BB, loan systems and the formal economy

There is a lot of noise in the media world about the restriction imposed on journalists to enter the Bangladesh Bank (BB). The obvious question is why this is happening. And the obvious answer is that it's for the protection of the financial system which the BB heads in the name of regulation. While the media as well as the think tank world are protesting they are also part of this formal system which runs the State-based scenario.
What the ongoing scenario appears to be an internal one of the state sector, particularly the elite within which all such institutions -- BB, commercial banks, think tanks and the media -- operate.
How does the BB operate? The idea that actions relating to the central bank's limited capacity in controlling the delinquent behavior of financial institutions is a suddenly discovered fact is odd. In almost every financial sector, including the recent highly criticised move to merge weak banks with relatively stronger ones, the central bank has demonstrated its weak regulatory performance. Some people state that it is because the lack of trust which has prompted BB to fend off by denying access to the media is only a partial fact.
Point is most people never did trust banks and for the earlier Bangladeshi years never even interacted with the banking system much. They had informal and traditional banks including private loan givers and later NGOs with micro credit and other sources. They really have little to do with the formal banking sector. While the State sector is concerned about the banking sector and the urban shushil sector about what it does, the rest are relatively less concerned.
Most people have other issues, pressures and services to access and the formal banking sector isn't really a big factor. The formal sector institutions including the think tanks have very little idea about their needs and solutions they come up with. It's this separation between the two sectors -formal and informal- that is often the line demarcating the State and society.
Why there is no great expectation from the BB is no mystery. And this is also known to the BB's authorities and the average ordinary people. As a result, all performance related data that is quoted has little impact. That is basically because no one cares who is doing what in official institutions.
Fahmida Khatun, Executive Director of the apex think tank CPD has said that the non-performing loans have more than tripled over the last 10 years. In difficulty assets of banks were about Tk 3.77 trillion, which includes rescheduled loans, NPLs and loans in special mention accounts which together adds up to a diagnosis of incompetence. To add to the spice, over Tk 1.77 trillion is stuck due to court orders.
Any chat with a section of people shows that withdrawal from banks is common now because no one is sure that the banks will survive their lifetime. Trust in the banking sector is not low but almost non-existent and most see a good number of banks as agencies for taking money who siphon them off to their own pockets. One doesn't have to mention instances but essentially the financial sector which includes the NBFIs are, rightly or wrongly, seen as rip off agents. Together they represent a corporate and collective "Haldar".
The Haldar scam was a collective project of the formal sector as it involved all sections of those who are involved or in charge of the financial business and regulatory sectors. And the criminals accused of wrongdoing remain safe from prosecution or scrutiny. Thus data about failing Shariah banks is not as impactful as what directly was seen and experienced.
That various official agencies were involved in the theft and escape of the criminals to safety is no secret. And that is how many people tend to perceive the regulator, "a promoter and protector of embezzlers." So data is no longer necessary to make a point. What is needed are social responses where there can be significant reduction of interactions with the formal financial sector.
The informal sector doesn't interact with the formal sector unless they have to. They don't have large deposits or loan taking capacity but their default rate from informal loan institutions is low and theft is negligible. They don't use sharia as an excuse to skim off money nor do they run Haldar type schemes with the assistance of the regulators and other agencies. The reasons are simple. They are organic in nature and evolved through a social process of demand and supply rather than intent to enrich at the expense of others. This is the fundamental difference between the informal and formal sector agencies. The informal sector is not imposed or artificial.
Recent studies show that the biggest financial criminals in the rural areas where the informal dominates are the MLMs etc which are sourced in the formal world. The formal sector has however begun to infiltrate in view of the huge liquidity available due to remittances. While the banks get half as per their calculations, hundi remains the major conduit of remittance. However, this money is not invested so the banks want to grab this, hence the interest in the new and growing migrant economy.
It's this critical difference that the media should try to recognize when they protest against the entry restrictions into the Bangladesh Bank. Of course, they should but that is not a public priority. The financial sector is the bastion of the connection capitalism economy and by making it the apex area of interest, the media may be endorsing its claim as the supreme authority when most people ignore it.

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