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Thursday, December 11, 2008

All in the name of industrial financing!

IIDFC stands for Industrial and Infrastructure Development Finance Company, IDLC for Industrial Development Leasing Company, IPDC for Industrial Promotion and Development Company and so on for many in Bangladesh. As if these companies are ‘fuelling’ the country’s industries. True, they are financing some industries but more truly (!), they are financing mostly consumers.

Right now they are focused on easier & flashy car loans, home loana, heavy rated FDR deposits, leasing of buses, trucks, cabs, human haulers, vans and proliferated small shop financing covered by very lucrative ‘SME financing.’ Where is the industry here? In worst, IPDC started a vague credit card business (club royal) to enjoy rebated hotel, dinner, spa being a pioneer industrial promoter! IIDFC posted a big outdoor ad on Birdem-PG foot over bridge at Shahbagh to take ‘car loan, home loan from them. Wow! Now pushing someone to buy a car, a flat, a tv, a fridge is called ‘industrial financing.’ Dear finance student/academicians, please redefine your terminology.

Another word that needs to be illustrated is ‘SME’. A very popular, repeatedly uttered term in round tables & editorials. I found no substantial long road in Dhaka city without miscellaneous shops. It is termed SME by our ‘industrial promoters.’ In the name of SME some are doing only retailing, some are writing editorials, some are writing articles in never read journals to become professors from lecturers, some are building capacity like IFC-SEDF, some are disbursing loans to almost micro credit level. CitiNA in commission business, SCB in credit card, HSBC in salary account, BRAC in SME, Dhaka Bank in Car Loan, DBBL in ATM. So country is going to be industrialized soon! Thanks to old fashioned uttara, islami, pubali, ab, agrani. At least you are in ‘industry somewhat.’

Worst consequence of this proliferated consumer financing business are- emergence of enjoying more than you can afford, traffic jams, extra fuel consumption by upper segment at the cost of public, social imbalance, frustration from jealousy, idle money breeds money thoughts (what IPDCs slogan), less interest to value adding business specially in manufacturing & service and as a whole weakening/stagnant real economy but sprouted consumerism that make inflation ultimately an eventuality.

Note: the writer is not against consumer financing business. But he wants an appropriate naming of your organization, equilibrium between industrial & personal financing by FIs.

-Azad A. Kalam


Ahmed Ali said...

Nice find and insight.

I think this consumerism is a result of a lack of foresight. Bangladesh Bank made a decision to limit the profits to 5% for an industrial loan.

But there is no limit on any other types of banking. This includes SME and consumer banking which have reached interest rates of 26% in some cases. So does a bank give a 14% industrial loan or a 26% 'SME', Car, Consumer, TV loan?

As it stands now this blunt decision to relieve the industrial sector has led to the miracle where it is actually easier for consumers to get loans rather than industries. So the policy has seriously backfired. If it was only the opposite, we would have seen less of this consumer hijinks.

And the pinnacle of this policy, as you pointed out is IDLC.

And lets not point the finger at Bangladesh Bank all the time. Our country basks in the popularity of an ill designed consumer loan scheme called micro-credit. Dignitaries of industrialized countries praise this scheme, yet they don't deviate from their industrial approach.

B A p P i said...

Good Write up. Instead of financing the 'industrial segment' in the market, these Leasing Companies are focusing on short term but higher return markets. In Bangladesh, our main problem is we all focus on the same area, without exploring 'other side of the town'. The banks are focusing on retail market, the leasing companies are making it even more competitive. Let me share an example, A person working for a good private organization gets a salary around 70k. He applies for a car loan from a bank, gets one approved, and purchase one Corolla G. Now, he don't want to drive the car and he keeps a driver. As we know, rough handling from the driver makes the new car become older even before its reaches 100k Kilometer of running life. To get rid of the pain of increasing 'maintenance cost' the owner now rents the car @ 25k taka per month, to 'earn' the maintenance cost. After a while, he finds his income on car rental has become 'solid deposit'. Now, he applies for SME loan from a Leasing Company and starts a 'Mudi Dokan' in his garage. His car is kept in another rented garage though. You see, when this person goes to the kitchen market, he is ready to pay Tk1000 to buy a fish, which might have cost Tk.500. Because, instead of having one income source he now has three income, of which one only is accountable. My point is, in Bangladesh, too many of us focus on too many things. Why a leasing company needs to play in the SME financing I don't understand and also why they are not willing to finance in capital machinaries.May be, its easier to recover Bad Debts from a small 'Mudi Dokandar' then from a 'Big Industrialist', because the 'Big Industrialist' might be a member of the board of directors. We, Bangladeshis don’t understand what we want and how we want. Thanks to Mr Kalam and Mr Ali for your constructive thoughts.

Mahboob Hossain, The Nielsen Company said...

Caution: Those who apply for loans, there are sooo many hidden costs it will eat up your savings and your luxurious life will vanish away and will turn into a liability. If you are willing to fight to earn money on a non stop basis, today this business, tomorrow that, then you can probably manage loans, but if you prefer simple life, than loan might wreck you. no point leaving a happy rickshaw ride and entering a mad/tensed short of cash car drive life. Happiness is what counts the most. Be happy, stay loan free, as long as you can. :)

Anonymous said...

Man, if you are not insider, you won’t know, SME is nothing but just a brand name that FI are using to earn bizarre spread ... SME loan can only make a firm grow big in 10 yr that can grow bigger in 7yr without SME credit.

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