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Home » Business News, General Business News

SMEs demand facility of back to back LCs and three way merchanting

November 19, 2018

Karachi, November 19, 2018 (PPI-OT): The Union of Small and Medium Enterprises lamented that the commercial banks welcome the big importers and exporters but do not encourage the SMEs to indulge in back to back orders and L/Cs especially after the 2008 global credit crunch and down slide in commodities. The SMEs need the facility of finance against back to back business and also need the facility to act as intermediaries in three way merchanting.

President UNISAME Zulfikar Thaver said that the SME exporters when they get letter of credits (LC) or firm orders from their foreign buyers they need to be facilitated to open back to back LC or place order with the local manufacturer on the same terms and conditions as per the order or parent L/C of the foreign buyer in their favour and the SME exporters facilitated to pay the local manufactures after receipt of payment from the buyer or on discounting the L/C opened in their favour. The amount paid to the local manufacturer will be lower than the amount in the parent L/C because the SME exporter will deduct his profit and will also recover L/C charges and expenses.

Thaver said likewise a back to back L/C can be opened by a local buyer in favour of an SME importer who imports goods from a foreign buyer and sells the goods to the local buyer against a back to back L/C. The terms and conditions are the same except that the importer keeps his profit and adds on the bank charges and expenses.

UNISAME experts said the third type is for three way trade whereby the importer places order or opens L/C in favour of one country and sells the goods to the buyer in the third country. The shipment is made by the seller to the buyer in the third country but the order is placed and L/C is opened by the importer who imports from the manufacturer in one country and sells it to the buyer in the third country after adding his margin.

All the above types are beneficial to the SMEs and it is important that commercial banks understand the system and not decline three way merchanting and support the intermediaries. The commercial banks need to change their mind-set and accommodate international systems of merchanting.

Exports to third world countries can be increased as most of the third world countries lack contacts with the manufacturers and purchase goods through intermediaries who have network and are connected with global manufacturers. In most of the advanced countries of the world the intermediaries are doing good business because of their contacts with the manufacturers on the one hand and on the other hand they have contact with the buyers in the third world countries as most of them were once ruled by the European countries.

For more information, contact:
Union of Small and Medium Enterprises (UNISAME)
75/1 3rd Commercial Street,
Phase IV, D.H.A., Karachi, Pakistan
Tel: +92-21-35884225-6
Fax: +92-21-35380642
Cell: +92-300-8245307, +92-321-8245307

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