Dr. Shah Md Ahsan Habib[1]
Bangladesh achieved remarkable milestones on several socio-economic fronts over the last 52 years since independence. Despite these accomplishments, concerns about certain sectors remained in the limelight. Of these, vulnerabilities of the banking industry of the country in terms of certain key indicators have probably been consistently talked about and are matters of apprehension to the key stakeholders. In recent times, the foreign exchange market and instability in the exchange rate came up strongly as the focus of discussions and concerns. Both of these financial sector segments have significant associations with the country’s development and growth process. The situation demands reasonable initiatives and dynamism on the part of policymakers and market participants for the rectifications and consolidations of the sectors. Moreover, certain fundamental challenges need to be addressed, of which probably the most critical one is connected to the treatment of the prime givers of these sectors. Did we really have adequate support arrangements for the key givers or principals of the banking industry- ‘small depositors’? Do these stable fund suppliers and lifelines of the banking industry receive due treatment and respect that they deserve in the banking industry? Did we do enough for the worker remitters that align with their mammoth contribution to the foreign exchange market? Do these unskilled and semi-skilled foreign exchange suppliers receive due treatment in their workplaces and as returnees?
Sometimes you may find a long queue of small depositors in a bank branch who are commonly called ‘clients’ of the banks and get hardly any special treatment or respectful looks. How come depositors could be clients! Borrowers and other service receivers are the clients of banks. I think the bank management has the desired approach to treat the shareholders and the board members. Nothing wrong with this. However, I do not think, as a whole, we have created the desired respectable environment to treat small depositors aligned with their role in the banking industry. Depositors are not the clients of banks, rather they are the most important principals of the banking industry, and practically they are the ‘Majority Owners’.
Bank depositors, especially small depositors are the sources of ‘core deposits’. Core deposits are of particular importance to banks because they provide a low-cost source of funds, and is a basic tool when it comes to long-term funding need. These stable deposits offer plentiful advantages to banks and financial institutions, including predictable costs, and reliable scales of customer loyalty. This is the portion of the deposits bankers use to earn their incomes. Thus small depositors are the prime givers of the investable or loanable funds.
Depositors have great roles in disciplining banks and financial institutions. They can punish the bad behavior of banks by withdrawing deposits and requiring high-interest rates. However, for this to operate a country must ensure a reasonable level of financial literacy where Bangladesh is lagging behind. They are not organized and conscious about their roles and rights. So small depositors could be easily snubbed or milked if they are not given strong support and protection by the country’s regulations.
From the bank management perspective, true gratefulness to the depositors may be reflected by treating ‘compliance requirements’ ethically and placing these at the top. This is directly related to protecting depositors’ interests and is clearly associated with sound governance of banks. Special attention is to be allocated to the compliance of ‘prudential norms’ by avoiding risk-taking activities as an important way to protect the interests of the depositors. Bank management is expected to allocate resources, invest in compliance concerns and financial literacy, and offer depositors with due protection and comfort in the banking sector.
I think worker remitters confront similar behaviour in the foreign exchange market. Despite several notable efforts and initiatives on the part of policymakers and other key stakeholders, visible gaps remained between the existing and the desired level of treatment of the remitters in the country. It is well-known that remittances play a central role in many labour-sending economies including Bangladesh. Macroeconomic benefits of remittances are well-recognized tools for poverty reduction in developing economies. It contributes directly to broadening the opportunities to increase incomes and allows households to increase their consumption of local goods and services. At the community level, remittances generate multiplier effects in the local economy, creating jobs and spurring new economic and social infrastructure and services. At the national level, remittances provide foreign currency and remittance has surpassed official aid transfers to developing countries, reducing international inequality.
Workers’ remittances have been the main pillar of Bangladesh’s foreign currency earnings providing a substantial cushion against the widening trade deficit and thereby enhancing the external sector resilience of the country. Being the main source of foreign exchange earnings, workers’ remittances cover the major portion of the annual trade deficit. Workers’ remittances are non-debt creating foreign currency inflows to the country and unlike several merchandise export sets, there is no import content involved in this source of foreign exchange earnings. Thus workers’ remittances have significant roles in maintaining the balance of payments of the country, improving foreign currency reserve positions, and coping with the demand by supplying foreign currency in the foreign exchange market of the country. Alongside foreign exchange market stability, workers’ remittances would remain crucial for the country in financing necessary imports and meeting international financial obligations, such as debt servicing.
Are this group of givers i.e. low-income remitters adequately supported and respected? In some instances, their awful treatment in airports and other service centers not only negates their crucial roles but also points to our ungrateful approach. Bangladesh needs to step up efforts to strengthen the regulatory framework of the migrant recruitment system to protect migrant workers against abuses. We need further and sincere efforts to give comfort to the migrant workers in their workplaces, especially women. Despite several notable projects and initiatives, Bangladesh has inadequate support services and a limited community understanding of the needs of returning migrants which have been limiting the capacity of many returning migrants to sustainably reintegrate into the Bangladesh economy and society. Women returnees must be treated differently to address their greater struggling reintegration efforts.
Unlike shareholders in the banking industry and RMG in the foreign exchange market, the great givers ‘small depositors’ and ‘Small Remitters’ are unorganized and practically cannot strongly push for their interests. These groups must be duly honored and facilitated for the Growth and Stability of the Banking and Foreign Exchange Market of the country. They need strong policy and regulatory support for their sake and the interest of the country.
[1] Professor, Bangladesh Institute of Bank Management ([email protected]).
