Bangladeshi businessmen can hardly enjoy the benefits of hedging on import of basic commodities as the commercial banks are not allowed to provide this modern financial service widely.

Hedging is a risk management strategy used in limiting or offsetting the probability of loss from fluctuations in the prices of commodities, currencies or securities.

In effect, hedging is a transfer of risk without buying insurance policies.

In case of hedging, importers need to pay a certain amount of money in advance to the exporters, which is not permitted under existing foreign exchange rules.

Hedging, if widely used for imports of commodities, will help save millions of dollars as importers will be protected against adverse price movements.

At present, if any bank wants to offer hedging facilities it will have to take prior permission from the central bank, said Md Ahsan Ullah, executive director of Bangladesh Bank.

A separate guideline for hedging is not needed as there are international rules for this particular instrument, he added.

Recently, with the significant fall of petroleum products worldwide, many airline companies hedged to take advantage of the lower prices of the products to save the operating cost significantly.

Some airlines have already stepped up hedging, especially after the benchmark Brent crude slipped below $50 a barrel in December last year.

But the Bangladeshi businessmen have been importing the goods at the current higher prices from the international markets, although it was possible to bring the goods at much lower prices through using the hedging instrument.

As a result, the local consumers sometimes have to pay exorbitant prices for the commodities, as the purchasing prices are also higher.

For instance, in 2010-11, the local cotton importers had to count an additional $500 million as losses due to abnormal price volatility of the item in the international market.

The hedging instrument can be used on import of a wide range of commodities like cotton, edible oil, petroleum products, sugar, wheat, rice and metals.

The central bank is still doing its preliminary work for preparing the rules.

Bangladesh Textile Mills Association, the spinners' and weavers' platform, held a meeting with the higher-ups of Bangladesh Bank on hedging last month.

“We need to formulate the hedging rules as soon as possible,” said Farah Diba, a research associate at BTMA.

Bangladesh annually imports goods worth more than $45 billion, which the experts are saying will cross $60 billion soon for higher economic performance.

Ahsan H Mansur, executive director of Policy Research Institute, said Bangladesh Bank has the scope to show a liberal attitude by allowing hedging by commercial banks as the country's overseas trade volume has been increasing every year.

“The hedging will minimise the risk and cost and uncertainty in trade. Definitely, Bangladesh can save millions of dollars from the hedging instrument.”