Commercial banks urged to facilitate SMEs in three way merchanting

KARACHI: The Union of Small and Medium Enterprises (UNISAME) has underlined the need of financing facility against back-to-back business for small and medium enterprises (SMEs) and urged commercial banks to act as intermediaries in three way merchanting.

“Commercial banks welcome the big importers and exporters but do not encourage the SMEs to indulge in back to back orders and letter of credit (LC), especially after the 2008 global credit crunch and down slide in commodities,” President UNISAME Zulfikar Thaver lamented.

He said the SME exporters need to be facilitated to open back-to-back LC or place orders with the local manufacturers on the same terms and conditions as per the order or parent L/C of the foreign buyer in their favor. “SME exporters should be facilitated to pay the local manufactures after receipt of payment from the buyers or on discounting the LC opened in their favor”.

Thaver said likewise a back to back LC could be opened by a local buyer in favor of an SME importer who imports goods from a foreign buyer and sells the goods to the local buyer against a back to back LC.

Under three-way merchanting, the importer places order, or opens LC in favor 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 LC 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.

“It is important that commercial banks understand the system and facilitate three-way merchanting, and support the intermediaries. The commercial banks need to change their mindset and accommodate international systems of merchanting,” Thaver added.

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 contacts with the buyers in the third world countries.

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