Post MFA will see a significant rise in the growth of knitwear industry.

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Post MFA will see a significant rise in the growth of knitwear industry

Executive Summary

The research has been carried out to find out the future prospects of the knitwear industry, its opportunities and threats. This would be used by the Corporate Banking division of Citibank N.A. to review their Vendor Marketing Program, as to what extent the knitwear sector should be incorporated into the program.

The knitwear industry has been faring really well in the post-MFA era. It has posted over 35 percent increases in exports in the first quarter of 2005 compared to the same quarter last year. All the firms surveyed had huge increases in exports compared to the same period of the previous year. BKMEA is surpassing the government set export target in the current fiscal year, with total exports predicted to exceed US$ 3000 million. The trend analysis carried out shows that by the end of the year 2007-2008, the export value could reach over US$ 5000, with the total number of knitwear firms likely to exceed the 1000 mark.

GSP facilities, cheap labour, backwar linkage, less lead time and the industrialization of the RMG sector in the past years have been the strengths of knitwear sector as indicated by the responses of the experts and owners. GSP facilities have enabled the knitwear sector to capture the European market. The GSP revision would allow Bangladesh to benefit even more, as in addition to the present duty free status, will also become free from complying certain minimum local value addition requirement. It has been however, hindered to certain extent due to low productivity, outdated equipment and over-priced yarn, high interest rates and concentration only on a few markets.

There cumulative scores for opportunities have exceeded that of the threats, with the average score given by each expert being 2.33 higher than the threats (in a score of 5). This was because the removal of quotas in the post-MFA would allow the segment to explore into more markets, namely the US. Moreover restrictions imposed on China by the EU and the US is likely to shift buyers towards countries like Bangladesh. China itself may outsource to Bangladesh as it produces lower valued items and cannot meet its local demand.

India is becoming the biggest threat to our knitwear sector, as it has huge incentives for the manufacturers and produces its own cotton, therefore lowering the cost of production almost 25 percent with similar valued items. On the other hand, owners of the knitwear factories in Bangladesh had to buy local yarns at higher price and buyers were stated to switch even for a price edge of 1 percent. To add to that, cash incentives had been stalled and BKMEA has urged for at least 15 percent cash incentives to keep up the competitiveness of the knitwear sector.

To keep up the growth of the sector experts in the sector have called for marketing improvements (forward linkage), cash incentives from the government, penetrating the US market (knitwear is focused in the EU market), and reducing the cost of production by ensuring lower priced yarns and lower interest rate.

If the knitwear sector continues to grow in the present manner, it is likely to come up as the major export earner of the country. Moreover the growth is likely to support the backward linkage industries like textiles and the dying industries. A combined effort is needed from the private sector as well as the government to keep up the trend in the global competition.


1.1 Background

With the integration of MFA into GATT, Bangladesh is bound to experience a few changes. These changes are likely to take place at various levels in various forms. One of the changes has been the rise in the export of knitwear of Bangladesh. Keeping this in mind and for the requirement of the VMP Program of Citibank’s Corporate Banking, a research has been conducted which studies the impact of quota withdrawal on the Knitwear section of the RMG industry.

The initial secondary research process had identified that the even though the quota phase out may cause the RMG industry to face certain difficulties, the knitwear section is likely to have a greater rate of growth in the post-MFA era. Hence, the problem statement for this paper is,

“Post MFA will see a significant rise in the growth of knitwear industry”.

1.2 Objectives

Broad Objective No. 1: Identify the source and level of growth that will be created in the knitwear export.

  1. Identify the number of firms in the export oriented knitwear sector.
  1. Identify the knitwear exports value that is likely to be achieved in the post MFA period.
  1. Identify the number of firms likely to come up during the post MFA.
  1. Identify the factors that will lead to the growth of knitwear in the post MFA period
  1. Identify the number of firms likely to close down
  1. Identify the additional services that the existing companies are going to avail.
  1. Identify the total prospect for financial companies.

Broad Objective No. 2: Identify the opportunities for knitwear and the linked industries

  1. Identify and assess the measures that would help the firms to grow
  1. Identifying the opportunities and threats for knitwear firms in post-MFA period
  1. Identifying trade agreements that might affect the export growth
  1. Finding out about the regulations that might affect the scenario
  1. Finding out the type of linked industries that might be affected

1.3 Scope

  1. The survey sample frame is limited to the factories situated in Dhaka. This excludes those located inside the EPZ and in other places like Chittagong.
  1. The factories surveyed either manufacture knit garments only or both woven and knitwear. This is because the research deals with the effect on the export of knitwear garments only.
  1. Only the effects of the three months in the post MFA period have been studied. Hence, other factors that may arise after the period has not been considered.
  1. The report is restricted only on the prospects of knitwear industries and only a small study has been done regarding impact on Citigroup The project was assigned only to find out the prospect of knitwear industries.

RMG are mass-produced finished textile products of the clothing industry.

1.4 Methodology

1.4.1 Type of study

The study took place in two stages. In the first phase exploratory research has been undertaken to gain better understanding of the dimensions of the problem. This research was carried out by going through secondary research materials. I have also spoken to Mr. Abdus Samad Azad, Senior Research Executive, BKMEA, to get the appropriate picture of the situation and also to prepare the questionnaire.

The second phase of the research involved a descriptive research. The study tried to find out the effect on the knitwear industry after January 1, 2005, and the opportunities that are coming up. To analyze this, an intensive research was made. The techniques and results of the result are presented in this report.

1.4.2 Intent of study

The intention of this study is to determine the extent of impact on the knitwear industry after the MFA has been lifted. It looks at the impact from the perspective of the industry and the perspective of the owners. The economic impact has been focused on, as the study was carried out with the instructions of the Head of Corporate Banking, Citigroup to analyze the opportunities of the bank to take part in the process.

1.4.3 Definition of population

For the purpose of the research, two sets of population have been considered. The first set consists of experts. They are mainly those people who have carried out or are carrying out researches on the RMG sector and are in a position to know the actual situation prevailing in the industry.

The second population set consists of owners of knitwear garments. While there are a total of 848 knitwear garments in the industry, the number of owners is much less because one factory owner usually has one or two more, especially if it’s a large firm.

1.4.4 Sample design & technique

A non-probabilistic sampling technique was used to collect respondents for its survey purposes.

For the first sample frame, convenient sampling was used to pick its respondents. This was the only the respondents could be collected as majority of them have a busy schedule and often can not spare time. Some respondents chosen for the purpose like Mr. Kutubuddin Ahmed, Present Chairman of MCCI & Former President of BGMEA, and Mr. Fazlul Haque, President of BKMEA could not give the time needed. Hence through convenience sampling the following people have been interviewed:

Table 1.1: Designation & contacts info of Experts

Name Name of company Designation Address Contact Number
Rumana Akhtar BKMEA Executive (R&D), BKMEA National Plaza (4th floor), 1/E Free School Street, Sonargaon Road 9673337
Mohammad Abdus Samad Azad BKMEA Senior Executive (R&D), BKMEA National Plaza (4th floor), 1/E Free School Street, Sonargaon Road 9673337
Quazi Zasim Uddin BGMEA Additional Secretary BTMC Bhaban, 7-9, Karwan Bazaar 0189-245543
Farzana Shirin BGMEA Sr. Executive, Research Cell, BGMEA BTMC Bhaban, 7-9, Karwan Bazaar 8115751

For the second sample frame, i.e. the owners of the knitwear companies, we used a mixture of snowball sampling and convenient sampling.

Table 1.2: Contacts info of Garments Factory Owners

Name Name of company Designation Address Contact Number
Siraj ul Islam MBM Asst. Vice President M19 & M14, Section 14, Mirpur, Dhaka 1206. 8011157, ext-12
Md. Alamgir Hossain Square Knit Fabrics Limited General Manager, A&F Mascot Plaza (11th-12th floor), Plot # 107/A, Sector #7, Uttara Model Town 0171-593455
Md. Azizul Islam Alif Group Chairman & Managing Director 21/22, Babar Road, Block-B, Mohammadpur, Dhaka-1207 9115124, 8115218, 9110065, 8118457
Mr. Riazuddin Ahmed M&J Group Manager, Accounts Concord Tower, Mohakhali C/A, Dhaka 1205 8814048, 8826247, 8824356
Mr. Abid Hassan Khan Floret Fashion Wear Managing Director 315/B Tejgaon Industrial Area 8825099

1.4.5 Data collection method

The data collected are from both primary and secondary sources. The secondary sources included the various national and international newspapers, journals, websites and also published material supplied by some of the respondents.

The primary data were collected through surveys. Beside a fixed questionnaire, in-depth interviews of a few experts were taken to help understand the situation better and from different angles.

1.4.6 Questionnaire

The questionnaire was prepared two times. Initially a test questionnaire was prepared for the experts. Initially, the questionnaire was prepared based on the research questions and then finalized based on the interviews taken of the experts.

There were 2 sets of questionnaires – 1- Pre-test and Re-set questionnaire for the Experts 2- Pre-test and Re-set questionnaire for the Owners. These questionnaires have been provided in the Appendix.

Figure 1.1: Sample of questionnaire for owners

1.4.7 Analysis Techniques

Various analysis techniques have been used to analyze data in order to fulfill the objectives of the report. Some of these techniques are described below:

Trend analysis – This was used to find out the extent of growth in the number of firms and the volume of exports of the knitwear industries in the post MFA era. The trend was created using the data of the knitwear growth of the first quarter of the year 2005.

Frequency – Frequency tables are used quite a number of times in this report, e.g. to identify reasons behind the growth of individual firms. It allows the reader to easily understand the rate of recurrence of a particular option. Using this technique we were able to identify the reason most likely to have affected the growth for the owners employees.

SWOT Analysis – Since the total impact of the removal of MFA is still to be seen in the days to come, and the impact global competition is yet to be felt, there is need to analyze certain opportunities that may open up or threats that may need to be faced. The Knitwear sector also has certain strengths and weaknesses which will decide how it will fare in the face of these opportunities and threats. The SWOT was done on basis of research and as well as factors cited by experts and owners.

Overview of

2.1 Citigroup

Citigroup is the renowned global financial services company with over 200 million-customer accounts in 104 countries across six continents. It is the first financial services company to bring together banking, insurance and investments under the same name. It provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, insurance, securities brokerage, and asset management. Citigroup, ranked one of the world’s 10 most respected companies, has the most diverse array of products and the greatest distribution capacity of any financial firm in the world.

Citigroup generated revenues of $86.2 billion in 2004, which produced net income of $17 billion. The equity base increased 13 percent to $115.5 billion (including Trust Preferred Securities) and the balance sheet reached $1.5 trillion. It reported record net income for the first quarter of 2005 of $5.44 billion, or $1.04 per share, both increasing 3% from the first quarter of 2004. The first quarter results include a $272 million after tax charge for repositioning costs comprised of $151 million in corporate and investment banking, $95 million in global consumer, $22 million in global wealth management and $4 million in asset management. Globally, there were 300,000 employees in 2004.

The major brand names under Citigroup’s trademark red umbrella include Citi Cards, CitiFinancial, CitiMortgage, CitiInsurance, Primerica, Diners Club, Citigroup Asset Management, The Citigroup Private Bank, and CitiCapital.

It was voted the most respected financial services company in the world in a recent survey of 1, 000 CEOs across 25 countries, conducted by the Financial Times and Price Waterhouse Cooper. It was ranked 8th overall among all companies, up from 31st place last year. It also ranked 12th in the categories of good corporate governance and corporate social responsibility.

2.2 Citigroup, Bangladesh

Citigroup started its operation in Bangladesh during 1987, by opening of a representative office. The main function of the bank at that time was limited to correspondent banking, L/C confirmation, credit appraisal of companies for Citigroup Hong Kong, Singapore, India etc. Based on the strengths with respect to global network, expertise in financial services and technology based delivery capabilities, Citigroup Bangladesh had been able to establish as one of the largest overseas correspondents for the nationalized banks in Bangladesh. Full-fledged operation of Citigroup started on June 24, 1995. Citigroup is a 100% owned branch office of Citibank, New York. Then on June 18, 2000 a new full service branch was opened in Chittagong, the commercial capital of Bangladesh. The branch is now operating business in a commercial hub of the city side-by-side most of its other counterparts. A third branch of Citigroup has started functioning Gulshan, Dhaka.

In this very short span of time, and with limited human resource of 93 permanent employees, Citigroup has been able to make a place for itself. In the year 2004, the bank’s net profit was Tk.38 crore. The operation of Citigroup in Bangladesh is still conservative and limited to serving financial needs of the leading business and corporate houses (through treasury operations, cash management, lending etc) although the bank has a plan to go for consumer banking in near future.

2.3 Bangladesh: As a Part of Citibank’s Global Market

Citigroup worldwide is structured in two divisions: GRB (Global Relationship Banking), which includes all the markets in the developed world and deals with those MNCs that are Citibank’s clients all over the world; and EM (Emerging Markets), which basically includes the markets in the developing world. Emerging Market is again divided into three geographic segments: Latin America, Asia Pacific and CEEMA (Central and Eastern Europe, Middle East and Africa).

Bangladesh is one of 74 countries that fall under the head of Emerging Markets. Bangladesh belongs to the region, CEEMEA (Central Eastern Europe Middle East Africa), which includes 38 countries. In each of such regions, countries belong to different clusters; a cluster forms with 4/5 geographically close countries and the representative from the largest country in the cluster is chosen to be the Cluster Head. The cluster in which Bangladesh belongs to also includes India, Nepal, Sri Lanka and Bangladesh. The regional head office of Citigroup Bangladesh is located at Mumbai, India.

2.4 Structure of the Bank

The bank is structured according to the four product divisions: Corporate Banking, Financial Institutions, Cash Management and Treasury. There are also four other departments that can be termed as support and these are Operations, Credit Administration, Financial Control and Human Resource. An organ gram is included overleaf for better visual clarity.

2.5 Corporate Banking

Corporate Banking in Citibank is divided into two main segments:

· GRB (Global Relationship Banking), in which the RMs basically deal with the clients (multinational companies in Bangladesh) with whom Citigroup has global relationship. There is a single Parent Account Manager (PAM) in the country of origin of that MNC who is responsible for looking into the credit relationship between Citibank and the company worldwide. Any credit extended to the company has to be approved by the PAM.

· TTLC (Top Tier Local Corporate), as the name suggests is the segment in which only the top performers (basically the first three ranked companies) of any industry are approached to be Citibank’s clients. The VMP program involving the RMG industries is part of this sector.

Citibank provides both deposit products and loan products to its corporate clients. The loan products are of varying tenor and purpose. Citibank Bangladesh also provides structured finance products. The main activities involved in Corporate Banking division of the bank include: communication with customers and calls. The RMs (Relationship Mangers) try to establish contact with key CBG customers; know about the status of their capabilities. The next step is to collect customer information and make a detailed analysis of the needs of the client matched with what the bank can offer. After agreement of both parties, the bank gets approval from the lending unit. Once a company has become a client with credit relationship, the RMs then have to monitor the performance of the company and ensure that no classification of credit occurs.

Every year, Citigroup, Bangladesh has to submit to the cluster head the macro-economic indicators of the country and also the performance of the sub-sectors, and based on these, the portfolio is revised as to how much Citigroup can get involved in each sector.

The Products Offered by the Corporate Banking Division

· Corporate Finance

Corporate finance and other credit products constitute the core of commercial banking services. Citibank offers a full range of financing options that are tailor-made to each of the circumstances of each client. The lending products are customized based on purpose, tenor, currency and other criteria. The products and services offered are:

· Credit Structures enhanced by Export Credit Agencies

· Commercial Paper or Fixed Income Securities

· Syndicated Loans

· Project Finance

· Working Capital Finance

This is basically the funding provided for financing of a particular working capital need, which can either be short-term loan or overdrafts. Some common forms of working capital finance are financing of inventory or raw material purchase, receivable financing for both export and domestic etc. The products and services offered are:

· Pre-export and Import Finance

· Receivable Financing

· Trade Finance

Citigroup has another major business with its business community, which is Trade Services. With its online system available globally, Citigroup Bangladesh can offer its customers swift processing service, which is crucial to any trade customer of a bank. Besides customers can open, amend, and transmit L/Cs online from their own premises using Citibanking system.

Major trade finance products and services are:

· Letters of Credit

· Export L/C Advising & Transfer

· Guarantees: Bid, Performance, Financial

· Discounting / Refinancing of Acceptances and L/C

· L/C Confirmation

· Documentary Collections / Negotiations

2.6 Financial Institutions

The Financial Institutions department caters for the need of various banks and non-bank financial institutions as well as NGOs, not-for-profit organizations and diplomatic missions. The core product is the correspondent banking services. Besides there are various electronic banking services, which enable FI, clients perform large domestic and international transactions efficiently and safely.

With presence in more than 100 countries in the world, Citibank N.A. is one of the largest correspondent banks for international trade services. Citibank N.A. is one of the leading global correspondent banks of financial institutions operating in Bangladesh. The FI customers include the largest nationalized commercial banks, which account for approximately 50% share of the country’s financial market, as well as top tier private sector commercial banks.

Citibank is a member of CHIPS and the largest processor of US dollar payments in New York. There are more than 28,000 US Dollar accounts of financial institutions and corporates maintained in Citibank, NY. On average, Citibank NY transfers funds worth $500 billion per day to beneficiaries all over the world. Customers can avail a variety of account services such as payments processing in US Dollar and other currencies, check collections, investment of funds in overnight or long term money market products, view / download daily account statements etc.

Primary Activities of FI Department

FI department mainly facilitates international trade conducted by Citibank, Bangladesh. Citibank does L/C advising, confirming, transferring, guranting and negotiating and reimbursing. In order to do so the FI department of the bank provides the local banks direct facilities or credit lines that includes OSTBT (Ordinary Short-term Banking Transaction), Local bill discounting, CTC credit line etc. Credit line for treasury purpose includes PSR facilities. Like the CBG Department, the FI-RMs also try to establish contact with FI customers. After that, the RMs collect customer information and make a detailed analysis of the needs of the client matched with what the bank can offer. After agreement of both parties, the bank gets approval from the lending unit.

Major FI products and services are:

· US Dollar Demand Deposit Account with Citibank NY

With this NOSTRO account FI customer can check the daily statements of transactions. The statement lists all debits, credits and the closing balance and also contains pertinent details necessary for immediate reconcilement. The statements are downloaded electronically by Citibank, Dhaka from overseas branch office’s system and printed on hard copy and delivered to customer’s office. In response to the customers’ needs Citibank is also in a position to maintain additional accounts in other currencies (EURO / ACU).

· Sweep and Investment Services / Overnight Investment Facility

Overnight Investment facilities are provided for any balance with Citibank, NY in excess of USD 50,000. This facility enables the customers to earn interest in their operating accounts.

· Automated Funds Transfer Facility

With state-of-the-art technology (SWIFT interface) available to Citibank, the bank is able to pass on customers’ instructions to transfer FCY funds and inter-bank FX settlement to its overseas branch where NOSTRO account is maintained.

· Reimbursement Authority Processing

The reimbursement facility is linked to the customer’s proposed NOSTRO account. The LCRA (L/C Reimbursement Authority) instructions are picked up from the designated branch of the customers and pre-processed in Dhaka and Chittagong offices and transmitted to overseas unit where NOSTRO account is maintained. The Dhaka and Chittagong offices of Citibank N.A Bangladesh coordinate with the branches and the overseas counterpart to resolve the issue in order to provide superior services to the clients.

· Letters of Credit Advising / Advising

With the aid of test-key arrangement, SWIFT Key exchange and/or exchange of authorized specimen signature booklet, Citibank’s global network is available for advising L/C. Citibank also provides L/C amendments service.

· Pre-Debit Advice

A pre-debit advice is also provided on daily basis at free of cost for funding customers’ accounts smoothly once they start using the account for reimbursement purpose. Customers receive pre-debit advice through SWIFT directly from Citibank New York.

· Electronic Banking / e-Business

Citibank e-Business offers the customers an innovative approach to domestic, cross-border and regional banking solutions. In Bangladesh Citibank primarily offers Paylink, Citibanking, and CitiDirect as e-solutions.

2.7 Cash Management

Cash Management deals mainly with deposit collection i.e. is involved in liability management of the bank. For this, the team has to go out on calls to bring about customer deposits and get companies to open account with Citibank. Cash Management team works closely with the Corporate division and with FI department (For NGOs, NBFIs, Insurance Companies and Diplomatic mission).

The products and services offered from this department include:

  • Online fund transfer between Dhaka and Chittagong.
  • Efficient collection mechanisms at different outstation points.
  • Secured electronic payment mechanism at over 100 locations across the country.
  • Innovative and competitive deposit products.
  • Web-based electronic banking services.
  • Prompt distribution of inward remittance at competitive rates.
  • Mobile banking.

Citibank is in a position to offer customized services with the help of state-of-the-art technology to support high volume of payments and collections. The Citibank products such as Worldlink enable effective payment in more than 40 currencies through drafts or wire transfers. Simultaneously, the strong relationships of Citibank , Bangladesh with the nationalized commercial banks within the country enables payments to reach virtually to all the corners of Bangladesh.

On the collection side, the New York based automated check processing capability of Citibank assists in obtaining proceeds of clean checks with the minimal of turn-around time. With well-structured courier arrangement and relationships with other banks, Citibank is capable of substantially reducing transit time for local collections and thereby, assisting in better management of funds.

Besides, Citibank is playing an important role in facilitating fund remittance by expatriate Bangladeshi workers. In collaboration with Saudi-American Bank (SAMBA), Agrani Bank and Islami Bank as local counterpart, Citigroup Dhaka office introduced new products called Speed Cash and Safe Draft to facilitate quick funds transfer for the Bangladeshi expatriates working in K.S.A. Citigroup, Bangladesh is now exploring the opportunities of extending similar services to other parts of the globe, especially in Middle East countries Great Britain and Malaysia where the number of Bangladeshi workers are high.

Major cash management products and services are:

  • Account Services
  • Domestic and International Payments & Collections
  • Outstation Check & Cash Collections
  • Cash Pick-up & Delivery
  • Travelers’ Cheques
  • World link
  • Pay link
  • Speed Cash
  • Safe Draft

2.8 Treasury

The treasury of Citibank Bangladesh meets all the foreign exchange related requirements of the valued corporate customers. Citibank Bangladesh Treasury has been giving excellent and innovative services to the clients since its inception in 1995. These clients can establish direct contact with the treasury for their foreign exchange requirements. Their local and global strength in treasury products enables them to offer the most competitive foreign exchange rates for Spot and Forward transactions. Apart from competitive foreign exchange rates Citibank has other value added treasury services:

The products and services offered by this department include:

  • Foreign Exchange

· Ready & Spot

· Forward

· Currency Swaps

· Deposits for Various Maturities

· Bills Discounting

· Inter-bank Term Deposits

o Money Market

· Overnight Deposits

· Term Deposits

· Discounted Securities

Citibank is also a very active player in the country’s Swap Market. They are always working very closely with Central Bank and other regulatory organizations to offer their local and international expertise for the development of new products and markets.

2.9 Other Departments

Credit Admin

This department deals with credit risk or market risk of projects. Other responsibilities of the department include monitoring credit facility, checking the credit approvals prepared by the Relationship Managers, monitoring the Relationship Managers’ activities relating to plant visits. The Head of this unit reports to the Country Risk Manager (in case of Citibank, Bangladesh, it is the Chief Country Officer).

Financial Control

The activities of this department include managing the financial books of the bank; checking all entries of the book are according to standards, preparing daily reports for Bangladesh Bank, revenue appropriation and calculations, setting the internal pricing rates etc.

Operations, Technology & ICU (Internal Control Unit)

The Operations department of the bank deals with account opening, deposit management, loan booking, L/C opening etc; the Technology part involves processing of transactions and maintenance; and ICU is involved in reconciliation of Nostra accounts and also making sure that every day the suspense account balance is 0.

Human Resource

The responsibilities involved in the Human Resource department include recruitment, selection, employee performance evaluation etc. Being a multinational bank, besides Citigroup policies, certain US laws are applicable to the operation of Citigroup in Bangladesh; anti money laundering and adhering to such general compliance issues of the bank are other major responsibilities of this department. Although compliance and human resource are two different sides, in Citigroup Bangladesh, both are headed by one individual.

Citigroup’s Vendor Marketing


The Vendor Marketing Program of Citigroup N.A. offers short term Trade Finance & Services to qualified apparel exporters in Bangladesh.

Although in the year 2004 Citigroup has approved of term loan facility of maximum US$ 2.5 million with a maximum tenor of three years under the program, considering the forthcoming post MFA scenario, it had proposed to hold the term loan facility till there is a clear picture of the garments export scenario of post MFA.

At present the companies that are under the program are: 1- Sajid Apparels 2- Matexport Ltd. 3- MBM Garments 4- Sunman Sweaters 5- Pacific Jeans 6- Shanta Garments 7- Opex Sweaters 8- Giant Garments 9- BSF 10- Siam Superiors 11- Columbia Apparels

3.1 Target Market

Citigroup has taken a niche approach in selecting vendors and buyers with additional controls, whereby limiting the facilities only to those vendors with long track record and having a long term survival outlook, while on the buyer side limiting to those financially strong buyers (D&B rated 1-2, selectively 3) or Citibank’s GRB relationship.

The facility offering is mainly limited to the trade cycle of the client with tenor of 180 days.

The program limit is being renewed at existing level of $25 million. While Citigroup has introduced the risk return criteria in last renewal, the existing target market criteria of the program remains unchanged, which are:

– The target will have to be 100% ready-made garments manufacturers & exporters with group exports greater than US$ 10 million. This must be confirmed through BGMEA data, bank report or audited financials. Citigroup has proposed to continue with the existing minimum target level of US$ 10 million. At present, there are approximately 50-60 vendors who have annual sales of US$ 10 million and above. Citigroup has lending relationship with 10 of them.

– The present facility is expected to be more or less utilized by the existing clients.

TM includes only those vendors who are dealing with reputed buyers and also will be subject to obtaining positive

3.2 Import

Citibank opens Back to Back Import LC/amendments against Export LC under lien to it. Import bills under such Import LCs are scrutinized and applicant is informed about arrival of documents and both applicant & beneficiary are informed if any discrepancies arise. Import Loans are also offered if necessary if export funds are not realized, for making Import bill payments on maturity. Customers can also open Import LCs under EDF (Export Development Fund) offered by Bangladesh Bank. In a situation where the imported goods reach Bangladesh port before arrival of original import documents, Citigroup may issue a shipping guarantee (bank indemnity) in favor of the shipping line / agent for release of goods without endorsement of the Original Bill of Lading.

3.2.1 Import Back-to-Back LC issuance and amendment

Citigroup receives LC opening or LC amendment application at its counter. The LC opening application is made in the bank-prescribed format and signed by authorized signatory of the customer. The application is time stamped and signature on application/Pro-forma Invoice/Indent/LCA/IMP is verified by designated Citigroup employee at the branch. Any alteration needed is to be duly authenticated by the customer.

The full set is then received by the OIC, Trade for his/her perusal. The application set is subsequently scanned and images authorized in CI and taken up by E-Serve for processing. E-Serve completes scrutiny of the application against checklist provided to them and passes the necessary entries through Trade Engine. The LC/amendment is transmitted through swift to overseas bank and customer copy of LC text & debit advice generated through TE (Trade Engine) is delivered to customer. A Fortnightly report for LC/amendment issuance is made to Chief Comptroller of Import & Export (regulatory body) and Monthly report of LCA and IMP reported to Bangladesh Bank.

3.2.2 Import Bill Scrutiny

Import documents are delivered by courier and received at Mail Desk. The document is time stamped and reviewed by OIC Trade. A unique reference is assigned by the branch. The document is scanned in CI and taken up for scrutiny by E-Serve. A detailed checklist is provided to E-Serve for scrutiny. After completion of scrutiny, a presentation memo is generated through TE which includes the document arrival notice and list of discrepancies (if any). Overseas bank is also advised of acceptance or declining of document.

3.2.3 EDF (Export Development Fund)

Export Development Fund is a source of funding for financing foreign exchange import requirements of 100% export oriented industries for their imported inputs. The fund is owned by the Government of Bangladesh and managed by Bangladesh Bank. Bangladesh Bank uses EDF to refinance foreign exchange credits given by scheduled banks to eligible exporters. Under this arrangement, VMP customers may request for opening import Back to Back LCs on “Sight” basis.

A monthly reporting to BBK needs to be done on LCs issued under EDF. A letter for re-financing has to be sent upon execution of payment of import bill. Accordingly, BBK provides a loan to the Bank for the bill amount for a maximum tenor of 180 days. Upon realization of export proceeds, the BBK loan is liquidated for principal + interest. All IBBS entries for booking and liquidation of EDF loans are passed by E-Serve.

3.2.4 Shipping Guarantee

Customer letter and customer’s counter indemnity (duly signed by authorized signatories) is received at counter and time stamped, with signature verified. Customer provides acceptance of any and all discrepancies on original documents. Copy Invoice and Copy B/L is provided for Citibank’s perusal.

Branch processes the guarantee by completing checklist for guarantee issuance. Necessary entries are passed/authorized in IBBS by Branch.

3.3 Export

Export Bills submitted by customer at Citibank’s counters are either negotiated or sent on to overseas bank on collection basis. Upon realization of export proceeds, b/b LC payments, Packing Credits, EDF Loans are settled first and remaining balance credited to customer’s account as per their instructions.

3.3.1 Export Bills under Collection

Export Document is received at counter, time stamped, and signature verified. A cover letter in the bank’s prescribed format is attached with the document. As per customer instruction, document is negotiated if document is clean or else negotiation is done with approval from BCC. Otherwise, document is sent under collection basis. For negotiation of discrepant documents, Trade Operations confirms continuation of the cross border exposure covering the import payment (if import liability is paid off from the proceeds of the negotiation) till receipt of the export proceeds at Citibank’s counter.

The full set of document is scanned in CI and taken up by E-Serve for processing after images authorized by branch. The document is scrutinized as per checklist available to E-Serve. Necessary entries are passed by E-Serve in IBBS if document is negotiated by the branch. The full set of document is dispatched through DHL by the branch.

The duplicate of the Export form is duly filled and submitted to BBK within 14 days of shipment.

3.3.2 Export proceeds realization and utilization

Export proceeds are received through Citibank’s Nostro. The fund is immediately parked in a customer specific sundry account. Upon settlement of import bills, packing credit etc. the remaining balance is transferred to customer’s current and FCY RTN Quota account as per customer instruction.

Monthly BBK reporting of the triplicate copy of the EXP form is done upon realization of proceeds.

3.3.3 Packaging Credit (Pre Shipment Finance)

Packing Credit is the working capital finance towards the credit required for manufacture of export order in local currency other than the financing by the bank for import of raw and packing materials through issuance of back to back letter of credit. The credit is liquidated when the exporter ships and presents documents in order to avail post shipment credit or upon realization of export proceed against documents sent on collection.

3.4 Risk identification

There are several types of risks that are analyzed before going for extending Citibank’s services to the vendors. These are:

n Credit Risks

n Commercial Risks

n Operational Risks

n Country Risks

n Documentation Risks

n Funding Risks

All obligors under this program will have been assigned Obligor Risk Rating (ORR), derived from DRM (Debt Rating Model). Citigroup rates the program based on the average probability of default of the obligors (multiplied by the limits of obligors), under the program.

The credit risk here is largely dependent on “performance risk” as the vendor may not have the ability to perform according to the requirements of the buyer. Whether the export order is placed via a PO or a LC, the ultimate risk is whether the buyer will approve the final product. Therefore, the buyer/vendor relationship is a critical element in analyzing performance risk.

Even though such risk will exist, the mitigating factor here is the PRAC done, i.e selection of vendor and approval of his buyer, checking the years of relationship of buyer with the exporter and positive reference on the buyer.

3.4.1 Commercial Risk

Commercial risks occur when Vendors, Buyers and Banks have disputes over conditions and rules governed by the operative L/C document under UCP 500 and local requirements .These risks can be controlled through the proper selection of Vendors and L/C issuing banks, for which Citigroup has a set rules.

3.4.2 Operational Risk

Buyers can refuse to pay identifying discrepancies that have been overlooked by Citibank. Operations will use a detailed checklist to facilitate the process and meet compliance requirements. Adequate resources in the Trade Processing Unit will ensure that Operations processing will continue to demonstrate high quality as a mitigant.

3.4.3 Country Risk

This program will operate within the country cross border limits. Export Bills with discrepancies, Import LCs and FX pre-settlement will be earmarked against country cross border limits.

3.4.4 Documentation Risk

Necessary documentation is to be taken per local standard bank forms. Individual RMs for respective VMP clients is responsible for obtaining all documentation prior to utilization. Country credit administration will check documentation prior to draw-down.

Citigroup Bangladesh, offers VMP products to its 100% Export oriented RMG (Ready Made Garments) clients. The products offered under this program can be divided into the following categories:

3.4.5 Vendor Selection:

Vendor selection is accomplished by the credit filters and facility provided commensurate to level of experience with the Bank. This includes Pre-screening and trade feedback. Owners commitment to the business is also a key ingredient in analyzing vendor risk, which can be judged through site visits and talking to people from the same trade. This would also give an idea of the reputation of the vendor amongst the suppliers and the market.

3.4.6 Banks Selection:

In general Buyers delinquency is covered by L/C issuing banks (Rated 5- or better), for the Pre-Export finance once performance per term of the L/C is completed. Banks with ORR of 5 or better would qualify automatically.

3.4.7 Buyer Selection

In case of a GRB buyer, Citigroup will insist satisfactory payment history. For others Citigroup is taking reference check. In any case, as per law of the land, taking buyer reference from an acceptable agency (Citigroup take from D&B or from other Citigroup branches having relationship with the buyer) is mandatory.

3.5 Account Maintenance Process & MIS

n VMP Sponsor/Manager will provide program management support and individual RM (Relationship Manager) looking after individual VMP clients will be responsible for obtaining proper documentation.

n CPC Mumbai will handle all trade-related transactions, while DRUBR, Shipping Guarantees and Drafts/TTS will be handled by the Dhaka/or Chittagong Trade Dept.

n VMP Sponsor as well as individual RMs will be responsible for periodic monitoring of outstanding and also loan maturities.

n Revenue monitoring shall be handled by the Financial Control Unit.

n A&P shall be used for operating procedures and ops matters, while the GCIB rules shall govern credit related matters.

n Direct write off method will be used for loans DPD 180 days. No losses under the program to date. No losses are anticipated for 2004.

Policies and Procedures Documentation

n Documentation will be standard across all customers.

Funding Strategy

n Funding will be from the local US$ deposit base and shortfalls will be covered via borrowings from other regional Citigroup Treasuries (e.g. Bahrain). Funding will be managed by the Treasury Unit of the Branch.

n Export Development Fund (EDF) from Bangladesh Bank

3.6 Key Success Factors for Vendors

For Vendors:

The garment export trade starts with the buyer placing an order with the seller (vendor). Therefore it must be noted that if the vendor is unable to secure orders from buyers, he is out of business. In order for the vendor to be successful in securing orders continuously he must consistently make delivery in the right quality, at the right time and at the right price. To maintain these attributes and standards (Price, Quality and Delivery) the vendors will be required to consistently upgrade their production facilities, increase productivity and have a strong management team.

Therefore in identifying a quality vendor one must look for the following:

1. Experienced: who has been in business for a considerably long time (>+5yrs for group),

2. Reputed: who has long-term buyer relationship, and has secured business consistently from reputed buyers,

3. Successful: buyers are willing to place continuous orders,

4. Good Management with Farsightedness: experienced and committed management focused towards consistent upgrading and improving production facilities,

5. Financial Strength of the Group: who may sustain in the cut-throat price war situation,

6. Buyer Diversification: who has diversified based on buyer as well as destination,

7. Adherence to International Labor Standards: with buyers becoming more and more demanding about the quality of life being given to garments workers, manufacturers have to ensure that they adhere to stringent labor laws, factory construction standards etc. Most of the large buyers have their own inspection team and standards certification process before they procure from sellers.

3.7 Credit Process

The following tables show the different criteria that the vendors must fulfill to be eligible for Citibank’s services

Table 3.1:Pre- Screening Criteria
Parameter Requirement
1. Apparel exports of the Group Min USD 10MM
2. Registration with BGMEA* Yes
3. Bangladesh Bank’s Defaulters list Clean Report
4. SDN check Not on SDN list
5. Export of the Group to GRB & D&B 1-3 rated client (s) >=50% of group turnover
6. GRB Client Reference and/or D&B Rating Positive
7. Length of relationship with GRB client Min 2 years
1. Years in Business (for Group) >=5 yrs
2. Apparel Export Turnover of Group Min USD 10 MM
3. Profitability1 Positive for last 3 yrs
4. Financial Ratios for company

Interest Cover


Current Ratio

>= 2

<= 1.5

>= 1.1

5. Trade Reference Check Positive
6. Visit to site No adverse comment (waived for stand alone PSE facility)
7. Single buyers concentration Maximum 40%
8. GRB & D&B checking covering minimum

40% of sales of the units to be financed by us

9. Minimum Yearly Revenue Category A = USD 25 M

Category B = USD 40 M

Category C = USD 50 M

(waived for stand alone PSE facility)

  • Leverage calculation excludes L/C / acceptance liabilities from the payable. However, including Acceptance, leverage cap is 2.50

In addition:

While Citigroup does not seek any recourse from the buyer for its vendors financed under this program, Citigroup will use the following criteria judgmentally for selecting a buyer/ GRB buyer:

1. Satisfactory payment history as confirmed by exporter

2. No adverse comment on company from overseas PAM/CitiVision if a GRB buyer

3. Willingness of the buying office to support the program by providing details on their operations/ references on the vendors

Pre Screening Yes
Standard Documentation Yes
Personal guarantees from Directors / owners Yes
Max. tenor of Facility 360 days (360 day for OD only which amounts maximum of USD 100million 180 days while shipping guarantee tenor is 18 months
Level of Facility


– Unit / Group Level (maximum of 40% of group VMP export or the limit mentioned, whichever is lower)

% of export to GRB Buyers and or to D&B rated 1-3 buyers

Limit within the total facility

To negotiate discrepant docs

(Only GRB buyers)

GroupTurnover>USD 25MM

Group Networth> USD 4MM

No. of years in business > 7

GroupTurnove> USD 15MM

Group Networth> USD 3MM

No. of years in business > 6

GroupTurnover (TO)> USD10MM

Group Networth> USD 2MM


No. of years in business > 5





US$ 1.5MM


(US$ 800M) (US$ 500M) (US$ 300M)
Maximum Finance (% of Master L/C) 90% (Usance/Sight B/B L/C-75% plus Packing Credit/Overdraft-15%)
Security Hypothecation of stocks & receivables

* Max allowable limit for B/B L/C set by the central bank is 75% of the Master L/C. If that reduces, Citigroup will also have to reduce the maximum finance limit for B/B L/C.

Overview of RMG Industry

Bangladesh is the twelfth largest garments manufacturing nation in the world. The garments sector is divided into the textile and the readymade garments (RMG) segments. The textile segment is sub-divided into a number of activities, which include: spinning, weaving, and fabric processing; and the RMG segment includes knitwear and woven items.

Since the late 1970s, the RMG industry started developing in Bangladesh primarily as an export-oriented industry. RMG now accounts for 77% of the total merchandise exports of Bangladesh and 94% of the RMG export is dependent on the quota-restrained markets. The direct contribution to GDP is relatively small about 5% (IMF working paper). The sector reflected an average annual growth rate of 22% (EPB, 2000), and between the years of 1990 and 1997 exports of apparel grew by 200% in terms of volume and 370% in terms of value. This is one of the