Sherpa Hossainy's Blog

Financial inclusiveness should be banks’ target

Posted in Bangladesh, Business, Corporate, Dhaka by Sherpa Hossainy on January 2, 2012

Published in The Independent on 1 January 2012

Read the article on Independent website

Digital print edition

The country’s private banks should strive to serve the masses and promote financial inclusivity to bring them under a common economic system, said Muhammad A (Rumee) Ali, chairman of BRAC Bank. In an exclusive interview with The Independent, Rumee focused on the current banking sector scenario, and his bank’s service strategy, small and medium enterprise financing operations and its impending customer-centric banking model.

Muhammad A (Rumee) Ali, chairman of Brac Bank Ltd

What are the new products or services of your bank?

Brac has a subsidiary called “bKash”, which is our mobile banking wing, and this strategic investment intends to promote financial inclusivity for the masses. Opening bank accounts for bottom-of-the-pyramid people is difficult. They hesitate to come to a bank, and for them it’s a costly affair. For the real masses mobile banking is the answer because it opens new doors towards inclusivity. If you don’t give financial inclusivity to everyone it creates contradictions within the society. For people who can read and write and have fair knowledge to open a bank account we introduced the Access account, which is a no-fee account where people can easily access a bank account without going to banks. We serve them through our ATMs, where both the cash withdrawal and deposit can be done.

What is the overall performance of your bank?

BRAC Bank performed very well last year despite several constraints in the financial industry such as liquidity crisis and the stockmarket issue. The bank  successfully increased its book in terms of lending to the small and medium enterprises (SMEs), which is our main focus. The customer base significantly increased last year, which is now more than 1.5 million. We have also done some non-financial initiatives to promote financial inclusion such as Krishok card for farmers. We also introduced Probashi banking card for people who receive remittances.

What is your target for the next year?

We are planning to launch a new retail banking model, which concentrates more on customers rather than products. We have now put a team together and changing the existing model into a customer-based model. At the end of the day you are dealing with people, not with products. Products should be for people, people should not be for products. We’ll keep on pushing the same strategic issues and objectives to promote inclusivity and make finance more accessible to SMEs. But BRAC Bank is a full service bank so we want to give good products in the consumer banking sector and continue providing the best service to our corporate customers.

What do you think about spreading banking services to the people who are not covered by a bank?

BRAC Bank promotes financial inclusivity and that is why we are an SME-based bank. Traditionally small businesses have been out of the banking system and we are trying to bring them in. In every country, small and medium businesses drive the economy. The central bank in Bangladesh is already focussing on this but we need more traction. More banks need to get involved with small businesses. We are the pioneer and the leading bank in the country on small businesses and through bKash and Access accounts we are reaching out to the ‘unbanked’.

What about the rural banking services? How many branches of your bank are located in the village areas?

Sixty per cent of our branches are in rural and semi-urban areas and 40 per cent are in urban areas. I think BRAC is the only bank with this ratio in Bangladesh, except for state-run banks.

What is the uniqueness of your bank?

BRAC is perhaps the only bank with a specific mission and that is to support or create access for the SMEs. Other unique feature of the bank is that 60 per cent of the advances are in semi-urban and rural areas. Our branch and distribution structure is also unique.

What are the CSR activities of your bank?

I’ll start by saying that BRAC Bank itself is CSR. We are a bank with a mission. We promote financial inclusivity and we are looking at small businesses, and this is Corporate Social Responsibility (CSR) in its own. Besides, we are involved in many CSR activities, especially education.

Do you think there is any necessity of new banks?

If the question is approached from the point of view “are they serving the people?” or “are they getting more people involved in the banking system?” I think the banking industry has actually fallen short of expectations. If someone argues from that point of view that we don’t need any more banks, one has to agree to it. On the other hand, I think central bank should help   banks promote inclusivity. There are 45 banks in Bangladesh and from this point of view I don’t see any further need for banks but I think the emphasis should be now on the banks to move out and get more people involved in the system. That is where the regulators and the government should be pushing the banks. However, there is always a need for specialised institutions. If a group or bank can come up with specialised stream of products or specialised solution to a need in the economy, then that can be a reason why the bank should exist. Overall, as it stands now, we don’t need any more banks.

Do you think present lending rate is too high for growth of industrialisation? How can we reduce it?

I don’t think the rate is too high. If you look at the inflation rate you’ll see that the real interest rate is quite low. The interest rate is a function of lot of things such as monetary policy. When an economy is under inflationary pressure if you continue to keep the interest rates low the only thing that can happen is inflationary growth. When you set a price for lending to a customer you look at the availability of funds, the risks being taken and the cost of running an operation. If you take these things in consideration I won’t say banks are charging high interest rates. The central bank’s monetary policy in face of the inflationary pressure on the economy has been ‘not to move away from the accommodative policy.’ So, there will be pressure on the interest rates and that is true for any economy, and Bangladesh is not an exception.

What are qualities required to be a successful banker?

You should understand the economy, the dynamics of the banking system and most importantly remember that you are serving people and working with them — that is what successful banks and bankers do. Another thing is that, one should read about latest developments in the world of business, banking, management and leadership. This knowledge helps you to evolve yourself into a better banker. Many young bankers don’t care to do that.

What are the measures you are taking to reduce non-performing loans in your bank?

First of all prevention is better than cure. We have to prevent bad loans from happening. So you must have a very robust process of credit approval so that you know that you are doing the right thing. Internally, it can be bad management or bad financial management, and there are also technical reasons  behind bad loans. In terms of the external problem when the economy is in downturn you should help the customer to tide over that period. Dialogue with a customer and understanding the situation is very important. It is the question of due diligence before you give a loan. You must understand that the person has the knowledge and capacity to run business, he must understand some particular technical side of the business and finally the product right for the consumer that he is trying to sell. As far as recovery is concerned once a bad loan is done it is important to keep the dialogue going with the customer. You can be helpful or be unhelpful. I don’t think being unhelpful helps you to collect the loan. Particularly those customers who don’t want to default but they failed due to external reasons. When a bank gives loan it starts a partnership with the customer and the approach from that point of view.

What kind of policy support is needed for the improvement of banking sector?

Bangladesh Bank has been extremely proactive, particularly in the area of inclusivity and in supporting small and medium enterprises. The monetary policy also has to be right so that the banks do not get caught in a wrong situation. Supervision of banks is also very important. Sometimes when a bank is in bad shape, it affects other banks too because it erodes the confidence of industry insiders. These are the areas we hope there will be continuous policy support from the central bank and the government.


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