Lessons from the banking mela

The recent five-day banking mela (fair), held at the Bangla Academy premises, was the first of its kind in Bangladesh's history. It also provided a role model for many other developing nations that aspire to ascertain sustainable growth through financial inclusion. All 56 banks and other financial institutions came together for the banking Olympic to celebrate the passion for working for the economic wellbeing of the country. It left a couple of lessons for us.  

The whole banking industry has to redefine itself to comply with the tenets of developmental central banking, which Bangladesh Bank now exercises while operating monetary policy. Accordingly, sheer profit maximisation by any means can no longer be a 24-hour dream for the commercial banks in a country like Bangladesh where the majority of the poor are still unbanked.  Both state and private banks must constantly update their strategies to make their products and services available to the unbanked and vulnerable people of the country. Thus, empowerment of the poor and women in particular should be central to the strategic intent of the entire banking industry. The current central bank governor, being a development economist, is constantly urging the banks to explore all possible avenues that can empower the poor without compromising the core duty of preserving macro-stability.

What is the problem if the banks do not pursue the path of financial inclusion? Why do they need to invite the poor into their premises when thus far the neatly decorated and often air-conditioned offices are typically reserved for the affluent? The answers to these questions point to both ethical necessity and existential concerns. A bank may consider itself clever by ignoring these questions. In the long-run, however, the bank will dig its own grave if it doesn't embrace financial inclusion in a stratified society like Bangladesh where the super rich tend to default on loans. In contrast, the middle class and the have-nots have a healthy record of repaying their debts.  

Most important is the necessity of achieving and maintaining a moderately high growth rate for Bangladesh, which is impossible without three things: liberalisation, an environmental standard, and widespread employment of the national workforce across the sectors in the economy. And a balanced participation in the economic activity is a far cry without financial inclusion. If national growth drops, the whole banking industry will be at risk. Hence, the banking industry must adopt all possible strategies that eventually benefit the growth potential of the economy. And thus financial inclusion is inevitable for ensuring sustainable growth. That was the vital message of the five-day banking mela.

If a moderately high growth rate above 6 percent cannot be maintained, doing business in Bangladesh will be difficult for most banks, triggering the possibilities of mergers, acquisitions, and even bankruptcy. And the most important sector to ensure that respectable growth rate is agriculture. Thus, it is all banks' responsibility to closely monitor the progress of agriculture and to facilitate the needs of the farmers in a timely manner. Three percent growth in agriculture may look much lower than the 6 percent growth in services and the 8 percent growth in industry, but that three percent is the engine of empowerment for all other sectors. Agriculture employs almost 40 percent of our workforce. A one percentage point drop in this important sector will surely reduce growth rates in the two other sectors through a drop in consumption demand, but impact on national output will not be of the same magnitude if growth rates marginally drop in those two sectors.  

Loud was the call for humane banking for the employees – a notion often ignored by the rich bank owners who keep on changing chief executives until their profits mount the pinnacle. If the employers do not strike a balance between work and life, activity and scope for education, and task and training for their employees, future productivity in the financial industry will fall. In the knowledge economy index, Bangladesh ranks 26th out of 28 developing nations in Asia. Does it not alert the banking sector? Bank CEOs can take the lead in devising effective strategies to facilitate after-office education and training for their employees to stimulate future labour productivity which is also linked to the nation's growth potential.

The mela offered an excellent opportunity for mingling and interaction.  Being organised by Bangladesh Bank and thus staying under a single umbrella, all 56 banks learned from each other with the spirit of healthy competition.  Bank bosses met the customers face to face and understood the necessity to improve the quality of services.  A five-day mela cannot accomplish all the goals the banking industry ought to pursue, but it certainly gave new momentum to the commitment of building a vibrant, transparent and accountable banking nation.

The writer is chief economist of Bangladesh Bank.