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Discriminatory bank financing in Bangladesh

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Who does not aspire after a discrimination-free economy or society? Restoring rights inevitably requires a movement. Since inception of collective  right-consciousness , the  victims  have  fought against  rights  violation. From  time  to  time, agitations   spring  up spontaneously as we  observed   an  anti-discrimination  student movement as one  of the most  powerful  catalysts  of  July Uprising 2024  led  by  students and  masses in Bangladesh. Discrimination has numerous types and forms -- political,   economic, religious, racial, ethnic, gender, administrative, and so on. Many discriminations remain disguised and   generally subtle. New  and  unimaginable    forms of discrimination   also   emerge. However, we should unveil  every possible  type  of  discrimination  lying   in  every  stage of  society  and  economy.  Present discussion would  be   concerned  with a  type of economic  discriminations  particularly   in   loans and advances  disbursed  by the banks in Bangladesh.  

Discrimination in the field of economic management leads to a rise in    economic inequalities. Banks have a critical role in facilitating economic   growth   in  terms  of  income   and  wealth  of   their borrowers. In  the  context  of   increasing   emphasis   upon corporate  social  responsibility (CSR) , banks as lenders  should   prioritise   the  interest  of the  majority  of   borrowing  people belonging  to  cottage, micro, small  and  medium  categories  rather  than  large ones. This  approach to  lending   is   ethical   and  beneficial   not  only  for  the   economy   but  also  for  the   lending banks.

Disbursement   and  recovery  of loans and  advances  constitute  one of  the  most  important  functions  of a bank. The  cruel fact  is  that   large   firms  or  borrowers  managed  to  reap most  of  the  facilities  offered  under  government  stimulus packages   during  COVID period whereas the  people  and  firms under CMSME  categories were deprived of  their  due  and  justified  benefits.  An unholy nexus of bank owners-directors, government policy-makers  and  the then  ruling  politicians forced discriminatory  banking .

Discrimination   is a man-made injustice. It   may be created intentionally, unintentionally   and   also unconsciously.  Whatever be   the manner   of creating or continuing discrimination, it is always   unacceptable   and subject   to elimination. It is  also  true  that eliminating   discrimination   hardly   occurs without  a strong  movement. Longstanding discrimination   often   becomes a custom that is silently  accepted as a  fate . Resistance to   change such fate   comes from the beneficiary group. Thus it  is  an  ethical  as well a  great  challenge  as to whether  and  how  to end  discrimination.

According   to   information   obtained  from BB's Scheduled  Banks  Statistics (January-March 2025),  Table 1 reveals  that as  the primary  sector  contributing  10.94 per cent of gross domestic product (GDP), agriculture, fishing &  forestry  receives   only  4.18 per cent  of  total   bank loans  and  advances .This  is  quite   inadequate   against  the  sector's  actual    requirements. Besides,  the share  of  finance  held by   farm borrowers   of  more  than  Tk  1 crore to 50  crore and  above   is  1.16  per cent.  As  a result,    the actual percentage for farmers below  the loan  size of  Tk. 5000  to  1 crore  reduces  to 3.02  (i.e.  4.18 per cent  minus  1.16  per cent). Most  of  the  farm  households   have  to   depend  on   informal   fund to  the  extent   of more  than  90 per cent  of  their  needs  at  a   much  higher  cost . Borrowers   under cottage and SME categories receive only 5.52 per cent of total loans and advances. Available data   on banking   finance are  not well designed. So, the real position of CMSME financing   cannot  be   analysed   and justified   in  specific  terms. We   are totally   unaware of    any updated    and inclusive statistics  on financing CMSMEs  along  with the  number of  entrepreneurs/borrowers  based  on   their  nature  and  size. Consequently, categorical financing needs   and priorities cannot be   ascertained. An  attempt   has  been   made   to  present   some  past  statistics  about    size-based   economic establishments, and  farm  households which  are   to be  assessed  as preferential   entities.

This Table furnishes  data  from  which we  can guess  a  rough  scenario    regarding  the  number  of probable   finance-seeking  people  and  organizations   that largely   belong  to  CMSME  categories.  It  is    seen  from  the  table   that  more  than  78  lac CMSME   establishments   are recorded. Their  actual number  might  have  rather   escalated   over  the  time  span  of  12  years   from  2013. Regrettably,   we   fail  to  collect   the   current number   of  borrowing   accounts  and  other relevant data   under  CMSME .The   number of accounts  under  agriculture, fishing  and  forestry  are  63.35 lac   against  1.69  crore  of  farm  households.  Only   37.49 per cent  of   farm  households   have  been  financed  with  very  insignificant  amounts.

Table 3  shows that the  banking industry   has   more  than 13  million accounts   for   loans  and  advances. We  cannot  directly  conclude that   the  number  of  borrowers  would be  exactly  equal  to the  number  of  accounts. Due  to  having   more than one accounts  maintained  by  many  borrowers, the  actual  number  of  borrowers may be  around  10  million. Whatever  be  the  real number, 99.66 per cent  account  holders   have access  to  only  37.19 per cent  of  total loans  and  advances   while  only 0.34 per cent  account holders  share  62.81 per cent  of  total loans  and  advances. Economic activities  create    income  and  wealth usually   to  the  extent  of   investment outlay made  by  the  investors. Household Income and Expenditure Surveys  2016 and  2022  reveal  that   investible surplus  of the  majority  of   households  is insignificant. That is  why,   they  need   debt  financing.  CMSMEs' inaccessibility to  and  inadequacy  of  debt  fund is triggered  by   discriminatory allocation  of  banks'  loans  and  advances. Awfully it  is  observed  that   average  size  of  loans  and  advances   taken  by  few account holders ( only 45,360)   is 499.23 times the average  size   of  borrowing  by more  than 13.39 million  account holders. Are the lending  banks  liable   for   such    a discrimination ?  It is   primarily  the  lack  of clear philosophy  and  principle  of   good  governance   at  the  national  level  and   secondarily  the  lack  of  good corporate   governance   at  the level  of  lending banks.

Hard  truth  is  that  we   are  yet  to  develop   the   appropriate   framework  of  good  governance  to  be  implemented   by  the  government . Most  important at  this  critical   juncture  of  time  is  that there must be a  broad-based   political consensus  particularly on  the  fundamental philosophy  and  principles  that  would  underpin  the  foundation  of good governance system  for  our  country. As a sub-system, the model of corporate governance in  banking  will have to be developed. Corporate stakeholder responsibility should be preferred over corporate social responsibility in order to meet expectations of all organic stakeholders of the banking industry. Then, discriminatory banking will end as an in-built component of stakeholders-based banking governance.

 

Haradhan Sarker, PhD, is ex-Financial Analyst, Sonali Bank & retired Professor of Management.
sarkerh1958@gmail.com

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