Despite its promise retail banking has fallen short of its full potential in Bangladesh. Talking to bankers one gets the impression they are resting on their laurels. The fact remains however that, giants like HSBC have closed down branches and curtailed consumer banking perhaps to concentrate on trade finance, their strong suite. Banks are following their other time-tested models -- booking high-volume and low-cost institutional deposits and corporate lending. However, an assortment of news relating to agent banking, co-branding, and nari udyokta (women entrepreneurs) initiatives grab our attention daily. These stories sound hollow due to a lack of substantive progress on the fringes of mainstream banking.
The poor and uneducated sections of our population remain outside the fold of banking and shut out of the formal sector. Thus, they are denied the opportunity of inculcating good habits like saving and investing. Lack of education, income, information, heavy paperwork, and a lack of coverage in hinterlands are barriers to inclusivity. The journey of personal loans is no less rocky.
About twenty-five or so years ago, loan applications from individuals were treated on a case-by-case basis. A lot of work was involved without compensating income. Banks were not enthusiastic about this segment. Rather big corporate clients sometimes asked for personal loans for their high officials which were reluctantly given. This practice left a sour taste in bankers until modern marketing practices came to their aid by designing loan 'products'.
Initially, this was the area of foreign banks followed by forward looking local ones. This innovation takes advantage of the rise in the salaried class and diversifies income sources. Now there is a surfeit of loan and investment products catering for different market niches.
There is a 'caste' system among salaried people. Those who work for multinationals and foreign organisations are at the top of the pecking order. Government servants, employees of large NGOs and big local corporates follow. The number of property-owning salaried employees is paltry compared to renters. Last in line are people earning insufficient salaries. In the mix there are swindlers unwisely marketed by banks.
Mortgage lending presents its own set of challenges. Flats being costly, the installments strain the disposable incomes of many. Some realtors have not been able to deliver flats timely thus pushing up the loan burden. Monthly service charge and property taxes are additional expenditures. Perhaps such irritants are not unlikely in an emerging economy.
There are several reasons why retail banking should come out with flying colours. Firstly, retail banking is predicated on templates, so large volumes can be processed within a short time. Secondly, our money supply has risen steadily; broad money to GDP ratio stands at a healthy 64.3 per cent (2018). Thirdly, there is the rise in population and urbanisation and along with it wholesaling and retailing. The fourth factor is the rise in government expenditure. Fifthly, industrialisation and foreign investment have spurred monetisation of the economy. Finally, many families are dependent on foreign remittances. It is no secret to bankers that savings accounts are a stable source of deposits.
In light of the above, forward-looking bankers should try to bring more and more people within the fold of financial services through advertisements, personal selling, sales promotion, tying up with corporate customers, holding information sessions at schools and colleges. Market research has a role to play. We can nurture new entrepreneurs from this expanding base. Moreover, banks have so far ignored cooperating with insurance companies. This avenue should be explored for new and even hybrid products.
Bankers have to brain-storm, experiment, and learn from other developing countries. While failures are not unusual, inaction is not an option. Bangladesh will fall behind in reaching the next stage of its development if retail banking lags behind. This is the time to show farsightedness and design suitable programmes to boost savings, liquidity and ultimately investment. The torch has to be held by the central bank.
Raihan U Amin is Visiting Faculty-University of Asia Pacific (UAP). firstname.lastname@example.org
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