Banking with small enterprises
Tuesday, 25 September 2007
Anything in excess of the need does create functional problem for most systems, the banking system included. At the moment, country's commercial banks are floating on a record amount of excess liquidity-an estimated Tk. 145 billion-- because of a sluggish demand for funds from businesses and investors for the past few months. Most banks recorded substantial business growth and earned handsome profits in recent years when demand for funds from both investors as well as traders was relatively high. But the banks having their vaults stuffed with idle money are now worried over their future profitability.
However, a few suggestions given by Chief Adviser Dr. Fakhruddin Ahmed in a recent letter to central bank governor Dr. Salehuddin Ahmed on ways to overcome the problem of excess liquidity deserve serious consideration by the banks not only to overcome their own problems but also to give the economy the much-needed boost. Dr. Fakhruddin, who was the immediate past governor of the central bank, possibly, is the first head of government to write a letter to the central bank governor making ' suggestions' on the possible ways of dealing with a few problems that have cropped up of late.
The letter itself highlights the CA's respect for the central bank's autonomy and the desire to help small enterprises who want to play an important role in the economy. The CA has advised the banks to be proactive and spend 'little more time with prospective borrowers in advising them on the sector with good prospects'. He wanted the banks to move into new sectors with low capital requirements and to take some 'calculated risks with small enterprises' rather than keeping the excess liquidity in their accounts. The CA has identified the right area that deserves attention from all concerned, including policymakers and financial institutions.
Traditionally, commercial banks in Bangladesh, particularly the ones belonging to the private sector, have been interested in financing trade-related activities. Long-term financing or providing funds to innovative small entrepreneurs, who are eager to venture in uncharted waters, is not liked much by them. Banks, of course, do need to take the risk factors into cognisance. But over-sensitivity to the risks does not bode well for any financial institution. Moreover, banks having strong fascination for big clients do often engage in cut-throat competition among themselves to net big fishes. Small entrepreneurs are still not considered that important by the banks which though claim publicly that small enterprises are most welcome to receive their services. The small enterprises, actually, should be the key customers of all banks at all times-good or bad. Statistics would confirm the fact that investment in small enterprises is less risky than that of large ones. The lists of loan default cases would suffice this claim. It is high time that the banks become innovative to help the prospective entrepreneurs wanting to enter the sectors having the potential of becoming major contributors to the economy. The information and communications technology (ICT) sector could be at the top of the list.
However, a few suggestions given by Chief Adviser Dr. Fakhruddin Ahmed in a recent letter to central bank governor Dr. Salehuddin Ahmed on ways to overcome the problem of excess liquidity deserve serious consideration by the banks not only to overcome their own problems but also to give the economy the much-needed boost. Dr. Fakhruddin, who was the immediate past governor of the central bank, possibly, is the first head of government to write a letter to the central bank governor making ' suggestions' on the possible ways of dealing with a few problems that have cropped up of late.
The letter itself highlights the CA's respect for the central bank's autonomy and the desire to help small enterprises who want to play an important role in the economy. The CA has advised the banks to be proactive and spend 'little more time with prospective borrowers in advising them on the sector with good prospects'. He wanted the banks to move into new sectors with low capital requirements and to take some 'calculated risks with small enterprises' rather than keeping the excess liquidity in their accounts. The CA has identified the right area that deserves attention from all concerned, including policymakers and financial institutions.
Traditionally, commercial banks in Bangladesh, particularly the ones belonging to the private sector, have been interested in financing trade-related activities. Long-term financing or providing funds to innovative small entrepreneurs, who are eager to venture in uncharted waters, is not liked much by them. Banks, of course, do need to take the risk factors into cognisance. But over-sensitivity to the risks does not bode well for any financial institution. Moreover, banks having strong fascination for big clients do often engage in cut-throat competition among themselves to net big fishes. Small entrepreneurs are still not considered that important by the banks which though claim publicly that small enterprises are most welcome to receive their services. The small enterprises, actually, should be the key customers of all banks at all times-good or bad. Statistics would confirm the fact that investment in small enterprises is less risky than that of large ones. The lists of loan default cases would suffice this claim. It is high time that the banks become innovative to help the prospective entrepreneurs wanting to enter the sectors having the potential of becoming major contributors to the economy. The information and communications technology (ICT) sector could be at the top of the list.