Back-to-Back LC in Bangladesh: RMG Exporter’s Guide

Your EU buyer sends you an LC for USD 200,000 worth of shirts. But you can’t make the shirts without fabric. And you can’t pay for the fabric because you haven’t been paid yet. That’s exactly the problem back-to-back LC in Bangladesh was built to address. It’s the financial mechanism that lets garment factories import raw materials without upfront cash, using the buyer’s LC as collateral.
This guide explains how it works, what Bangladesh Bank requires, and what to watch out for.

What Is a Back-to-Back LC?

A back-to-back LC (BTB LC) is a secondary import LC opened by an export-oriented manufacturer against a master export LC or export contract. The manufacturer pledges the master LC as collateral. The bank then opens a new LC in favor of the raw material or accessories supplier.

Bangladesh retained its position as the world’s second-largest apparel exporter after China, with RMG exports reaching USD 38.48 billion in calendar year 2024 (BGMEA and Bangladesh Textile Journal, January 2025). BTB LC is widely used across Bangladesh’s export-oriented RMG sector, supporting procurement of fabric, accessories, and packaging from overseas and local suppliers.

In a regular usance BTB LC, the bank does not usually disburse cash upfront. Instead, it assumes payment liability under the LC when the supplier presents complying documents. BTB LC is usually secured by the master export LC or export contract LC, while margin or collateral requirements depend on Bangladesh Bank instructions, AD bank policy, facility approval, and the client’s risk profile.

If you’re sorting out your banking relationships for trade finance, the guide on top private banks in Bangladesh covers which banks have the strongest export trade finance capabilities.

How the BTB LC System Works in Bangladesh’s Garment Sector

The Parties Involved in a BTB LC Transaction

Party	Role
Foreign Buyer (e.g., EU retailer)	Issues the master export LC through their bank in favor of the garment factory
Issuing Bank (buyer’s bank abroad)	Issues the master LC and undertakes to pay the factory on compliant documents
Advising Bank (garment factory’s bank in Bangladesh)	Advises the master LC to the factory; opens the BTB LC as the issuing bank
Garment Factory (Bangladesh)	Receives master LC or export contract; opens BTB LC against it to pay the raw material supplier
Raw Material Supplier (abroad or local)	Beneficiary of the BTB LC; ships fabric, accessories, or packaging to the garment factory
Supplier’s Bank	Advises the BTB LC to the supplier; negotiates documents; collects payment

The Full BTB LC Process, Step by Step

1. The foreign buyer opens a master export LC or export contract in favor of the Bangladeshi garment factory through their overseas bank.
2. The garment factory’s AD bank in Bangladesh advises the master LC to the factory.
3. The factory scrutinizes the master LC: shipment date, expiry date, value, clauses, and any restrictive conditions.
4. The factory applies to their AD bank for a BTB LC, submitting the master LC or export contract as security along with the supplier’s proforma invoice.
5. The AD bank verifies the factory’s bonded warehouse licence, valid IRC and ERC, value addition compliance, credit standing, and applicable Bangladesh Bank instructions. It then approves and opens the BTB LC.
6. The BTB LC is transmitted, typically via SWIFT, to the supplier’s bank abroad or to a local supplier’s bank for inland BTB LC.
7. The supplier receives the BTB LC, supplies or ships the raw materials, and presents complying documents to their bank.
8. The supplier’s bank sends the required commercial, transport, or shipping documents to the garment factory’s AD bank.
9. The AD bank lodges the import bill and records the accepted liability (for usance BTB LC).
10. The factory receives the raw materials, manufactures the garments, and ships them to the foreign buyer.
11. The factory presents export documents to the AD bank and gets the export proceeds negotiated or discounted.
12. On the BTB LC’s maturity date (up to 180 days, unless a specific Bangladesh Bank instruction allows otherwise), the AD bank settles the BTB LC payment to the supplier’s bank from the export proceeds.
13. The AD bank reports import transactions through Bangladesh Bank’s Online Import Monitoring System (OIMS), with IMP-related documentation where applicable.

Bangladesh Bank Rules for Opening a Back-to-Back LC

Bangladesh Bank’s Foreign Exchange Guidelines set out specific rules every AD bank must follow when opening BTB LCs:

1. Only recognized export-oriented industrial units under the bonded warehouse system are allowed the BTB LC facility.
2. The factory must hold valid registration with the CCI&E and a valid bonded warehouse licence from the Customs Bond Commissionerate.
3. The master export LC or export contract must have adequate validity to cover import time, production time, and shipment time.
4. BTB LC may be opened against master export LC or export contract, subject to Bangladesh Bank and AD bank requirements. The BTB LC value cannot exceed the admissible percentage of the net FOB value of the master LC, as set by the Ministry of Commerce’s Import Policy Order (IPO) in force.
5. BTB LCs are generally opened on usance basis for up to 180 days, unless a specific or latest Bangladesh Bank instruction allows otherwise. The usance interest rate is as prescribed by Bangladesh Bank’s current FE guidelines. Verify the current benchmark with your AD bank, as Bangladesh moved from LIBOR to SOFR-based benchmarks in July 2023.
6. All amendments to the master export LC must be tracked carefully to prevent the BTB LC value from exceeding permitted limits.
7. BTB LCs cannot be opened against LCs for Barter/STA trade without Bangladesh Bank’s prior written approval.
8. BTB LC is usually secured by the master export LC without a cash margin requirement in most cases, but margin or risk requirements may depend on bank policy and the client’s risk profile.

If you plan to start a business in Bangladesh in the garment or textile sector, getting your bonded warehouse licence sorted before your first BTB LC application is non-negotiable.

Inland Back-to-Back LC: The Deemed Export Tool

Bangladesh Bank also allows inland back-to-back LCs denominated in foreign exchange in favor of local supplier-manufacturers. Most guides on BTB LC miss this entirely.

This means a garment factory in Dhaka can open a BTB LC in favor of a local yarn mill or accessories maker. The yarn mill ships yarn to the garment factory. The garment factory’s bank pays the yarn mill in foreign exchange at maturity. The yarn mill’s transaction may be treated as a deemed export, and eligible suppliers may access EDF/NFCD-backed facilities subject to Bangladesh Bank rules and AD bank approval.

Reporting note: For inland foreign-currency BTB LCs, EXP/IMP Form is generally not applicable unless EPZ, PEPZ, EZ, or HTP units are involved, as specified in Bangladesh Bank’s current instructions.

Processing speed for BTB LC transactions depends on the AD bank’s trade-finance desk, document quality, compliance review, client limit, and transaction structure. Choosing a bank with a specialized trade-finance team and strong correspondent banking network matters. The guide on commercial banks in Bangladesh gives an overview of banks active in export-oriented trade finance.

 

Sight vs. Usance BTB LC: What’s the Difference?

Most BTB LCs are usance (deferred payment), with the supplier waiting up to 180 days for payment. But there’s a second type: sight BTB LC backed by EDF or NFCD funds.

Feature	Usance BTB LC	Sight BTB LC (EDF/NFCD-backed)
Payment to supplier	At maturity (up to 180 days)	Immediately on document presentation
Funded by	Export proceeds (at maturity)	EDF loans or NFCD balances via AD bank
Interest (EDF-backed)	Usance interest per BB guidelines	SOFR + 1.50% p.a. (BB FE Circular No. 15, September 1, 2024); effective rate changes as SOFR varies daily
Eligibility	All eligible BTB LC factories	Manufacturer-exporters eligible for EDF or NFCD facility
Cash flow for supplier	Delayed payment	Immediate payment
Cash flow for factory	Deferred liability under LC	EDF/NFCD-backed loan, repaid from export proceeds

Large AD banks with strong trade-finance desks may offer broader correspondent banking support and faster processing, depending on the client profile. The guide on top foreign banks in Bangladesh gives a starting overview of trade-finance-active banks in Bangladesh.

Documents Required to Open a BTB LC

Required documents usually include valid IRC and ERC issued/renewed through CCI&E, bonded warehouse licence, trade licence, TIN/e-TIN, VAT/BIN where applicable, trade association membership, master export LC or export contract, supplier proforma invoice, BTB LC application, LCAF where required, and bill-of-entry/import reporting documents as applicable.

• Valid IRC and ERC issued/renewed through the CCI&E (Office of the Chief Controller of Imports and Exports). IRC and ERC can be renewed for 1 to 5 years through CCI&E’s Online License Management (OLM) system.
• Bonded Warehouse Licence from the Customs Bond Commissionerate
• Trade Licence from the local city corporation
• TIN/e-TIN Certificate from the National Board of Revenue
• VAT/BIN Certificate, where applicable
• Trade Association Membership Certificate (BGMEA, BKMEA, or relevant sector association)
• Master Export LC or Export Contract (to be placed under lien at the bank)
• Proforma Invoice from the raw material supplier, accepted by the factory
• BTB LC Application Form on the factory’s bank pad
• LCAF (Letter of Credit Authorization Form), where required by the AD bank
• Bill-of-Entry and other import reporting documents as applicable under Bangladesh Bank’s OIMS system

Having a clean bank account with a solid transaction history matters here. Check the guide on how to open a business bank account in Bangladesh before approaching any bank for trade finance limits.

How BTB LC Payment Works and What Happens If Export Fails

Normal settlement: On the BTB LC’s maturity date, the AD bank settles payment to the supplier’s bank from the garment factory’s foreign currency export proceeds. The AD bank maintains a foreign currency pool for each bonded warehouse factory, helping match BTB import payments with export receipt timings.

If the export fails and the BTB LC payment falls due:

1. Buy foreign exchange from the market (using own taka) to pay the BTB LC at maturity.
2. Report the export failure to the Commissioner of Customs and the National Board of Revenue (NBR).
3. Apply to Bangladesh Bank for post-facto approval of any remittance made in the event of export failure.
4. Submit the authenticated copy of the bill of entry showing actual receipt of BTB imports to Bangladesh Bank.

Export failure creates forced LC liability at the bank, which can block the factory from opening new LCs until the liability is settled. For exporters who also need working capital support outside of BTB LC, non-bank financial institutions in Bangladesh offer leasing and other financing products. And if you’re expanding internationally, US company formation from Bangladesh is an option many export-oriented businesses are now pursuing.

Common Mistakes to Avoid

1. Not checking the master LC validity before opening BTB LC. If the master LC expires before you can produce and ship, the BTB LC becomes a liability with no export proceeds to cover it. Always map: import lead time + production time + shipping time vs. master LC validity.
2. Opening BTB LC for more than the admissible FOB percentage. The value addition requirement in the current IPO limits how much you can import under BTB LC relative to the FOB value. Exceeding this is a Bangladesh Bank compliance violation.
3. Ignoring adverse clauses in the master LC. If the master LC has restrictive clauses, get those amended or resolved before opening the BTB LC.
4. Not tracking master LC amendments. If the foreign buyer reduces the master LC amount and your BTB LC value now exceeds the admissible percentage, you’re in breach of Bangladesh Bank rules.
5. Letting IRC, ERC, or bonded warehouse licence expire. If any of these lapse, your bank cannot legally open a new BTB LC.
6. Confusing BTB LC with packing credit. BTB LC pays your raw material supplier. Packing credit (PC) is taka-denominated pre-shipment working capital for production costs like wages and utilities. They’re complementary, not interchangeable.

Key Insights

• BTB LC is usually secured by the master export LC without a cash margin in most cases, but margin or risk requirements may depend on bank policy and the client’s risk profile.
• Bangladesh Bank allows usance BTB LCs generally for up to 180 days. EDF-backed sight BTB LCs are also available at SOFR + 1.50% p.a. (BB FE Circular No. 15, September 1, 2024); the effective rate changes as SOFR varies daily.
• Inland BTB LCs in foreign exchange can be opened for local yarn mills and accessories makers (deemed export). EXP/IMP Form is generally not applicable for these unless EPZ, PEPZ, EZ, or HTP units are involved.
• Value addition requirements in the current IPO set the maximum BTB LC value as a percentage of the master LC’s FOB value. Always verify with the Ministry of Commerce’s current IPO before opening.
• A valid bonded warehouse licence is generally mandatory for export-oriented units seeking BTB LC facility under Bangladesh Bank rules.
• Export failure on a BTB LC is serious. The factory must buy foreign exchange from the market and report the failure to NBR and Customs. Forced loan or overdue LC liability may arise, and future LC limits may be affected.
• Bangladesh retained its position as the world’s second-largest apparel exporter after China, with RMG exports reaching USD 38.48 billion in calendar year 2024 (BGMEA and Bangladesh Textile Journal, January 2025).

Frequently Asked Questions

What is a back-to-back LC in Bangladesh?

A back-to-back LC (BTB LC) in Bangladesh is a secondary import LC opened by an export-oriented manufacturer against a master export LC or export contract. It is mainly used to pay suppliers for raw materials, fabrics, accessories, or packaging needed for export production. BTB LC is usually secured by the master export LC, with margin requirements depending on bank policy and client profile.

Who can open a back-to-back LC in Bangladesh?

Only recognized export-oriented industrial units operating under the bonded warehouse system can open back-to-back LCs in Bangladesh. The factory must hold valid IRC and ERC issued/renewed through CCI&E, and a valid bonded warehouse licence from the Customs Bond Commissionerate. These requirements come from Bangladesh Bank’s Foreign Exchange Guidelines.

What is the difference between a master LC and a back-to-back LC?

A master LC (or export contract) is received by the Bangladeshi factory from the foreign buyer’s bank. It guarantees payment to the factory when compliant export documents are presented. A back-to-back LC is issued by the factory’s own AD bank against the master LC, in favor of the raw material supplier. The master LC finances the garment factory; the BTB LC finances the supplier.

How much can a back-to-back LC be for?

The BTB LC value cannot exceed the admissible percentage of the net FOB value of the master export LC, as determined by the domestic value addition requirement in the Ministry of Commerce’s current Import Policy Order (IPO). Multiple BTB LCs can be opened against one master LC for different types of inputs, provided the combined value stays within the admissible limit.

What is the usance period for a back-to-back LC in Bangladesh?

BTB import LCs are generally opened on usance basis for up to 180 days, unless a specific or latest Bangladesh Bank instruction allows otherwise. For EDF or NFCD-backed sight BTB LCs, payment is made immediately to the supplier. For EDF-backed sight BTB LCs, the customer-level interest rate is SOFR + 1.50% p.a. under BB FE Circular No. 15 dated September 1, 2024, with the effective rate varying as SOFR changes daily.

What is an inland back-to-back LC in Bangladesh?

An inland BTB LC is a back-to-back LC denominated in foreign exchange opened in favor of a local manufacturer-supplier (such as a yarn mill or accessories maker). Bangladesh Bank allows this to facilitate local input procurement for export-oriented factories. The local supplier’s receipt counts as a deemed export. For inland foreign-currency BTB LCs, EXP/IMP Form is generally not applicable unless EPZ, PEPZ, EZ, or HTP units are involved.

What happens to the BTB LC if export fails?

If the factory fails to export and export proceeds don’t arrive, it must purchase foreign exchange from the banking channel using its own taka funds to pay the BTB LC at maturity. The failure must be reported to the Commissioner of Customs and NBR. Bangladesh Bank requires post-facto approval for any remittance in this situation. Forced loan liabilities at the bank typically follow, restricting future trade finance access.

Does opening a back-to-back LC require cash margin?

In most cases, BTB LC is secured by the master export LC placed under lien at the bank, without a cash margin requirement. However, margin or risk requirements may depend on the AD bank’s credit policy and the client’s risk profile. Bangladesh Bank’s rules allow BTB LC against the master export LC, but banks may still apply risk-based conditions at their discretion.

Can more than one BTB LC be opened against a single master LC?

Yes. Bangladesh Bank’s guidelines confirm that more than one BTB import LC can be issued against a single master export LC (or against multiple master export LCs). A garment factory might open separate BTB LCs for fabric, accessories, and packing materials, all against the same master LC, provided the combined value stays within the admissible percentage of the master LC’s FOB value.

Final Thoughts

BTB LC has long been one of the core financing mechanisms behind Bangladesh’s export-oriented garment sector. No factory could afford to pay for fabric, accessories, and packaging upfront and then wait 90 to 120 days for the buyer to pay. The BTB LC structure addresses that gap, and it still does today for millions of export orders every year.

If you’re running a garment operation and aren’t fully comfortable with how your bank handles BTB LC scrutiny, amendments, and payment settlement, that’s the place to start. What’s the one step in your current BTB LC process that causes the most friction?