Bangladesh’s ‘Green Governor’
The Governor of the Bangladesh Central Bank, known as the “Green Governor,” has a reputation for innovative thinking and problem solving. He is renowned for his support of the agricultural sector and his focus on SMEs as well as green banking. As one of the most progressive and well-respected Central Bank Governors in the world, Dr. Rahman has a unique viewpoint on Bangladesh’s economic growth outlook and the opportunities and challenges ahead for the banking sector.
Across the region we have seen recent growth downgrades. How do you see the growth prospects for Bangladesh this year?
The economy of Bangladesh has maintained a dynamic growth trend in the midst of repeated external shocks like the East Asian crisis and the subsequent global financial crisis. Bangladesh Bank (BB), as the monetary and financial sector regulator, has engaged the country’s financial sector in the promotion of inclusive and environmentally sustainable financing of output activities, with cautious, restrained monetary programs consistent with price and macroeconomic stability. This has helped Bangladesh’s economy achieve a more than six percent annual average real GDP growth for well over a decade. Declining lending interest rates and rising foreign exchange reserves along with a stable exchange rate are also enhancing the investment climate for foreign investors.
In terms of BB initiatives to ensure sustainable growth, we have guided an expansion of agricultural and rural credits, not only to enhance poverty reduction and food security, but also to contribute price stability through lessening domestic food supply volatility. Moreover, BB is able to influence inflation indirectly through manoeuvring the intermediate target of broad money growth. BB’s monetary policy stance has already sensitised the banks and financial institutions towards socially responsible lending, accelerating a directional bias favouring lending for productive pursuits. These measures are insulating the economy from becoming overheated.
With regards to currency stability, do you feel that there is confidence in the market regarding the taka?
The taka has appreciated against major foreign currencies, barring the U.S. dollar. Through cautious monetary policy, we have ensured strong external sector gains with a more than five-fold increase in foreign exchange reserves since 2009. Rapidly growing reserves are strengthening the value of the taka. With intensive surveillance and market-based supervision, the value of the taka remains strong and stable compared to other South Asian economies.
You are renowned for some innovative initiatives and policies, such as green banking. Why are these policies so important?
Bangladesh Bank is committed to promoting socially and environmentally responsible financing without compromising macroeconomic stability.
BB has been pursuing an array of policies for mainstreaming socially responsible business like green banking. We strongly believe that these inclusive policies are a very effective means not only for sustainable growth but also to uplift the “missing middle.”
There has been a lot of talk about non-performing loans and high interest rates in Bangladesh. What is your plan to combat this and what is your policy towards corporate governance?
As is the case in many countries, the banking sector in Bangladesh faces multiple challenges moving forward, including adjusting to rapid technological changes, risk management, and stability issues posed by increasing financial globalisation. We at BB have gone about setting the incentives, as well as overseeing compliance with corporate governance related laws, regulations and guidelines. Setting up a world class enter for Leadership Excellence in the Financial Sector EFS in Chittagong is in progress, which will primarily focus on issues related to better corporate governance in the financial sector. We hope to bring in world-class experts to raise the quality of discourse on the desired corporate governance excellence.
What do you believe the IMF and the World Bank can do to contribute to Bangladesh’s Development?
In the recent IMF-World Bank Annual Meetings, I raised the issue that we should not just go on creating money, but rather we should help groups of people to produce goods and services. Therefore, my suggestion for the WB and the IMF would be to emphasise a financial inclusion strategy, focusing more on green and socially responsible growth systems. The corporations should share part of their income with the poor and their workers. The Financial Times magazine, The Banker, chose me as the ‘Central Bank Governor of the year 2015: Asia Pacific’, recognising that these innovative steps are adding significant value to the economy.
Is there room for more banks to enter the sector to continue this inclusive growth strategy?
There is still a significant part of the rural population that is under-banked due to the low penetration of banks in rural areas. To ensure the outreach of banking services to the masses, nine commercial banks have been given licenses, of which six are from local entrepreneurs and others from non-resident Bangladeshis. The rule for new bank branches has been set at a ratio of 1:1, which is expected to deepen financial inclusion further. All scheduled banks are doing online banking, mobile banking, agent banking, offshore banking etc. leaving little room for new foreign banks in Bangladesh.
You have spoken about agriculture, but there are other sec- tors like industrial and telecommunications that may need certain requirements from their banks. How would you assess the level of competitiveness of the banking sector in terms of technical capacity?
Technology has brought about a complete paradigm shift in the delivery of banking services in Bangladesh. Over the past few years, in line with the government’s vision of “Digital Bangladesh, Bangladesh Bank has been encouraging and implementing IT-based financial services in the overall banking sector. The implementation of the Bangladesh Automated Check Processing System (BACPS), the Bangladesh Electronic Fund Transfer Network (BEFTN), Enterprise Resources Planning (ERP), CIB online facilities, mobile banking service, as well as the establishment of data warehouse facilities and the adoption of core banking software are all very important in ensuring technical capacity.
Bangladesh has transformed in the years since independence in 1971. How do you see the financial sector moving into the future?
The banking sector in Bangladesh has grown several-fold since independence in 1971, in tandem with the country’s uninterrupted spell of steady, stable economic growth. Beginning as an almost wholly state-owned sector making direct loans at prescribed interest rates, our banking sector has undergone successive rounds of major structural and regulatory reforms transforming it into a vibrant private sector-led market-based banking system. I strongly believe BB’s movement towards sustainable banking, including a financial inclusion ethos with green banking and mobile banking initiatives, will continue to bring prosperity in the years ahead.
How would you like the banking sector, or the Central Bank itself, to contribute to the image of Bangladesh internationally?
To spread the success stories of Bangladesh Bank and Bangladesh itself, we at the Central Bank are working on the branding of Bangladesh Bank. We have an excellent, structured and secure website. With the assistance of a locally reputed agency, we have already developed a strategic plan to communicate and highlight various initiatives and landmarks of Bangladesh Bank through social media.
You are the ‘Central Bank Governor of the Year 2015: Asia Pacific’, one of many achievements. You started from humble beginnings and there are many among the younger generation who are in a similar situation. What is your advice to the next generation of young people?
No pain, no gain. This famous maxim reminds me of the arduous journey I have made to reach this stage. In this era of rapidly changing economic environments, students must work relentlessly to keep up to date with today s changing job requirements. I would advise students to prepare themselves and change their mind-set of chasing not just jobs, but also to explore their potential for entrepreneurship. The recognition I have achieved for promoting socially and environmentally responsible initiatives will be enhanced with the innovative ideas of our younger generation.
This article originally appeared in a special publication by The Worldfolio produced in conjunction with the 11th WIEF.