The project entitled
‘Financial Intermediaries and Trade Facilitation in South
Asia’ was undertaken by CUTS with the support of The Asia
Foundation under the programme ‘Innovative Approaches to
Address a Specific Non-Tariff Barrier to Trade in South Asia’.
This project will focus on specific barriers related to trade
related financial services in bilateral trade between
Bangladesh-India and India-Pakistan. The purpose of the
project is to generate awareness on issues related to trade
related financial services which affect bilateral trade and to
explore trade opportunities that can be realized by addressing
such issues, generating welfare outcomes for Bangladesh, India
financial regulatory authorities in various South Asian
countries have been indifferent to trade finance needs and
hardly attend to the problems faced by traders on account of
default on payments and other aspects of trade finance. Many a
times the principal financial instrument issued against a trade
transaction, ‘letter of credit’ (LoC), by banks in one country,
is not honoured by banks in another due to lack of obligations
on mutual recognition between them. This regulatory divide poses
serious payment-related risks. In this context, the specific NTB
to be addressed in this project is stated as ‘lack of reliable
and fast payment options to facilitate trade transactions’.
Incidence of cases of non-acceptance of LoC is mostly reported
in the case of India-Pakistan and India-Bangladesh trade.
Traders mostly rely on multi-national banks and indirect
payments are routed through third country bank branches in the
absence of indigenous banks in operation in trade financing
sector. As far as the official positions of apex regulatory
authorities in Bangladesh, India and Pakistan are concerned,
specific regulations restricting payments are not enacted.
complacency has resulted in de facto restrictions on
payments. For instance, the Reserve Bank of India does not
prevent domestic banks from honouring payment instruments
issued in either Bangladesh or Pakistan. However, lack of
contractual relationships between banks from these countries
is still an obstacle for creating a conducive environment for
trade transactions. This project attempts to address this
The duration of this
project is of 10 months from September 2013 to June 2014.