Our banking, forex woes are linked to how we treat our small depositors and remitters

Bangladesh achieved remarkable milestones on several socio-economic fronts over the last 52 years since independence. Despite these accomplishments, concerns about certain sectors have remained in the limelight. Of these, vulnerabilities in the banking industry, in terms of certain key indicators, have been the subject of concern for key stakeholders. 

In recent times, the foreign exchange market and instability in the exchange rate came up strongly as the focus of discussions. Both of these financial sector segments have significant associations with the country's development and growth process. The situation demands reasonable initiatives and dynamism on the part of policymakers and market participants for the rectification and consolidation of the sectors. 

Moreover, certain fundamental challenges need to be addressed, of which one of the most critical ones is connected to the treatment of the prime givers of these sectors. Did we really have adequate support arrangements for the key givers or principals of the banking industry - 'small depositors'? 

Do these stable fund suppliers and lifelines of the banking industry receive the due treatment and respect they deserve in the banking industry? Did we do enough for the worker remitters who make a mammoth contribution to the foreign exchange market? Do these unskilled and semi-skilled foreign exchange suppliers receive due treatment in their workplaces and as returnees?   

Sometimes you may find a long queue of small depositors in a bank branch. You may also notice that they hardly receive any respect or special treatment. It is as though the bank does not consider them clients. Borrowers and other service receivers on the other hand are their clients.

I believe bank management can choose how they approach and treat shareholders and board members, and there is nothing wrong with this. However, I do not think, as a whole, we have created a respectable environment to serve small depositors. 

Depositors are not the clients of banks, rather they are the most important principals of the banking industry, they are practically the 'Majority Owners'. 

Bank depositors, especially small depositors, are the sources of 'core deposits'. Core deposits are of particular importance to banks because they provide a low-cost source of funds, and are a basic tool when it comes to long-term funding needs. 

These stable deposits offer plentiful advantages to banks and financial institutions, including predictable costs and reliable scales of customer loyalty. Bankers use this portion of the deposits to earn their incomes. Thus small depositors are the prime givers of investable or loanable funds. 

Depositors have significant roles in disciplining banks and financial institutions. They can punish the bad behaviour of banks by withdrawing deposits and requiring high interest rates. However, for this to happen, a country must ensure a reasonable level of financial literacy, an area where Bangladesh is lagging behind. 

Depositors are not organised and conscious about their roles and rights. So they can be easily snubbed if they complain when they are not given strong support and protection by the country's regulations. 

From the bank management's perspective, true gratitude to the depositors may be reflected by treating 'compliance requirements' ethically and placing these at the top. This is directly related to protecting depositors' interests and is clearly associated with the sound governance of banks. 

Special attention should be allocated to the compliance of 'prudential norms', by avoiding risk-taking activities, as an important way to protect the interests of the depositors. Bank management is expected to allocate resources, invest in compliance concerns and financial literacy, and offer depositors due protection and comfort in the banking sector. 

I believe worker remitters face a similar treatment in the foreign exchange market. Despite several notable efforts and initiatives on the part of policymakers and other key stakeholders, visible gaps have remained between the existing and the desired level of treatment of the remitters in the country. 

It is well-known that remittances play a central role in many labour-sending economies such as Bangladesh. Macroeconomic benefits of remittances are well-recognised tools for poverty reduction in developing economies. It contributes directly to broadening the opportunities to increase incomes and allows households to increase their consumption of local goods and services. 

At the community level, remittances generate multiplier effects in the local economy, creating jobs and spurring social infrastructure and services. At the national level, remittances provide foreign currency and it has also surpassed official aid transfers to developing countries, reducing international inequality. 

Workers' remittances have been the main pillar of Bangladesh's foreign currency earnings, providing a substantial cushion against the widening trade deficit and thereby enhancing the external sector resilience of the country. Being the main source of foreign exchange earnings, workers' remittances cover a major portion of the annual trade deficit. 

Workers' remittances are non-debt creating foreign currency inflows to the country and unlike several merchandise export sets, there is no import content involved in this source of foreign exchange earnings. Thus workers' remittances have a significant role in maintaining the balance of payments of the country, improving foreign currency reserve positions, and coping with the demand by supplying foreign currency in the foreign exchange market of the country. 

Alongside foreign exchange market stability, workers' remittances are crucial for the country in financing necessary imports and meeting international financial obligations, such as debt servicing. 

Are these groups of givers i.e. low-income remitters adequately supported and respected? In some instances, their awful treatment in airports and other service centres not only negates their crucial roles but also points to our ungrateful approach. 

Bangladesh needs to step up efforts to strengthen the regulatory framework of the migrant recruitment system to protect migrant workers against abuses. We need further and sincere efforts to give support to migrant workers, especially women, in their workplaces. 

Despite several notable projects and initiatives, Bangladesh has inadequate support services and a limited community understanding of the needs of returning migrants. This has affected the capacity of many returning migrants to sustainably reintegrate into the Bangladesh economy and society. Women returnees must be treated differently to address their greater struggle in reintegration efforts. 

Unlike shareholders in the banking industry and RMG in the foreign exchange market, the great givers, the 'small depositors' and 'small remitters' are unorganised and cannot effectively push for their interests. These groups must be duly honoured and facilitated for the growth and stability of the Banking and Foreign Exchange Market of the country. They need strong policy and regulatory support both for their sake and for the interest of the country.  

Dr Shah Md Ahsan Habib. Sketch: TBS

Dr Shah Md Ahsan Habib is a Professor Selection Grade of Bangladesh Institute of Bank Management [BIBM].