Bangladesh Bank (BB) Governor Atiur Rahman yesterday urged local firms to borrow from abroad saying that the authority gave a nod at the beginning of the fiscal year to local firms to borrow $598 million from foreign sources.

“I really ask you to look for foreign loans and it is cheaper and easier to get now,” said Rahman at a luncheon meeting of businesspeople and top executives.

So far, local firms have taken out loans from foreign sources in diverse sectors like shipping, power, footwear, IT, telecom, agriculture, steel and readymade garments, said the BB governor, who is also the chairman of a Board of Investment committee related to the approval of applications on getting foreign loans.

"I do not take more than two days to clear applications,” added Rahman.

Foreign Investors' Chamber of Commerce and Industry (FICCI) organised the meet at Sonargaon Hotel, where the central bank chief also called upon foreign investors here to help improve the image of the country by showcasing its achievements in various sectors.

Rahman urged investors to go outside Dhaka to understand the investment potential in Bangladesh. The economy of the country has been growing at 6 percent annually in the past decade, although the country suffers from poor infrastructure, power shortages, corruption and political instability.

The BB governor said when corporate houses will borrow from foreign sources, it will help maintain a steady exchange rate and ease pressures on the foreign exchange reserves.

The BB chief's appeal comes at a time when the central bank is following a monetary tightening stance to curb the money supply and cut excess demand, in a bid to bring down inflation to a single digit by the end of the financial year ending June 30.

Average inflation stood close to 11 percent in February. On a monthly basis, inflation dipped to 10.4 percent in February from 11.59 percent in January.

Volatility in exchange rates has eased and a liquidity crunch in the banks has reduced with the interest rate on inter-bank lending falling.

The rapid growth of government borrowing from the banking sector has created a crowding-out effect in credit flow to the private sector, Rahman said.

Government borrowing -- currently worth Tk 16,500 crore -- will have a limited crowding-out effect on the private sector and the target of 16 percent credit growth to the private sector could be maintained despite a higher projection of government borrowing, he said.

Citing the performance of exports and farm, industrial, and service sectors in the first half of the current fiscal year, the central bank chief expects the economy to grow 6.5-7 percent by the end of the year.

Noting the prospects of Bangladesh, he said the country has entered into a phase of demographic dividend as the ratio of working population is rising against a backdrop of a falling fertility rate.

He said the country needs to cash in on its demographic dividend to attain 8 percent growth to cut poverty and become a mid income country by 2021.

"The demographic dividend does not last for ever. At some point, this bulge in the working age population will transform itself into a bulge in the elderly population.”

"We must use the next ten years to create higher productivity jobs, intermediate the savings that this working population has to invest in our country's infrastructure, institutions and build foundations to prepare for when this demographic dividend is over," he said.

"The next ten years is the best opportunity we have to drastically cut poverty," said Rahman, recommending skills development for the labour force along with education to tap the opportunity.

The governor also suggested local entrepreneurs, especially banks, to explore the possibilities to open branches in Myanmar that has taken measures to make reforms after its election.

FICCI President Syed Ershad Ahmed demanded making BB an independent body, free from the interference of the finance ministry.

Referring to the BB move to issue licences to open new banks, Ahmed wanted the authority to clarify whether there is a need for more commercial banks in the economy.

The Daily Star/Bangladesh/ 29th March 2012

Bangladesh Bank (BB) is set to approve licence for new commercial banks in a meeting of its board of directors to be held on March 27.

A senior BB official said this but could not confirm how many banks will get approval from the board.

However, a member of the evaluation committee said seven commercial banks might get licence. “The board of directors is expected to approve seven banks, including two by Non-Resident Bangladeshis, in its meeting on March 27,” he added.

On September 27, 2011, the central bank invited applications from people interested in setting up new commercial banks. The BB asked the interested sponsors to submit their applications with a non-refundable bank draft of Tk 1000000 by November 30, 2011. The central bank’s scrutiny committee selected 16 applications out of a total 37 for the new banks.

Earlier, the central bank fixed the paid-up capital of Tk 2 billion for the new banks but it re-fixed the paid-up capital for a new bank at Tk 4 billion as per the revised Bank Companies Act. —BSS

The Daily Sun /Bangladesh/ 25th March 2012

The government’s bank borrowing has started to rise once again after a pause of two-month, signalling to fuel up inflation and non-availability of credits to the ailing private sector. The government borrowed Tk 17,738 crore from banks during the first eight and half months ((July 1 through March 15)) of this fiscal year, the central bank data shows.

This reflects significant shortfalls in foreign borrowing, higher-than-expected subsidy payments and lower than expected revenue earnings, officials explains.

After strong criticism from experts and businessmen, the government’s bank borrowing however came down to Tk 15,558 crore in February from all time high of Tk 21,000 crore in November.

The government had projected a target of their borrowing from banks in this year's budget at Tk 18,957 crore, which was exhausted in just four months and 17 days. However, the target has already been revised to more than Tk 25,000 crore.

This unproductive government borrowing was simply generating higher level of inflation in the economy. The economy is already under pressure of a persistent double-digit inflation, said analysts.

They also warned that huge government borrowing from commercial banks would not leave cheap money for the private sector to grow. The hope for low level interest rate in the next fiscal year will be evaporated.

The Bangladesh Bank in its half yearly monetary policy statement forecast 6.5 per cent to 7 per cent GDP (gross domestic product) growth for this fiscal year but the private sector participation may dip because of what the entrepreneurs said, “Extreme scarcity of funds”.

“If the country wants to keep the wheel of the country’s economy running, credit growth in the private sector should be kept above 20 per cent,” said AK Azad, president of Federation of Bangladesh Chambers of Commerce and Industries (FBCCI).

But, the way the government is borrowing from the banks, there will be an acute shortage in loanable fund for the private sector, which will lead to spiralling interest rate, he observed.

The monetary policy set by the central Bangladesh Bank also intended to a 16 per cent credit growth for private sector.

The central bank in its monetary policy said limiting government borrowing from the banking sector is essential for bringing inflation down to single digit.

To reduce reliance on bank borrowing, the government has already taken measures to cut subsidy on power and energy by raising fuel price. It has also raised interest rate on savings certificate.

Earlier this year, the International Monetary Fund had warned the government about excessive bank borrowing. It put a string attached with IMF’s extended credit facility to the government. IMF’s upcoming board meeting sometime in April may discuss the issue.

To ease pressure on the bank borrowings, IMF suggested that the government increases the fuel and electricity prices. The government has already complied.

In October, the World Bank also warned that the government's excessive borrowing from the banking sector will make the country's financial sector weak and ultimately dampen growth.

Explaining the macroeconomic pressures in the banking system, the WB said the government's increasing reliance on domestic financing is raising concerns on crowding out private investment. The report said, if the government continues to borrow heavily from the banking system, the debt in the private sector may fall much short of the expected level, which will not be consistent with achieving the GDP growth target.

A former Bangladesh Bank governor Dr Salehuddin Ahmed said bank borrowing by the government brings good in no way for the economy.

“It will fuel inflationary pressure further and hurt private sector credit growth,” he said.

Economists, politicians and businessmen recently at a programme organised by the Centre for Policy Dialogue (CPD) expressed deep concern over the government’s dependence on banks to meet budget deficit in the wake of dipping foreign aid.

They also said unlike the previous years, bank borrowing might affect the private sector this year as because the banks are severely suffering from fund crunch.

The Independent/Bangladesh/ 22th March 2012

Atiur Rahman, governor of Bangladesh Bank, speaks at a roundtable on Islamic microfinance at Radisson Hotel in Dhaka yesterday.

Islamic microfinance can be an effective tool to eradicate poverty if it ensures distributive justice to the downtrodden people, analysts said yesterday.

Poverty has multi-dimensional aspects: it means not only a lack of money but other issues such as poor access to clean water and sanitation, inadequate physical security, lack of voice, insecurity, powerlessness and exclusion.

They spoke at a roundtable on "Islamic Microfinance: An Instrument for Poverty Alleviation" at Radisson Hotel in Dhaka.

Malaysia-based WIEF Foundation and Bangladesh-based SEACO Foundation co-organised the programme in collaboration with the Bangladesh Federation of Women Entrepreneurs, Bangladesh Malaysia Chamber of Commerce and Industry and the High Commission of Malaysia in Dhaka.

Mohammad Abdul Mannan, managing director of Islami Bank Bangladesh, said conventional microfinance failed to benefit the poor as it runs in an exploitative manner. "So, Islamic microfinance can be a role model."

There is a philosophical difference between conventional banking and Islamic banking, he said. "Conventional banking is fully based on individual greed, while Islamic banking is based on universal brotherhood and distributive justice."

The banker said Islamic microfinance can be an effective tool to satisfy the financial needs of the poor as it focuses on a credit-plus integrated poverty alleviation scheme.

“It means we not only provide credit rather we integrate other issues such as zakat (compulsory transfer), waqf (an inalienable religious endowment), and kaffara (atonement),” he said.

Speaking as chief guest, Atiur Rahman, governor of Bangladesh Bank, said Islamic banking has been thriving in the vibrantly growing Bangladesh economy and accounts for a fifth of total banking sector assets and liabilities.

In Bangladesh, compliance of banks and financial institutions with Islamic Shariah principles is being overseen by their Shariah boards, while Bangladesh Bank oversees their soundness, solvency and capital adequacy, he said.

The governor urged the Islamic banks and the Islamic windows of conventional banks in Bangladesh to pursue vigorous promotion of Islamic micro and SME financing, in line with the country's efforts for faster poverty eradication with deeper, wider financial inclusion.

As a panel discussant, Dadang Muljawan, senior economic researcher of Islami Development Bank in Saudi Arabia, said Islamic financing would grow further as it is gaining popularity in Muslim and non-Muslim countries.

He said Shariah-based banks emphasise the development of the poor as it not only provides funds, but also transforms people's life.

Datuk Hajah Zabidah Ismail, managing director of Amanah Ikhtiar Malaysia, said Shariah-based microfinance can be an alternative tool to eradicate poverty as it promotes a balance of equitable growth.

Abul Hasan M Sadek, vice chancellor of Asian University in Bangladesh, said microfinance is only a part of Islamic banking. It can be an effective model to eliminate poverty as the conventional system charges higher interest.

The Daily Star/Bangladesh/ 21th March 2012

Sonia H Moni

The central bank is going to disburse a two- step loan fund for refinance or pre-finance under JICA assisted Financial Sector Project for the Development of Small and Medium Enterprises (FSPDSME), officials said.

"Japan International Cooperation Agency (JICA) will provide the fund worth Tk 4.15 billion for the development of SME sector including a technical assistance component," FSPDSME project director Sukamal Sinha Choudhury told the FE.

He said: "This fund will help boost the country's small and medium enterprises sector."

He said "Under the two- step loan fund, participating financial institutions will be provided with refinance or pre-finance for lending to SME sub-projects of productive investment for medium to long term duration."

Mr Choudhury, also General Manager of SME and Special Programme Department of the Bangladesh Bank (BB) said: "We invited applications from 47 banks and 31 non-banking financial institutions (NBFIs) for loan disbursement by March 27, 2012."

According to BB rules for eligibility for availing the fund, the banks and NBFIs have to comply with some of its conditions -- the institutions have to comply with anti-money laundering instructions, have to make profit for at least three consecutive years, classified loans of the institutions should be under 10 per cent.

Mr Choudhury said: "BB will disburse loans with five per cent interest to the banks and NBFIs and these financial institutions will provide loan to the entrepreneurs as per the interest rate rules of the central bank."

An operating guideline comprising policies and procedures of this fund has been developed for the banks and NBFIs. The central bank has requested the banks and NBFIs to review the operating guidelines. The fund will be governed by this operating guideline.

BB GM said: "We will scrutinise all the applications within a short time and if they fulfil the conditions they might get loan from next month."

Financial Express/Bangladesh/ 20th March 2012