Time-befitting initiatives and visionary targets helped IPDC Finance become a leading non-banking financial institution (NBFI), said Mominul Islam, managing director of IPDC Finance Ltd, also chairman of Bangladesh Leasing and Finance Companies Association (BLFCA). In an interview with Mehedi Hasan of Dhaka Tribune, he also talked about issues concerning the present situation of NBFIs and their challenges
How do you assess IPDC Finance?
IPDC is the first private sector financial institution of the country established in 1981. The company has been playing a very instrumental role in the industrial development from the early stage when the private commercial banks first arrived.
However, in 2005-06, the company was passing through a difficult period. The non-performing loans (NPLs) increased to alarming levels. That was when I joined this company as its Head of Operations.
Since then, we tried to build a robust risk management framework, governance policy and recover the bad loans.
The organization has since grown by improving the whole system. Now our non-performing loans stand at 1.57% of the total outstanding loans.
What is the story behind IPDC's success?
Time-befitting initiatives and visionary targets have helped IPDC become a leading NBFI in the country.
We noticed that the real estate sector was neglected, as banks and NBFIs were financing homes based in Dhaka and Chittagong. But we decided to support those outside the two cities.
This prompted us to introduce a nationwide affordable home loan product titled “Bhalo Basha” last year.
Currently, a small amount of SME loans goes to women entrepreneur; we are working on increasing those, as we believe they will become a huge force in the next 10-15 years.
IPDC also built a block chain-based supply chain finance platform, the first of its kind in Bangladesh, with a view to giving out low-cost loans to micro and small entrepreneurs. We also introduced an interest-free book loan titled "Subodh” during the recent Amar Ekushey Book Fair.
What are your future plans?
In the last four years, our business has grown tenfold. Our profit has also risen by four times and our share value has quadrupled as well.
We want to build our capacity significantly better than before in terms of human resources, in terms of our branch networks and in terms of our technological network.
IPDC is still focusing on the SME sector as it has a great role in generating new jobs. We have already taken several initiatives to materialize our plan.
A high number of NBFIs are not doing well. What is your suggestion for them?
Every process of banks and financial institutions should be simple and affordable. Financial institutions should go to the small enterprises and low-income families.
Will the lending rate of NBFIs be reduced as banks have been instructed about single-digit rates.
If the commercial banks reduce lending rates, we will gradually reduce ours too. We follow the trend of banks' lending rates. If they reduce their rates, we will have to reduce ours as well.
What are the challenges for the NBFI sector?
Lack of good governance is the major challenge for the sector. Previously, many bank and financial institutions failed because they did not follow guidelines. If the shareholders and board of directors of a company does not implement good governance, the company is going to suffer.
Similar to banks, a few NBFIs are suffering from liquidity crisis due to poor governance and lack of proper business models.
Why are NBFIs depending on banks to collect deposit?
It is partially true. They depend on us and we also depend on them. The weak NBFIs are dependent on banks largely for their source of fund because they do not have many branches. They do not have proper promotional materials, which can tell customers where to deposit. Three to four NBFIs are currently facing this crisis.
What can be done to address this 'lack of confidence'?
The liquidation of People's Leasing and Financial Services Ltd has caused panic in the market. On the other hand, most NBFIs are suffering as banks are withdrawing their deposits from the NBFIs.
To mitigate the situation, some liquidity should be injected in the market. We demand a specific long-term refinancing scheme to mitigate the situation.
What are your opinions about ailing NBFIs?
Two NBFIs are currently entangled in legal woes, while three to four others are facing difficulties in operating their businesses. The government should merge NBFIs, restructure the governing bodies and executive committees of the NBFIs if necessary, and inject liquidity if necessary.