In an exclusive interview with Dhaka Tribune's Mohammed Monirul Alam, Md Matiul Islam, chairman of Industrial and Infrastructure Development Finance Company (IIDFC), talked about the current status of the NBFIs, its potentiality, NPL, loan recovery, access to resources and ways forward
The government should allow the non-bank financial institutions (NBFIs) to borrow from foreign entities to mitigate their fund scarcity prevailing in the sector, suggests Md Matiul Islam, who served as the country's first finance secretary.
He thinks borrowing from foreign entities at low rate of return can be a sustainable source of finance for the NBFIs in the long run.
After retiring as finance secretary, Islam started career as private sector entrepreneur and founded IPDC, IDLC, ULC (now renamed as UFC), National Housing and IIDFC.
What do you think is the current status of NBFIs?
After the liquidation process of People's Leasing and Financial Services (PLFS) started, the NBFIs now seem to be 'a sector with resource scarcity'. Individuals and banks are not willing to put money with us (NBFIs) in fear that they would not get back the money. Some NBFIs' incapacity to return depositor's money and pay the interests income has caused this situation.
NBFIs need to recover from this situation and rebuild trust among individual and institutional depositors.
What measures are required to overcome the crisis?
The recent initiative of Bangladesh Bank (BB) to raise the NBFI's borrowing limit is a 'palliative care'. It won't work. NBFIs need sustainable source of fund. The borrowing limit has been raised from 30% to 40% of respective equity. Under this opportunity, my company's borrowing limit will rise by Tk 15/16 crore. But, to what use will come this small amount?"
We have to came out of two conventional source of funds — public and private deposits. The government can create scopes for borrowing and lending in foreign currencies for NBFIs by amending the section 37 (1) in Financial Institutions Act 2013.
In 1993, I was in contact with the then deputy governor of Bangladesh Bank Kamaluddin when he was going to enact the FI Act. There was a consensus that NBFIs would not be allowed to act as authorized dealer (AD), which meant that they would not be allowed to buy and sell foreign currencies. But, it was not in the draft that NBFIs would not borrow and lend in foreign currency. There was a wrong interpretation of the term 'transaction'. Time has come to amend it.
The government should allow NBFIs to borrow from foreign financiers. The government can also arrange low-cost funds from World Bank's International Development Assistance (IDA) and relend the money to NBFIs with prior negotiation. The government can fetch some profit by relending the funds to NBFIs at slightly higher rates.
Black money whitening by putting it with the NBFIs can also help. NBFIs are prepared to play a pivotal role in collecting funds from the black money holders for investment in hi-tech parks and economic zones by deducting 10% tax at source for the government exchequer. Once we get positive signal, we will start the procedures.
Bad investment caused by faulty documentation, inappropriate assessment of collateral and manipulation of information by staff members especially senior officials and presenting those to board for approval has contributed to rising non-performing loans (NPL).
How did NBFIs' financial management turn weak?
Allowing faulty documentation in granting loans by respective management and board appears to be the main cause which weakened the financial management. I had sensed the board's inappropriate role in supervising the company's financial operation early, during my days as finance secretary. So, I did not deploy any board to banks.
However, the board members of a finance company or a bank have vital roles to play to ensure good governance. Board chair is a bridge between the management and directors and owners-shareholders and the regulator. If the board of a finance company is strong, it must grow.
Do you think Bangladesh Bank should approve new NBFIs?
The market is already overcrowded. If new NBFIs are allowed, I will request the authorities concerned to keep a pre-condition for them (new NBFIs) to absorb people who lost jobs in the process of PLFS's liquidation and those who lost jobs at weak NBFIs.