Differentiate between funded and non-funded trade finance facilities in the context of Bangladesh.

Trade finance facilities support import and export activities. These facilities can be broadly divided into funded and non-funded facilities.

Nature: Funded facilities involve actual disbursement of money by the bank, whereas non-funded facilities involve a bank’s commitment or undertaking without immediate payment.

Bank’s Funds: Funded facilities use the bank’s funds immediately, whereas non-funded facilities do not require immediate use of bank funds.

Balance Sheet: Funded facilities create an immediate funded loan exposure, whereas non-funded facilities are generally contingent or off-balance sheet exposures.

Interest/Commission: Funded facilities generally generate interest on the amount disbursed, whereas non-funded facilities generally generate commission or fees for the bank’s undertaking.

Examples: Funded facilities include Payment Against Documents (PAD), Loan Against Imported Merchandise (LIM), Loan Against Trust Receipt (LTR), Packing Credit (PC), etc. Non-funded facilities include Letter of Credit (LC) and bank guarantees, etc.