Himalayan News Service
Kathmandu, May 29
Nepal Rastra Bank (NRB), the central bank of Nepal, changed its policy on issuing letters of credit (L/C) four months ago, following a brief slump in Nepalâ€™s business scenario. But the new policy has failed to win the appreciation from many professionals.
The main purpose of an L/C is to provide payment in foreign currency to an exporter against goods to be received by the buyer. L/Cs are only needed for importing from countries other than India, since Nepalâ€™s trade with India is based on simple transactions. However, with Tibet, businessmen can trade with a bank draft of $30,000. For export, the importing company abroad does not necessarily have to provide an L/C.
According to the new policy, companies have to submit a business credibility information report (BCIR) to the bank before opening an L/C of $50,000 or more. Earlier, the amount was $15,000.
The new policy came into force after NRB issued a directive on 14th of January, 2002.
However, it has not stopped businessmen from misusing foreign exchange, so the professionals say.
â€œThis change in policy has made it easier for businessmen to split L/Cs into two or more parts. If somebody wants to open a L/C of $80,000, for example, he splits it into two or three sums, each below the 50,000 mark so as to avoid having to produce a BCIR,â€ said Bijaya Shrestha, strategic business manager at Business Information Services (BIS) Nepal.
To open an L/C, companies have to formulate a BCIR. BIS is a local agent for Dun and Bradstreet, a worldwide agency specialising in preparing such reports. BIS is the only one of its kind in Nepal. â€œThis change in policy has created several difficulties. Companies are now trying hard find loopholes,â€ Shrestha said.
Not a single L/C was issued for several days following the new directive, which was slightly modified on January 25, 2002, following a lot of hue and cry from the business sector and almost no transactions for many days. The modifications gave some freedom to banks by allowing them to issue L/Cs based on a credibility report from the corresponding bank in the relative country.
â€œThough the NRB says it has imposed the new policy in order to prevent a misuse of foreign exchange, it will be hard for the bank to attain this end due to poor monitoring and corruption,â€ speaking to The Himlalayan Times, Shrestha said. â€œThe splitting of L/Cs remains a challenge that the central bank has to tackle.â€
Though business circles tend to believe the remarks of professionals like Shrestha, NRB officials outrightly reject such possibilities. When asked about the possibility of splitting L/Cs, Dr Ganesh Bahadur Thapa, a top-notch official at NRB said, â€œThe chances of it happening are very rare. For one import transaction, only one L/C can be issued, not two or three.â€
â€œFurthermore, concerned companies and banks abroad also mistrust businessmen trading through more than one L/C in a single transaction,â€ Thapa said, adding, â€œThe business sector is not affected and the number of L/Cs being issued have not declined.â€
He however added that the central bank has not kept records of the number of L/Cs opened after the imposition of the new directive, in comparison to prior provisions.