Originally posted in The Daily Star on 27 April 2021
FBCCI’s plan for a bank is an absurd idea: experts
Apex trade body wants to give collateral-free loans to SMEs
The country’s apex trade body plans to set up a commercial bank and an insurance company to serve better cottage, micro, small and medium enterprises (CMSMEs), which struggle to secure loans despite being the backbone of the economy.
The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) also wants to establish a university to develop the workforce in line with the requirements of industries.
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The outgoing board of the federation approved the proposals in a virtual meeting on Saturday.
Experts criticised the proposal to set up a separate bank.
“The idea is absurd as the apex trade body has done little for the CMSME sector,” said Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh.
Currently, there are 61 banks and 34 non-banking financial institutions in Bangladesh.
Mansur said the FBCCI, as the apex trade body, had a lot of responsibilities, such as negotiating with the government to protect the interests of the business community.
“It can’t demand to run a bank separately. There is no such precedence of bank operations by any trade body in the world.”
The former economist of the International Monetary Fund said it would be a wrong policy to allow government agencies and departments to run banks, and almost none of them could prove their worthiness.
Fahmida Khatun, executive director of the Centre for Policy Dialogue, said there was no need for any new bank as the number of lenders was already too high given the country’s business volume.
“Allowing a new bank will not bring any good for the economy. Rather, we should focus on how to improve the financial health of the existing banks as only 10 to 15 of them are doing well.”
Salehuddin Ahmed, a former governor of the central bank, said there was no genuine logic to seek a licence for a bank from the end of the FBCCI.
“If the directors of the FBCCI or other businesses face any problem in managing loans, they can urge the government and the central bank to reform the banking industry.”
He said industrial groups did not control banks in the developed countries and even in India. But, the scenario was quite the opposite in Bangladesh.
“Such control has had a negative impact on the banking industry to a large extent,” Ahmed said.
If the directors of the FBCCI need the ownership of a lender, they can purchase shares of a weak bank, he said.
The number of insurance companies is also higher in Bangladesh than required, he said. “So, the government should not entertain the FBCCI’s demand.”
Siddiqur Rahman, senior vice-president of the FBCCI, said the board would go ahead and lobby with the government to set up a bank, a university and an insurance company.
“A bank is needed to disburse loans to the businessmen, especially to the CMSMEs, because the existing commercial banks are reluctant to lend to the firms without collaterals. We have targeted to lend money to the cottage, micro and small entrepreneurs without collateral.”
He said most commercial banks fixed unusual interest rates that are affecting the normal businesses.
Most CMSMEs do not have the capability of availing loans from the conventional banking system by fulfilling stringent conditions, he said.
For instance, most of the CMSMEs could not secure loans from the government-sponsored stimulus package because of the strict terms.
“But they are in big trouble because of the fallouts of Covid-19,” said Rahman, also the commerce and industrial affairs secretary of the ruling Awami League.
The insurance company will act as the guarantor of the loans that will be disbursed among the CMSMEs, he said.
The government has allowed banks for the Army, the Police, the Border Guard Bangladesh, and the Ansar and VDP. “Why can’t there be a bank for the trade body?” Rahman asked.
“FBCCI deserves a bank because it is the apex trade body of the country.”
The FBCCI board will run the bank, and the general public can buy the shares once it goes public, he said, adding that former FBCCI directors or presidents can be sponsor directors of the bank.
Rahman, also a former president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said he wanted to set up a BGMEA bank. However, it was not possible as his tenure expired.
“Still, we have a plan to apply for a bank for the BGMEA. We want a bank for the BGMEA as the garment sector is the single largest export earner for the country.”
The proposed FBCCI University will formulate the curriculum targeting the need of the industries as public and private universities are failing to produce the required human resources.