TRW & Co · Banking and trade finance
How an Import LC Works in Bangladesh
This guide explains how LC works in Bangladesh import trade as of October 2026: who opens the credit, what margin and documents banks need, how presentation, acceptance and payment work, and how sight, usance and UPAS structures compare. It also covers the new Import Policy Order 2026–2029, which allows many imports without an LC, and where Chattogram importers get stuck.
Key pointThe LCAF many guides still mention was abolished in November 2022, and since August 2026 the Import Policy Order allows imports under sales contracts without any LC or value ceiling. The LC is now a choice for finance and security, not a legal requirement.
At a glance
LC no longer compulsory
The Import Policy Order 2026–2029, gazetted on 24 August 2026, allows permissible imports under sales contracts without opening an LC and removes the previous value ceiling.
LCAF abolished
Bangladesh Bank repealed LCAF registration from 20 November 2022; banks now report import information to its online import monitoring system instead.
Five days to examine
Under UCP 600 article 14, the issuing bank has at most five banking days after presentation to decide whether the documents comply.
Usance limits apply
Bangladesh Bank caps usance periods by type of goods; capital machinery and spares for industrial use may be imported on up to 360 days' usance.
Match the bill of entry
Banks must match each import payment with the bill of entry filed at Chattogram Custom House, so descriptions and values must be consistent.
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The short answer: how LC works in Bangladesh import trade
Here is how LC works in Bangladesh import trade in one paragraph. The importer asks its bank, an authorised dealer in foreign exchange, to issue a letter of credit in favour of the foreign seller. The seller ships the goods and presents the shipping documents through its own bank. If the documents comply with the credit, the Bangladeshi bank pays at sight or accepts to pay at a future date, releases the documents to the importer, and the importer clears the cargo through Chattogram Custom House.
Two things changed in 2026. The Import Policy Order 2026–2029, gazetted on 24 August 2026, allows industrial and commercial importers to import permissible goods under sales contracts without opening an LC and without the old value ceiling. And Bangladesh Bank consolidated its foreign exchange rules for imports into a single circular in August 2026. The LC is no longer compulsory for most trade, but it remains the standard way to obtain bank finance and to give a new supplier payment security.
This guide walks through each stage, compares sight, usance, UPAS and contract-based imports, and explains where Chattogram importers most often get stuck.
The rules that apply
Understanding how LC works in Bangladesh import practice means reading four layers together.
- Foreign exchange law. The Foreign Exchange Regulation Act 1947 and Bangladesh Bank instructions, including the Guidelines for Foreign Exchange Transactions 2018 and the consolidated import circular issued on 13 August 2026, which Bangladesh Bank said would remain effective for one year.
- Trade policy. The Import Policy Order 2026–2029 issued by the Ministry of Commerce, which runs until 31 December 2029 and sets which goods may be imported and on what terms.
- Registration. An Import Registration Certificate (IRC) from the Office of the Chief Controller of Imports and Exports, now processed through an online licensing module. A unified IRC replacing separate industrial and commercial certificates was under review in mid-2026.
- The credit itself. The International Chamber of Commerce rules in UCP 600, which the credit incorporates and which governs examination of documents, payment and refusal.
Customs clearance is governed by the Customs Act 2023 and administered by the National Board of Revenue through Chattogram Custom House. Port handling is under the Chittagong Port Authority.
Many guides still describe the Letter of Credit Authorisation Form (LCAF). Bangladesh Bank's FE Circular No. 29 of 20 October 2022 repealed LCAF registration, effective 20 November 2022, following the Import Policy Order 2021–2024. Banks now collect the indent, proforma invoice or contract and report import information to Bangladesh Bank's online import monitoring system instead.
Who does what in an import LC
| Party | Role | What can go wrong |
|---|---|---|
| Importer (applicant) | Applies for the LC, provides margin and security, pays at sight or maturity | Insufficient limit or margin; late retirement of documents |
| Issuing bank (authorised dealer) | Issues the credit, examines documents, pays or accepts | Late or defective refusal; reporting gaps |
| Advising or confirming bank | Advises the credit to the seller; may add its own undertaking | Confirmation refused for country or bank risk |
| Seller (beneficiary) | Ships goods and presents documents | Discrepancies; late shipment |
| Carrier and insurer | Issue bill of lading and insurance cover | Wrong consignee; cover dated after shipment |
| C&F agent | Lodges the bill of entry and clears goods | Classification and valuation disputes |
How LC works in Bangladesh import transactions, step by step
- Register and prepare. Hold a valid IRC, TIN and VAT registration, and check that the goods are permitted under the Import Policy Order and any product-specific rules.
- Agree terms with the seller. Obtain an indent, proforma invoice or sales contract stating goods, price, Incoterms, shipment period, ports and payment terms (sight or usance).
- Arrange the bank facility. The bank assesses the importer's limit and fixes the cash margin and security under its credit policy and any Bangladesh Bank requirements for the goods concerned.
- Open the LC. The importer signs the LC application and the bank issues the credit by SWIFT to the advising bank. The bank reports the import information to Bangladesh Bank's online monitoring system and the importer arranges marine insurance.
- Shipment and presentation. The seller ships and presents the bill of lading, invoice, packing list, certificate of origin and other required documents to its bank, which forwards them to the issuing bank.
- Examination. The issuing bank has up to five banking days to decide whether the documents comply (UCP 600 article 14). If they do not, it may seek the importer's waiver or refuse.
- Payment or acceptance. For a sight LC the bank pays; for a usance LC it accepts the bill and pays at maturity. The importer retires the documents by paying, or by converting the liability into a post-import loan.
- Clearance and closure. The C&F agent lodges the bill of entry at Chattogram Custom House, duties are paid and goods released. The bank later matches the import payment with the bill of entry, as Bangladesh Bank requires.
Documents the bank and customs will expect
Most delays in how LC works in Bangladesh import cycles come from paperwork rather than law. Assemble two sets of documents: those the bank needs to open the credit, and those the seller must present for payment.
To open the LC
- Valid IRC, TIN certificate and VAT registration, and trade licence.
- Indent, proforma invoice or sales contract, signed and dated, with Incoterms and HS code.
- LC application and the bank's facility or charge documents, with board resolution for companies.
- Marine insurance cover note from an insurer, naming the bank where required.
- Any product permits, such as certificates required for food, chemicals or regulated goods.
For the seller to present
- Full set of bills of lading consigned as the credit requires, usually to the order of the issuing bank.
- Commercial invoice and packing list matching the credit's description of goods.
- Certificate of origin and any inspection, quality or phytosanitary certificates the credit lists.
- Shipment advice and, where required, a beneficiary's certificate.
Every document the credit calls for becomes a condition of payment. Ask only for documents the seller can genuinely produce, and specify the issuer of inspection certificates precisely; vague wording invites disputes.
Sight, usance, UPAS and contract-based imports
Choosing the payment structure is the main commercial decision in how LC works in Bangladesh import deals. The options trade off cost, credit and control.
| Structure | When the seller is paid | When the importer pays | Typical use |
|---|---|---|---|
| Sight LC | On a complying presentation | On payment, or via a post-import loan | Commodities, new supplier relationships |
| Usance or deferred LC | At maturity after acceptance | At maturity | Capital machinery and approved items within Bangladesh Bank usance limits |
| UPAS (usance payable at sight) | At sight, funded by a bank | At maturity, with financing cost | Where the seller wants cash but the importer needs credit |
| Contract-based import without LC | As the contract says (advance, open account or usance) | As the contract says, subject to foreign exchange rules | Established suppliers and group companies |
Usance periods are capped by Bangladesh Bank. Under paragraph 33(a) of chapter 7 of the Guidelines for Foreign Exchange Transactions, for example, industrial importers may import capital machinery and spares for their own use on up to 360 days' usance. Shorter limits apply to many other goods, and Bangladesh Bank has periodically allowed usance imports of essential food items for limited periods. Check the current limit with your bank before agreeing terms.
Contract-based imports are attractive with long-standing suppliers, but they shift risk. Without an LC, the seller has no bank undertaking, and the importer has no document examination by a bank before paying. For a first transaction with a new supplier, understanding how LC works in Bangladesh import practice still gives both sides a safer structure.
For contract-based imports, a Bangladesh Bank circular of 24 October 2024 told banks not to facilitate new contract imports for an importer with an earlier import payment unsettled beyond maturity. Overdue import bills therefore have knock-on effects.
Margin, security and post-import finance
The cash margin is the part of the LC value the importer deposits when the credit is opened. Banks set it according to their credit policy and the importer's standing. Bangladesh Bank has at times imposed minimum margins on particular goods to manage foreign exchange pressure, and relaxed them for essentials such as food items ahead of Ramadan. Ask the bank for the margin in writing before signing the proforma invoice.
When documents arrive and the importer cannot pay, banks often create a forced loan or a trust receipt facility to release the documents. These liabilities, if unpaid, lead to recovery action in the Money Loan Court. Our trade finance lawyers in Chittagong review facility letters, security documents and personal guarantees before they are signed.
Where Chattogram importers get stuck
Knowing how LC works in Bangladesh import trade on paper is one thing; the problems usually appear at the port.
Goods arrive before the documents
On short sea routes, the vessel can reach Chattogram before the original bill of lading reaches the issuing bank. Without it, the shipping line will not release the cargo, and port storage and container charges start running. Banks may issue a shipping guarantee or delivery order arrangement in some cases, at a cost and against security. Plan document routing at the LC stage, and see our guide to container demurrage charges for the cost side.
Discrepant documents and refused presentations
Small inconsistencies in descriptions, weights or dates can lead to refusal under UCP 600 article 16. The importer is often asked for a waiver. Waiving is a commercial choice: it releases the goods but removes a lever against the seller. If the cargo has a quality problem, take advice before waiving. Our guide to letter of credit disputes explains the refusal and fraud rules.
Customs classification and valuation
The LC invoice value and description become evidence at Chattogram Custom House. If customs assesses a different HS code or value, the duty bill rises and the import payment may no longer match the bill of entry. Keep the proforma invoice, LC and invoice descriptions consistent, and prepare price evidence for unusual goods. Our guide to clearing goods at Chattogram Custom House covers assessment in detail.
Wrong consignee or missing endorsement on the bill of lading
If the bill of lading is not consigned or endorsed as the credit requires, the bank may refuse it, and the shipping line may not release cargo to the importer. Check the LC wording for the consignee and notify party, and ask the seller to send a draft bill of lading before shipment. Corrections after the vessel sails take time, and time at Chattogram port means storage and container costs.
Overdue bills and payment matching
Bangladesh Bank expects import payments to be matched with bills of entry and settled on maturity. Overdue bills and unmatched payments trigger reporting, may block new imports under contract terms, and can harm the importer's relationship with its bank. Track every maturity and keep the bill of entry and payment records together.
An illustrative scenario
This scenario is illustrative only and does not describe any real case. A Chattogram food processor buys packaging machinery from a European supplier. It opens a usance LC with its bank, within the usance period allowed for capital machinery, after negotiating the margin and providing a corporate guarantee.
The supplier ships from Antwerp and presents the documents. The bank finds that the invoice states a different model number from the credit and asks the importer whether it will waive. The importer checks with the supplier, confirms the machine is the newer equivalent model, and waives in writing. The bank accepts the bill for payment at maturity and releases the documents.
The C&F agent lodges the bill of entry at Chattogram Custom House using the same description and value as the LC and invoice. Customs accepts the classification, and the machinery is released. At maturity the bank pays the supplier and matches the payment with the bill of entry.
Checklist before opening an import LC
- Confirm the IRC is valid and the goods are permitted under the Import Policy Order 2026–2029.
- Decide whether an LC is needed at all, or whether a contract-based import is allowed and safer.
- Agree sight or usance terms within Bangladesh Bank limits for the goods.
- Get the margin, charges and security requirements in writing from the bank.
- Draft the credit so the documents required match what the seller can actually produce.
- Align product descriptions across proforma, LC, invoice and bill of entry.
- Plan document routing so originals reach the bank before the vessel reaches Chattogram.
- Track acceptance and maturity dates and settle on time.
Foreign suppliers selling to Bangladesh should check the issuing bank's standing and consider asking for confirmation by a bank in their own country, especially for large or long usance credits. They should also read the credit carefully on receipt and request amendments at once if any document requirement cannot be met, rather than shipping and hoping for a waiver.
Getting how LC works in Bangladesh import trade right at the opening stage prevents most disputes later. Our import and export lawyers and foreign exchange team advise importers and banks; foreign investors should note that, as of October 2026, BIDA has been succeeded by the Invest Bangladesh Authority under the Invest Bangladesh Act 2026. TRW & Co's offices in Dhaka, Singapore, Dubai and London can coordinate with overseas suppliers. Contact our Chattogram office through the contact page, email info@trw.co or call +880 1779 127165, or visit our Chattogram law firm hub.
Frequently asked questions
01Is an LC mandatory for imports into Bangladesh?
Not for most permissible goods. The Import Policy Order 2026–2029, gazetted on 24 August 2026, allows industrial and commercial importers to import under sales or purchase contracts without opening an LC, and removes the earlier annual value ceiling for commercial importers. Bangladesh Bank told banks in September 2026 to implement this subject to foreign exchange rules. Many importers still use LCs because banks finance them and foreign sellers want the payment security.
02Do I still need an LCAF to open an LC?
No. Bangladesh Bank's FE Circular No. 29 of 20 October 2022 repealed LCAF registration with effect from 20 November 2022, following the Import Policy Order 2021–2024. Instead, the bank obtains the indent, proforma invoice or contract before opening the LC and reports the import information to Bangladesh Bank's online import monitoring system. You still need a valid Import Registration Certificate.
03What is the difference between a usance LC and a UPAS LC?
Under a usance LC the seller is paid at maturity after the bank accepts the bill, so the seller extends credit. Under a UPAS (usance payable at sight) arrangement, the seller is paid at sight, but the importer pays at maturity; a bank funds the gap and charges the importer for it. Both are subject to Bangladesh Bank rules on usance periods and costs for the goods concerned, so confirm eligibility with your bank.
04How much margin do I need to open an LC?
There is no single figure. Banks set the cash margin under their credit policy, based on the importer's track record, security and the goods. Bangladesh Bank has at times prescribed minimum margins for particular goods and relaxed them for essentials. Ask the bank to confirm the margin, charges and any collateral in writing before you sign the proforma invoice, so the cash requirement does not surprise you.
05What happens if the ship arrives in Chattogram before the LC documents?
The shipping line normally releases cargo only against the original bill of lading, which is held by the bank until the documents are paid or accepted. If the vessel arrives first, port and container charges can start running. Banks may agree a shipping guarantee or similar arrangement against security in some cases. The better solution is planning document routing and courier timing when the LC is opened.
06Can my bank refuse to pay the seller under the LC?
Yes, if the documents do not comply with the credit. The bank has up to five banking days to examine them and must give a single refusal notice listing every discrepancy. It will usually ask you whether you wish to waive the discrepancies first. If you have concerns about the goods, take advice before waiving, because waiver generally leads to payment.
Sources and official materials
- Bangladesh Bank — Foreign exchange rules, import circulars and authorised dealers
- National Board of Revenue — Customs Act 2023 and Chattogram Custom House
- Chittagong Port Authority — Port operations, cargo delivery and charges
- International Chamber of Commerce — UCP 600 rules for documentary credits
- Supreme Court of Bangladesh — High Court Division decisions on LC disputes
General information only, current as at 27 October 2026. It is not legal advice and does not create an advocate–client relationship. It reflects the law of Bangladesh unless stated otherwise, and the law, court practice and official fees change frequently. Check current official sources and take advice on the facts of your matter.
