Recently BRAC Bank has successfully introduced a new product - Krishak Card or a card designed especially for the farmers' use. This is nothing new to the people of Bangladesh. From time to time the banking sector has been coming up with different products for the lower income group of people. In particular, the Krishi Bank has been providing agriculture loans to the farmers for a long time.

But when it comes to card business, the Krishak Card has added a new dimension to it and it is much younger than other banking products in Bangladesh. Previously, banks used to design credit cards for high-profile businessmen, top executives of corporate bodies or professional bodies with high net worth. So there was a perception that credit card was only for the rich people or for the upper class people of the society.

Multinational banks first introduced credit card in Bangladesh. American Express, Grindlays Bank Plc and the then BCCI were the pioneers in introducing card business in Bangladesh. Of all the products then, holding an American Express card was deemed a symbol of status. Businesspeople used to show Express cards as a mark of high net worth of a business magnet. So these cards were only for the people in the upper class or upper middle class bracket. The card brands that dominated the market then were Visa Master card, American Express and Thomas Cook. Later on, private banks started offering cards to all sections of people, even to the newly-appointed junior executives of companies or small businessmen with stable incomes.

The main advantage of credit card is it allows a certain amount of credit facility without any security and if the credit amount availed is settled by the bill date, then no interest is required to be paid.

Gradually the card business is increasing in our country as in other developed countries. But still it is within the reach of only a section of urban people, not the mass people.

The recent initiative of BRAC Bank is praiseworthy in consideration of the things involved. First of all, they have chosen a segment that involves risks in terms of security of the credit and the income level needed for determining the credit worthiness of the farmers, whose income level fluctuates along with the uncertain production and market prices of their produce. Secondly, in business no one likes to become a pioneer in such a risky area with a new product. But BRAC Bank has come forward with a product that is designed for the farmers' use. The Krishak Card was first launched in Jhenidah in 2011 and this time they have issued 200 cards for the farmers of Dinajpur district which is known for rice cultivation. The farmers will use the cards to borrow funds and start repayment after selling their produce.

There are many aspects of such a dynamic product. One is banking products have become very limited. Competition in the banking arena has increased many times and is also increasing day by day with some new banks going to enter the existing market. Naturally, the competitive environment needs the existing banks to redesign their products and services and explore new areas of markets for their products, such as the new and comparatively unexplored market of rural banking.

Microcredit extended to the poor people has already gained worldwide appreciation. Still full-fledged banking services for the poor people are absent or in a very nascent stage. The BRAC Bank's launch of modern banking products like card service to farmers deserves appreciation. First of all, the system allows farmers' access to credit without security, as it is difficult for a farmer to get a loan by providing any collateral against it. The loan procedure is another hassle for the farmers as most of them are not aware about how to apply for a loan and get it and sometimes the lengthy loan procedure does not allow them to use the fund for the intended purpose. So they spend the loans for their personal purposes and later on become loan defaulters. But by using credit cards they can buy necessary materials such as seeds, fertilisers and other things as required instantly without any documentation or paper work. This will offer the farmers an easy access to instant fund and make farming more productive and easier for them.

Definitely the aspects discussed are the bright side of the said card, but as usual there are some problems with credit card for both sides - the company and the users. As we know, the interest rate of credit card on an unpaid amount is as high as 30 per cent. So, if it remains same in case of Krishak card, then surely it will be difficult for the farmers to borrow fund at such a high rate. Farmers are not habituated to use such loan facilities. So they cannot plan how to repay an instalment or a full amount.

Moreover, the agriculture sector is rife with uncertainties. Crop failure is a common phenomenon even in developed countries, because no one has got any control over the weather conditions. So, if anything goes wrong, how will they settle their dues? One option is a normal credit shield being applied to normal credit cards. But once again it is going to increase the repayment amount on the borrowed money and for marginal farmers it is difficult to repay.

News: The Daily Financial Express/Bangladesh/8th-Dec-12

Mohammad Abdul Mannan, Managing Director of Islami Bank Bangladesh Limited, said that “We need to change the financial system from greed-based to need-based,” He said “The current system has helped concentration of global wealth into the hands of a few while the vast majority of the people remained deprived.” Mohammad Abdul Mannan said this recently in an interview with Gulf News, the renowned newspaper of Middle-east published from Dubai.

The world economy is not showing signs of much improvement. Over the last two decades, the global economy has faced multiple shocks and crises. The recession comes in quick succession — much faster than anytime in history.

The global financial crisis of 2008 has exposed the flaws of the conventional banking system. In the US, more that 200 lenders collapsed during the first two years of the crisis.

That points to capitalism and the global financial system — and its flaws. What’s wrong with it? The system is greed based — that caused the biggest recession in human history, experts say.

During this same period, the Islamic banking industry grew at a higher rate. Why?
“We deal with real assets. When you invest in assets, you cannot go wrong. You cannot have a bubble built on assets,” Mannan points out.

However, the mother of all bubbles — the US subprime mortgage bubble was an asset bubble. “That was greed,” he argues. “Lenders were cashing in on consumers’ misery — from prime to subprime mortgage.”

As the conventional banking showed significant decline, Islamic banking — had begun to shine. Islamic banking assets will reach $1.1 trillion by the end of this year, a significant jump of 33 per cent from their 2010 level of $826 billion, according to a report by Ernst and Young.

Ashar Nazim, Mena Islamic Financial Services Leader, Ernst & Young, said: “The global Islamic finance industry continues its quest to boost international competitiveness and to build a sustainably profitable business model. Both the challenge and the opportunity currently facing leading industry players is how will Islamic banks succeed in making the historical growth curve sustainable.”

IBBL, whose deposits grew to Tk 392 billion (US$4.72 billion or Dh17.57 billion) in recent months, serves 6.5 million customers. The 29-year-old lender, the first Islamic bank to be established in South and Southeast Asia, is majority owned by GCC investors, such as Dubai Islamic Bank, Islamic Development Bank, Kuwait Finance House, among others. The bank’s investment has reached Tk 380 billion while its net profits last year reached Tk 11.5 billion.

The success of Islamic banking during the 2008-2012 downturn has inspired many in the conventional banking industry to shift towards Sharia-compliant lending activities. Islamic banking is expected to reach $2.7 trillion (Dh9.9 trillion) by 2015.

However, most Islamic banks are just replicating the traditional banking activities — ignoring their social responsibilities, critics say.

“Although Islamic principles focus more on social and human development and lending philosophy in Islam is guided towards the overall social development of people, most Islamic banks are operating on just a profit-loss mechanism while replicating the all other norms of traditional banking practices,” Mannan says.

Corporate social responsibility (CSR) is very strong in Islamic beliefs and practices — which is largely ignored by the Islamic banks, generally, he adds.

“Banks should focus on maximisation of welfare instead of maximisation of profits. Famines are not caused due to lack of wealth, but disproportionate distribution of wealth,” Mannan says. “In fact, Islamic banks should invest their resources in areas that contribute to socio-economic development as well as help human development in a society. In a way, Islamic banking itself is a CSR practice — if it runs with the true spirit of Islam,” he says.

As an example, he says, his bank started micro-finance in the 1990s to help the poor and unbanked population under the banking system. Today, IBBL has brought 600,000 poor families in 14,500 villages under the bank’s Islamic microfinance scheme, known as Rural Development Scheme (RDS).

“About 85 per cent of our customers are women. We have allocated 20 per cent of our resources in the RDS which is about 2.5 per cent of our portfolio,” Mannan says. “Today, it represents about 50 per cent of the world’s Islamic micro-finance.”

However, most Islamic banks are yet to embrace micro-finance.
“Unlike conventional banks, Islamic banks’ objectives should include social dimensions. Given this social role, Islamic banks can complement the efforts of Islamic microfinance institutions in providing the much-needed funds to the poor to facilitate their economic upliftment,” Habib Ahmad, an economist with Islamic Development Bank wrote in a research paper.

For Islamic banking, there is another issue — the lack of proper Sharia-compliant money market. Although the UAE is home to the world’s first Islamic bank — Dubai Islamic Bank — it is yet to develop one.

“We are operating in the same money market — the inter-bank borrowing market — where conventional banks also operate and which runs on the conventional banking principles,” Shaikh Abdul Karim, Head of operations at Sharjah Islamic Bank, says.

“We need a separate Islamic money market where we could create our own benchmark profit rates for borrowing that will not fluctuate due to external reasons, speculations and credit default swaps. Since Islamic banks deals in assets and run on profit-loss principles, this money market would offer a better and stronger alternative and contribute more to the economy.”

An Islamic inter-bank lending market will help the cash-rich Islamic banks to place the surplus cash for overnight investment that, in turn will help the Islamic banking industry to grow, Karim says.

The Bangladesh government has recently created an Islamic money market, although it is yet to formalise an Islamic banking act.

“Islamic banking is a work in progress. We have to walk a long way to get there,” Mannan says.
It is estimated that as much as half of the savings of the world’s 1.5 billion Muslims will be in Islamic financial institutions by 2015. The Indian government is contemplating introducing Islamic banking in the country where Muslims are by far a minority.

Gordon Bennie of Ernst and Young, says, “Reduced profits and valuations are amongst the biggest business risks facing Islamic banks, which can partially be tackled by introducing a service driven culture and investing in customer centric activities. Sharpening of their Sharia differentiation by acquiring and building specialist product skills and ensuring better integration with the real economy will help CEOs to take their banks to the next phase of growth.”

News: The Daily Independent/Bangladesh/8th-Dec-12

Mercantile Bank Limited opened its 83rd branch at Anowara Super Market, Bishaw Road at Gobindogonj in Gaibandha recently.

Md. Abdul Jalil, MP, Chairman of Mercantile Bank Limited inaugurated the branch as chief guest, said a press release Friday.

Md. Monowar Hossain Chowdhury, MP was present as special guest.

Md. Abdul Jalil Chowdhury, Managing Director and CEO of the bank and senior executive of the bank and other invited guests were also present.

News: The Daily Sun/Bangladesh/8th-Dec-12

Austria’s central bank on Friday cut sharply its forecasts for economic growth for 2012 and 2013 because of a “significant” slowdown in many of the eurozone member’s export markets.

For 2012 the Oesterreichische Nationalbank (OeNB) now expects Austria’s gross domestic product to expand by “only” 0.4 percent, down from its previous forecast of 0.9 percent.

News: The Daily Sun/Bangladesh/8th-Dec-12

Despite the strong revival of the Dubai economy, local lenders lure customers and capital with a much more modest tone than before the crisis as they deal stricter financial regulation and consolidation.

Tighter regulations were implemented by the United Arab Emirates (UAE) central bank on lending. Since July 23 this year, the UAE central bank demands from local lender six more forms which have to be filled out if a customer applies for a personal loan, draft or auto loan in order to specify a customer’s credibility and securities in case of a default.

In addition, the central bank governor Sultan Al-Suwaidi pushes the banks to prepare for adapting Basel III standards by 2019. Al- Suwaidi demands from UAE lenders to have a minimum capital requirement of 12 per cent until then which is higher than the 8 per cent required by Basel III.

News: The Daily Sun/Bangladesh/8th-Dec-12