Trade finance USA and Bangladesh

The United States is the #1 export partner for Bangladesh, representing 13.9% of Bangladesh's exports. However, the US is not one of the countries from which Bangladesh primarily imports (CIA World Factbook, 2017). The total trade between the two countries in 2016 was around $6.8 billion, $5.9 billion of which was from Bangladesh to the US. Imports of American goods to Bangladesh totalled just $895 million. Bangladesh is thus the 50th-largest trade partner of the US (USTR, 2017).
Bangladesh exports are woven apparel ($3.8 billion), knit apparel ($1.4 billion), other textiles ($206 million) and footwear ($105 million). The US exports to Bangladesh soybeans ($232 million), cotton ($95 million), corn ($39 million) and feed/fodder ($22 million). Thus, the Bangladesh has a position as one of the clothing and footwear-producing nations exporting to the US, but really only has the means to import small amounts of agricultural goods. Trade with Bangladesh is estimated to support around 6000 American jobs (USTR, 2017).
Financing Trade
There are several critical issues with respect to financing trade between the US and Bangladesh. The Bangladeshi trade finance market is underdeveloped, but it is also beset with significant corruption and a poor legal environment. The Heritage Foundation scores Bangladesh 55.0, ranking 128th in the world, on the Economic Freedom Index (Heritage.org, 2017). Several key issues were highlighted in this analysis.
One key issue was government integrity, where Bangladesh scored very poorly. This score covers issues like corruption and government control – its basic legitimacy. Transparency International (2016) scores Bangladesh a 26, good for 145th out of 176 countries studied. The Fund for Peace's Fragile States Index, which evaluates the stability and legitimacy of the regimes ruling a country places Bangladesh 89.1, or the 37th-weakest state in the world (FFP, 2017), though apparently this is a marked improvement from where the country was a decade ago. The state's legitimacy is weaker than it has been in the past, however, despite improvements in other areas. That said, with most trade concentrated in Dhaka and that city being the most secure area of the country, the lack of financial infrastructure and rampant corruption stand as the biggest issues, with question marks about the rule of law also being an issue.
There is limited competition for trade finance, with HSBC being the only major international institution with substantial investment throughout the country, and that leads to a chronic shortfall of trade finance in the country (Rahman, 2016). HSBC's optimism is one sign that things are improving, but there are other signs as well. The Asia Development Bank signed agreements with four Bangladeshi banks to help provide trade finance in the country (ADB, 2016). A World Bank report noted that local banks are undercapitalized and poorly equipped, which means that the government needs to open up to foreign banks in order to improve the state of trade finance, especially in the critical textile sector (Baylis, 2016).
Foreign banks would also need to feel confident about their investments, which may be difficult to envision in a country with rampant corruption, a relatively weak government, and a lack of large enterprise to provide finance. Even foreign banks are often poorly equipped to provide finance to SMEs in countries like Bangladesh, yet that is where the greatest need exists (Baylis, 2016).

Recommendations
For American companies, there needs to be access to capital from outside the Bangladeshi system, and right now that mostly means HSBC. Using local banks brings about a number of risks, including political risk, default risk, and corruption risk. With a shaky legal system underpinning an equally shaky government, an American firm is unlikely to invest in Bangladesh without the assistance and financial protection of HSBC or other international bank. Ideally for an American company, an American bank would set up a presence in the country, allowing for guarantee of loans, finance or credit in USD.
Furthermore, American companies doing business with or in Bangladesh will need substantial assistance to deal with the legal system and the cultural issues that arise from being in such a different culture. The norms of American business are quite different from the norms of Bangladeshi business, and that alone increases many of the risks related to finance. So for the American company, working with a local partner that is well-connected to government is a strong second choice to working with a foreign bank that can provide both advice and security.
There is only so much that can be done to mitigate the risks associated with doing business in Bangladesh, so American interests have to be careful no matter what. They need a pathway to bring money out of the country if necessary, and a system of dispute mechanism in order to feel confident in the deals that they make, since it is unlikely an American company would have much faith in the Bangladeshi legal system. While not unfamiliar – it was inherited from England- the corruption and Islamic characteristics reduce familiarity and increase risk for any American company, to the point where alternate dispute resolution mechanisms are advised. Overall, however, risk cannot be mitigated entirely in a country like Bangladesh, it can only be priced into any dealings there.

References

ADB (2016) ADB signs trade finance agreements with four Bangladeshi banks. Asia Development Bank. Retrieved August 5, 2017 from https://www.adb.org/news/adb-signs-trade-finance-agreements-four-bangladesh-banks-0

Baylis, H. (2016). Constraints to trade finance. World Bank. Retrieved August 5, 2017 from https://elibrary.worldbank.org/doi/abs/10.1596/978-1-4648-0898-2_ch7

CIA World Factbook (2017) Bangladesh. Central Intelligence Agency. Retrieved August 5, 2017 from https://www.cia.gov/library/publications/the-world-factbook/geos/bg.html

FFP (2017) Fragile States Index. Fund for Peace. Retrieved August 5, 2017 from http://fundforpeace.org/fsi/country-data/

Heritage.org (2017). 2017 Index of Economic Freedom Heritage Foundation. Retrieved August 5, 2017 from http://www.heritage.org/index/country/Bangladesh

Rahman, M. (2016). Bangladesh a key market for trade finance. Daily Star. Retrieved August 5, 2017 from http://fundforpeace.org/fsi/country-data/

Transparency International (2016) 2016 Corruption Perceptions Index. Transparency International. Retrieved August 5, 2017 from https://www.transparency.org/news/feature/corruption_perceptions_index_2016

USTR (2017). Bangladesh. Office of the United States Trade Representative. Retrieved August 5, 2017 from https://ustr.gov/countries-regions/south-central-asia/Bangladesh