Internationalisation of Bangladesh economy and preparedness of banks

Bangladesh is progressing fast toward economic emancipation and doing very well in almost all the counts of economic parameters. The economy of Bangladesh is also gradually being opened to the international economic highway. The share of international trade - both export and import - is 45 per cent of the $250 billion GDP (gross domestic product) and is expanding its footprint. The special economic zones (SEZs) alongside the existing eight export processing zones (EPZs) are wooing investment from the foreign investors. The annual foreign direct investment (FDI) in Bangladesh is almost $2.0 billion, which is expected to be increased up to $5.0 billion once the government's existing infrastructural development is completed.

On the other hand, there are 13 million Bangladeshis working in 152 countries across the globe, most of them engaged in blue-collar job, and earning comparatively lower than the migrants from other countries. While living abroad, these non-resident Bangladeshis (NRBs) are remitting their hard-earned foreign currency to Bangladesh. A section of the self-employed NRBs, though they are very small in number, are very keen to invest in Bangladesh. A small portion of their investment has already been injected into different sectors, including the banking sector of the country. The investment from these NRBs can be higher if some facilities are provided to them. Also, Bangladeshi entrepreneurs are being given permission by the central bank to invest abroad in order to avail the benefits given by the countries of investment destination to the source countries for entering their market. Since Bangladesh is on the path to becoming a middle income country by 2021, it will no longer then be given trade-related benefits - such as duty and other preferential treatment - by the developed world.

Under this context, the question surfaces in common minds is whether our country is prepared to face the effect of internationalisation that is likely to occur in Bangladesh in the coming days. Since almost all the investment and trade-related activities are being performed  through banks, bankers, who are treated as financial engineers in the global arena, need to be well-prepared to face the huge surge in future economic activities.

Investment in a country is initiated by opening a bank account and closed by repatriation of the capital invested along with the capital gain. A number of banking services can be provided to expedite international trade and foreign investment. These can build the confidence of the foreign investors as well. However, bankers need to be well-versed in this line of business as banking in the country has been mostly related with the income generated from service charges. The following non-funded banking activities will become critical issues for the survival of our banks in the future:

n Smart receipt of inward remittance in various form (FDI, FPI, office expenses, inter-company loan, short and long term foreign currency loan etc) and reporting thereof to the central bank: It is a very common scenario that when an inward remittance is received by a banker, they cannot categorise the proceeds and the beneficiary feels harassed by the ignorance of the bank's desk-level officials. This ultimately decreases the investors' confidence to run their venture in Bangladesh.

n Calculation of pricing at opening import and export letter of credit so as to combat inflow and outflow of currency in the name of commercial transaction.

n In-depth understanding of transfer pricing when transferring the price between companies' parent and sister concerns.

n Opening of foreign currency accounts and understanding the operations of the FC accounts.

n In-depth knowledge at handling ownership transfer between resident to non-resident or between residents.

n Understanding international export credit guarantee facilitated by different international banks and financiers.

n Understanding recovery of stressed loan from the non-resident borrowers.

n Understanding function of offshore banking.

n Understanding background of the bonded-warehouse facilities to handle the exporters.

n Understanding financing facilities to the EPZ and SEZ borrowers.

n Understanding international flow of fund and guidelines for foreign exchange transactions.

n Proper documentation in lending to the non-resident borrowers.

Although these points are not seriously considered by the policymakers and bankers of our country, they are given importance and widely considered by the World Bank and other international organisations. As Bangladesh is yet to strengthen these areas, this increases the hassles for the investors while doing business here. Banks and financial institutions are the platforms where all of the economic activities are performed. Structured and streamlined banking activities can eradicate the obstacles to internationalisation of Bangladesh economy while contributing towards gaining confidence of the international investors.

Rafiqul Islam is the Head of Learning and Development at NRB Bank Limited.

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