Published: 12:28 AM, 10 May 2026
Unlocking Export Potential Through OBUs: Advancing for Domestic Value Addition
Bangladesh’s export sector has long been recognized as a vital engine of economic growth, generating foreign exchange, employment, and domestic value addition. While the country has achieved remarkable success in sectors such as ready-made garments, leather, and emerging non-traditional exports, exporters often face liquidity constraints that limit their ability to respond to global demand fluctuations efficiently. In particular, the lack of adequate foreign currency-denominated working capital financing hinders production cycles, increases dependency on costly domestic credit, and reduces competitiveness in international markets. In this context, there is a compelling case for Bangladesh Bank to consider allowing Offshore Banking Units (OBUs) of scheduled banks to extend foreign currency working capital financing to exporters, irrespective of ownership or location, under a prudential framework that safeguards systemic stability.
Currently, OBUs are largely limited in scope, serving primarily fully foreign-owned enterprises located in specialized zones. While this approach has helped manage regulatory risk and attract foreign investment, it leaves a significant gap in the financing of domestically owned and geographically diverse export-oriented enterprises. By broadening the operational mandate of OBUs, Bangladesh Bank can enable exporters to access foreign currency working capital directly, facilitating uninterrupted production, promoting domestic value addition, and strengthening Bangladesh’s position in global trade. Such a policy would align with the national objectives of export diversification, employment generation, and sustainable economic growth.
The proposed facility would allow OBUs to extend short-term working capital financing in freely convertible foreign currencies against confirmed export orders, irrevocable letters of credit, or firm export contracts. The tenor of such financing could be standardized at 180 days, with the possibility of extension up to 270 days depending on the export cycle and justification by the bank. By linking financing directly to export obligations, the facility ensures that support is targeted, accountable, and aligned with actual production requirements. Moreover, the cost of financing should be capped at prevailing trade finance rates for the relevant currency, as determined by Bangladesh Bank, thereby providing competitive credit without exposing exporters or the banking system to excessive risk.
A key feature of the facility would be its explicit focus on domestic value addition. Financing should be restricted to working capital directly related to the production and processing of export goods, while explicitly prohibiting its use for imports or unrelated purposes. This focus ensures that the facility supports activities that generate employment, foster skill development, and increase the local content of exports. Banks could determine the domestic value-added component based on sectoral characteristics, past export performance, and internal assessments, thereby tailoring financing to the operational realities of different industries.
Inclusivity is another critical consideration. The proposed facility should aim to provide reasonable access to small and medium-sized exporters, emerging sectors, and labor-intensive industries. While large conglomerates dominate traditional export segments, smaller firms often drive innovation, diversification, and job creation. Ensuring that these enterprises can access foreign currency working capital will broaden the distribution of export gains, support non-traditional sectors, and reduce dependency on a limited number of products or markets.
Risk management and compliance mechanisms should form the backbone of the facility. Banks would be required to conduct rigorous due diligence, including assessments of export performance, repayment capacity, and projected cash flows, before extending financing. Export proceeds would need to be repatriated through authorized dealers and applied toward repayment of the outstanding facility. In cases where export proceeds are delayed or unrealized, banks should take corrective measures in accordance with prevailing credit norms, including collection actions, adjustment against admissible earnings, and appropriate provisioning. Such measures ensure that risk is managed without constraining exporters’ operational flexibility.
Operational and accounting practices would be central to effective implementation. OBUs should maintain detailed documentation linking each facility to the underlying export order, letter of credit, or contract, allowing for transparency, monitoring, and reporting. A monthly reporting framework to Bangladesh Bank would enable regulators to track utilization, assess performance, and identify any systemic risks. Clear accounting and documentation practices would also provide a basis for evaluating the facility’s impact on domestic value addition and export performance, ensuring that the policy’s objectives are met.
Bangladesh Bank, as the regulatory authority, would play a crucial role in guiding implementation. Standardized assessment metrics for determining the domestic value-added component, sectoral risks, and exporter creditworthiness could reduce inconsistencies across OBUs. The central bank could prescribe reporting formats to facilitate timely oversight, enable early detection of liquidity or repayment challenges, and monitor exposure concentration. Tiered prudential limits based on bank size, OBU capitalization, and sectoral diversification could further mitigate risks. In addition, Bangladesh Bank could provide regulatory incentives to encourage lending to small and medium-sized exporters and emerging sectors, such as preferential risk-weighted capital treatment or priority access to refinancing facilities. Capacity-building initiatives for bank staff in export finance, foreign exchange risk management, and cash flow analysis would strengthen decision-making, while periodic review and calibration of rates, tenors, and eligibility criteria would ensure the facility adapts to evolving export realities without compromising prudential standards.
The strategic implications of such a facility are significant. By providing access to foreign currency working capital, OBUs can help smoothen liquidity cycles, reduce dependency on domestic credit, and incentivize higher domestic value addition. Exporters would be better positioned to maintain uninterrupted production, meet international quality standards, and respond more effectively to demand shifts. The facility would also support employment in labor-intensive industries and promote the growth of emerging sectors, thereby contributing to a diversified and resilient export base. Furthermore, linking financing to domestic value-added components encourages local sourcing, strengthens supply chains, and enhances the skills of the workforce, creating broader economic benefits.
Beyond operational advantages, the proposed facility could improve Bangladesh’s global competitiveness by lowering production costs, reducing exchange rate risk, and ensuring more predictable cash flows for exporters. It aligns with international best practices in trade finance, where targeted foreign currency working capital support has been shown to facilitate export growth and sectoral diversification. By integrating prudential oversight with operational flexibility, the facility would create a win-win scenario: exporters gain timely, cost-effective financing, while banks maintain disciplined risk management and compliance standards.
The implementation of this facility would also send a strong positive signal to international markets and investors about Bangladesh’s commitment to supporting its export sector. By demonstrating proactive policy measures that combine facilitation with prudential oversight, Bangladesh Bank can encourage confidence among foreign partners, attract new trade relationships, and enhance the country’s reputation as a reliable supplier. At the same time, exporters, particularly small and medium-sized enterprises, would gain a more predictable operating environment, enabling them to scale production, innovate, and explore new markets with greater confidence.
For Bangladesh Bank, the success of this initiative would depend on a careful balance between enabling access to finance and safeguarding financial stability. Robust guidance on eligibility, risk assessment, documentation, and reporting is essential. Banks would need to maintain internal credit policies aligned with the framework, ensuring that financing remains targeted at domestic value addition and export production. The central bank’s periodic review and monitoring would ensure that the facility continues to meet its objectives without creating undue exposure or encouraging misuse. Regulatory clarity, coupled with operational flexibility, would allow OBUs to act as effective facilitators of export growth.
In conclusion, the proposed foreign currency working capital facility through OBUs represents a forward-looking approach to strengthen Bangladesh’s export sector. By extending access to competitively priced foreign currency financing to a broader set of exporters, the policy could enhance domestic value addition, support employment, encourage sectoral diversification, and improve global competitiveness. Inclusive access for small and medium-sized enterprises and emerging sectors would ensure that the benefits are widely shared, while prudential safeguards would maintain systemic stability. With clear guidance from Bangladesh Bank on assessment, documentation, reporting, and risk management, OBUs could become key partners in export development, enabling Bangladesh to sustain and expand its presence in international markets. The proposal not only addresses immediate liquidity challenges but also creates the foundation for a more resilient and diversified export ecosystem, positioning the country for long-term growth and global trade success.
Mehdi Rahman works in the
development sector. He also writes
on foreign trade and monetary issues.
