The Central Bank of Nigeria (CBN) on Tuesday halted commercial banks and other authorised dealers from taking ‘Bills for Collections’ as means of payment for milk importation and its related products but only Letters of Credits (LCs).
The new policy was contained in circular, dated August 26, 2019, and signed by Director, Trade and Exchange Department, Mr Ahmed Umar.
The directive which was sent to all bank chief executives noted that financial institutions are to immediately discontinue the processing of imports of milk and its related products on Bills for Collection basis.
According to the statement, the policy was to streamline the mode of payment for importing the products.
A Letter of Credit is an undertaking by a bank, on behalf of an importer (the applicant) to make a payment, provided that the exporter complies with all the terms and conditions stipulated by the credit. Letters of credit can be confirmed or unconfirmed and are irrevocable upon issuance;
While Bill for Collection is an order by the seller to his bank to collect a certain sum from the buyer against the transfer of the shipping documents. Here, payment can be made by cash or by acceptance of a Bill of Exchange.
The circular reads: “As part of efforts aimed at streamlining payment modes for imports, all authorised dealers are hereby directed to discontinue the processing of imports of milk and its related products on Bills of Collection basis.
For the avoidance of doubt, the mode of payment in respect of milk and its related products shall henceforth be on the basis of Letters of Credit only. Please ensure strict compliance.”
The CBN Governor, Godwin Emefiele, had recently unveiled plans to restrict access to forex for milk importation through its regulated forex windows.
According to him, the country spends between $1.2 billion and $1.5 billion annually on milk importation, which it described as unacceptable.
Emefiele had said domestic production of milk had the potential to reduce recurrent farmer-herder clashes, which have stifled the growth of the agricultural sector.