Two-thirds of loans given to small and medium enterprises are used in trading, which analysts say is a threat to sustainable economic growth.

Nearly Tk 25,000 crore or 65 percent of SME loans disbursed in January-September of 2011 went into trading, 29 percent into manufacturing and the rest into the services sector, according to data from Bangladesh Bank.

“The SMEs are meant for production. If the loans are not used for manufacturing, the core objective will not be achieved,” said Mustafa K Mujeri, director general of Bangladesh Institute of Development Studies.

Mujeri, a former chief economist of Bangladesh Bank, said the central bank should identify the causes and remedies, so that SMEs can flourish.

Bankers and SME businessmen blamed the rise in cost of funds, low productivity, and a lack of skilled manpower and policy support from the government for the situation.

Regulatory permissions, such as environmental clearance for a manufacturing unit, also discourage entrepreneurs.
“The rising interest rate is pushing production costs up,” said Dewan Ali Kabir, who manufactures printing paper used to print utility bills.

Kabir borrowed money initially at 12.5 percent. Months later, the bank reset it at 14 percent and now, they are asking for 18 percent, he said.

That is not the only bad news for Kabir. As he imports raw materials, the devaluation of the taka is eating up his profits.

Nessar Maksud Khan, who runs a group of small and medium companies, said the high costs of production are discouraging SMEs from manufacturing.

“I used to outsource plastic products from the local market for corporate supplies. Later, I found it cheaper to import,” said Khan, also a director of Dhaka Chamber of Commerce and Industry.

Though business becomes easier for a bank if it funds trading activities, the country is missing out on the much needed transformation to manufacturing and industrialisation. SMEs contribute significantly towards industrial output, exports and employment generation for the economic growth of any country.

“Repayment of the manufacturing sector is not very good. Moreover, it is exposed to a lot of external factors, such as a supply of energy, import of raw materials and the exchange rate,” said a senior manager of BRAC Bank.

For bankers, he said, trading is easy to understand and less risky to finance.
“Banks play a helping role for traders, but they must be drivers for the manufacturing concerns,” said the BRAC Bank official.

An Eastern Bank official concerned with the SME division pointed at vested quarters, who import goods by dodging taxes, as a threat to the local SME manufacturers. He also said regulatory requirements, such as getting permission from the environment department for any manufacturing enterprise, are time consuming.

“It takes at least six months to get the required permission from the department of environment, which discourages both borrowers and lenders,” the official said.

Bankers found SMEs weak in managing business -- from planning to purchasing, design, production, quality control, marketing, finance, human resources, public relations, new business developments and target growth.

Due to their small size, SMEs cannot afford to appoint qualified fulltime financial executives to manage their activities, and interact with the bankers and regulatory agencies, they said.

The Daily Star/Bangladesh/ 15th Jan 2012

Bangladesh Bank (BB) has moved to take legal action against the persons and the institutions that are offering people illegal currency trading through internet and electronic trading portals.

In a statement last week, the central bank advised people not to involve in this illegal business and warned them of stern consequences for such activities.

The BB referred to some recent advertisements in the media that offered people training for earning high returns from online foreign exchange trading and dealing.

The BB said these advertisements also offered currency loading facility in debit cards to run the online foreign currency exchange business by taking the 'risks' of the 'daily fluctuation of exchange rates'.

The trading of its kind by unauthorised people and organisations is illegal. The Foreign Exchange Regulation Act allows only licensed dealers and money exchangers to run such business.

It advised people to refrain from responding to such tempting, but illegal offers and warned respective advertisers of punitive actions.

Most web-based foreign exchange transactions are carried out on a margining basis with huge leverage or on an investment basis, where the returns are based on currency trading, a BB official told the news agency.

People are advised to make the margin payment for these transactions through their credit or debit cards, which are not only illegal, but also involve high risk of losing their total credit or debit limit to unknown people.

The Reserve Bank of India (RBI) in April last year issued similar warning against such business and cautioned people of the financial and legal risks of these activities.

The Daily Star/Bangladesh/ 15th Jan 2012

Sayem Ahmed, chairman, executive committee of the board of Dutch-Bangla Bank Limited (DBBL), inaugurated the ‘Dutch-Bangla Bank Bridge’ in Kurigram by unveiling a plaque on Friday.

The bridge links road from Chatlakanda to Tura via Shoulmari Rowmari upazilla, will ease sufferings of the rural people and boost business activities under Kurigram district, says a press release.Fakrul Islam, director of DBBL, and Md Yeasin Ali, former managing director of DBBL, were also present.

Rowmari upazilla situated in the North-East frontier point of the country surrounded by Brahmaputra and Zinzirum rivers drew the attention of the Bank and after conducting a field survey, a bridge (144 ft.) at a cost of Tk 6.1 million has been constructed under the supervision of the bank. 

Md Zakir Hossain, MP, Sheikh Mohammad Abdul Khaleque, chairman, Rowmari upazilla, Mizanur Rahman Minu, union parishad chairman, were present, among others.KS Tabrez, managing director, and Abul Kashem Md. Shirin, deputy managing director of DBBL, were also present.

The Daily Independent/Bangladesh/ 15th Jan 2012

The country needs more banks since its active population and per capita income have doubled and many new industrial sectors emerged in the  past couple of years, a top banker has said. “If new banks concentrate on providing services in the rural areas, they will not only cover the country’s unbanked people, but also expand the areas of banking,” Md Ehsan Khasru, managing director (MD), Prime Bank Ltd, told The Independent, in an exclusive interview.

Bangladesh Bank (BB) has issued a directive to open new branches in both urban and rural areas on an equal ratio, he said adding, establishing new banks will help pull in scattered money of rural people by involving them into banking activities.Besides, he said, it would also improve rural economy as financial constraints faced by small and medium enterprises in rural areas could be removed by opening up new financing avenues for them.On Prime Bank initiatives for the unbanked, Khasru stated: “We are increasing the number of our rural branches, gradually.

”At present, 31 of the 119 branches of the Bank are rural, he noted.He added that during 2012 the Bank would open 12 new branches in both urban and rural areas, maintaining an equal ratio.Dwelling on better banking services, he said: “We should come out of the traditional banking mould.” He urged customers to go for new products and services availing themselves of the advantages of modern technology.

To this extent, Prime Bank is very much committed to offering its customers new products and services, Khasru said.“Ensuring the best use of modern technology, we have already introduced Internet banking, phone banking, bio-metric smart cards and SMS banking,” the Prime Bank boss said.Highlighting the importance of mobile banking (MB) and automated teller machines (ATMs), he said MB and ATM played a remarkable role in engaging ‘unbanked’ in banking without having a Bank branch.

In addition, people can withdraw their remittances very quickly through MB and ATM booths, he said, adding: “Prime Bank likes to go for financial inclusion through mobile banking.”“We would open more than 100 ATMs this year to cater to the needs of customers,” he said.Hailing the withdrawal of lending rate cap by the central bank last week, Khasru said the decision was very timely and it would give a boost to the banking sector.However, the Prime Bank MD expressed his grave concern over the possible rise in non-performing loans—now that the cap has gone—as some avaricious banks may aggressively turn profiteers.

“Some of the excessive profit-minded operators may disburse huge amounts at a higher interest rate to record enormous interest earnings,” he said, adding that it would increase non-performing loans, in the long run.“If any bank indulges in such activities, it will be a self-killing act,” he said.Suggesting that the banks raise interest rates by a maximum of two per cent, he said that commercial banks should charge at most 15-16 per cent interest on industrial loans.

“Prime Bank is very much aware of the pitfalls of aggressive lending and would not go for it,” he said, adding: “Our lending rate is always better than that of any other bank and we are very much competitive.”As there is a liquidity crisis in the banking sector now, for which industrial credit flow has been affected, he urged banks to cut bad loans and strongly monitor fresh loans to ensure that they are used for the purposes meant for.He suggested that banks should grant ‘any purpose loans’ with collateral to ensure their proper use.

Prime Bank’s bad loans stand at less than 1.5 per cent, he said.On the current vulnerable foreign currency reserves, Khasru said, “If we reduce about US $2-3 billion imports this year, forex reserves can be maintained at $10 billion.”In this case, he recommended that the government stop importing unnecessary and luxury goods.Citing achievements in the farm  sector, especially a good crop of rice, onion and garlic, Khasru claimed it had happened as the banking sector came forward to help supplement the government initiatives.

“As we are witnessing good achievements on the agriculture front, we can stop import of those agro-products that are produced in large quantities across the country,” he said.Prime Bank has already disbursed Tk. 50 crore  firm loans in the first half of the current fiscal year 2011-12, which is about 21.44 per cent of the target of Tk. 232 crore,  he said.On potential of the small and medium enterprise (SME) sector, he said now-a-days developed countries are putting more emphasis on the sector as new units were coming up here, which would help roll over capital.

In Bangladesh, the SME sector is also growing fast as the banking sector has come to its aid, he said, adding that the central bank is playing a remarkable role in boosting the SMEs.Private banks offer loans to SME entrepreneurs at low interest rates, he said.“We have 17 SME branches to meet SME entrepreneurs’ demands,” he pointed out.The 17 SME branches are offering different products, including Sahaj Rin, Sampad Rin, Chalti Rin, Moushami Rin, Digun Rin and Anchol (a loan scheme for women entrepreneurs).

Corporate social responsibilities (CSR) play a significant role in improving the socio-economic condition of people as the money directly goes to the grass-roots level, he said.Prime Bank sponsors different sporting activities, support educational, health and environment programmes, Khasru said.Prime Bank has established a separate organisation—Prime Bank Foundation Ltd (PBFL) – for its CSR activities, he said. Four per cent of the bank’s profit is set aside for PBFL, he said.As part of CSR activities, Prime Campus, an English-medium school in Uttara, was founded by PBF in 2008, which is an alternative to expensive English primary schools.Besides, he said, an eye hospital would be inaugurated on January 21, at Sat Mosjid Road, Dhanmondi in Dhaka, for poor blind people.

“We also have a plan to establish a nursing academy to turn out skilled nurses who would be good for jobs at home and could even go abroad for employment, thus earning precious foreign exchange for the country,” he said.The success of a bank depends on its progressive board of directors and strong managerial personnel, he pointed out adding: “We have both and our board encourages freedom of thinking,” he said.

A second generation bank, Prime Bank secured the number one position in 2011, in terms of balance sheet, growth, profitability and external ratings.Besides, the Bank bagged various prestigious awards in 2010, including that for best bank awarded by Institute of Chartered Accountants of Bangladesh, on the basis of evaluation of best published accounts and reports. It was also awarded South Asian Federation of Accountants Best Bank 2011, on the basis of the evaluation of annual reports.

The Daily Independent/Bangladesh/ 15th Jan 2012

A two-day ‘Indian Ocean/South Asia Mobile Payments and Banking Summit 2012’ will begin in Colombo on January 31, aiming to address the challenges, strategies and regulatory frameworks to step up mobile payments infrastructure in South Asia.

The upcoming summit will tackle the unique prospects and challenges for mobile payments in the emerging economies of Sri Lanka, India, Pakistan, Bangladesh and Nepal, said a release on Saturday. Magenta Global Pte Limited, a premier independent business media company that provides pragmatic and relevant information to government and business executives and professionals worldwide, will organise the event. 

The summit is supported by the Electronic Money Association, Prepaid International Forum, SIMalliance, Mobile Entertainment Forum and Global Platform.Bangladesh’s leading English daily the Independent is the media partner of the event.  

Some 70 percent of the South Asian population does not have access to mainstream banking though mobile penetration has achieved a significant growth with the 86.6 percent penetration rate in Sri Lanka, the highest in South Asia, according to the release.

Recognising that the rural masses present a huge opportunity for banks and retailers, banks and telecom operators must come together to offer innovative solutions to tap this emerging market, it said. Case studies of Easy Paisa, Global Desi, SMS-based bill payments and micro-credit transfers amongst others will be presented at the summit. 

It will also be a converging point for key players from the telecommunication, information technology and banking sectors to come together and share new insights. Speakers at the Summit include top representatives from the Central Bank of Sri Lanka, Pakistan Telecom-munication Authority, Bharti Airtel, Etisalat Lanka, Bangladesh Bank, CityCell, Sampath Bank PLC, Nepal Telecom, ICICI Bank, LIRNEasia, MCB Bank and Dhanlaxmi Bank.

Times of Money, a provider of digital payment solutions, and Analogics Tech India, a turnkey solution provider, are the associate sponsor and participating sponsor of the Summit respectively.

CEO of the conference organising company, Magenta Global, Singapore, Maggie Tan said, “The growing trend towards mobile banking cannot be ignored.South Asia with its huge untapped rural masses must capitalise on its potential. How to access banking securely and conveniently with the mobile phone is the key to its growth. The partnership between cellular operators and banks will provide unparalleled revenue opportunities.” 

The Daily Independent/Bangladesh/ 15th Jan 2012