shifts rather than disappears entirely, from opening and amending letters of credit to monitoring compliance on open account transactions after the fact. Whether that shift genuinely nets out to less friction, or simply moves the friction to a different part of the process, is likely to become clear only once a full trading cycle has passed under the new rules.

What to watch next

The real test for this reform will show up in import and export data over the coming months, specifically whether LC-related delays reported by exporters actually decline and whether the freed-up working capital shows any measurable effect on production timelines. Regulators will also be watching compliance closely, given the warnings already circulating about oversight gaps, and any early sign of misuse could prompt Bangladesh Bank to tighten specific provisions even as the broader liberalisation stays in place through 2029.

Policy element	Detail
Import Policy Order validity	Through December 31, 2029
LC requirement	Removed for permissible goods via purchase/sale contracts, any value
Export-oriented sourcing	Back-to-back LC or free-of-cost domestic input procurement
August 2026 exports	$4.43 billion, +13.14% year on year
Oversight channel	Transactions still routed through authorised dealer banks