The New Nation - Internet Edition

Maswood Alam Khan

Too many bankers in Bangladesh have been chasing too few prospective savers to build up their deposit portfolios, the lifeblood of a bank for investment. Prime banks which used to bask in their surplus liquidity of cash have of late started feeling the crunch as they are finding it strenuous to maintain their statutory requirement of minimum deposits for smooth functioning of their banking business. Promoters of banks have already been fielded for aggressive deposit hunting with their innovative products to motivate depositors to save their disposable income with them, but not with much success.

Small depositors are crushing their savings to meet rising prices of their daily necessities. Clients who developed a smooth saving habit by setting aside a small amount of their disposable income every month to build their pension funds through a variety of pension plans of different banks are either going for premature encashment of those schemes or are loath to start afresh the same scheme on maturity of the previous ones. On the other hand, people belonging to big and medium income groups are finding investments in stock market or in real estate more lucrative than in any deposit product of a bank---in an attempt to hide their black cash from the glare of tax and anticorruption authorities.

As inflation exceeds interest rates offered by our banks, genuine holders of cash, especially wage earners with their savings made out of their hard labour abroad, opt for buying lands, shops or apartments with a view to protecting their savings from being eroded by inflationary pressures.

But, a majority of intending buyers of real estate properties in Bangladesh land themselves in the traps of unscrupulous estate dealers in the absence of any strict punishment against manipulators and cheats who foist defective titles of real estate upon naive buyers.

With an expectation of making quick money a number of people belonging to small and medium income groups having no expertise or experience on technical and fundamental analyses on stock picking are of late blindly following in the footsteps of their peers or a frequenter to the corridors of stock markets to play with equities---landing themselves into another booby trap if they don't know how to distribute investment risks by not putting all their nest eggs in one basket.

In short, people in general are distancing themselves from banks for their investments if their disposable income or cash savings exceeds a limit that is too glaring. They also apprehend the bankers no more can guarantee maintaining strict confidentiality of their transactions the banks once in the distant past had a reputation to uphold, especially after strict enforcement of Money Laundering Act.

'Saving' differs from 'savings'. 'Saving' connotes to an increase in one's assets, an increase in net worth, whereas 'savings' refers to single part of one's assets, usually cash deposits in his/her savings account with a bank. Saving refers to an activity occurring over time, a flow variable, whereas savings refers to something that exists at any one time, a stock variable.

Saving is closely related to investment. By not using income to buy consumer goods and services, if the resources are instead invested as fixed capital to buy, for instance, machinery, the saving thus derived contributes directly to economic growth.

Savings with a bank is also not always a good sign for a vibrant economy, especially when savings far exceeds investments for a long time---foreboding a general glut and recession. So, to discourage long term savings, interest rates are adjusted with an abnormal rise in savings to divert idle money out to stimulate investment in the market.

But, when depositors withdraw their savings from banks en masse to stash the same under a mattress or to deploy the fund in fixed and silent assets like land and apartments which are not directly so much related to day-to-day business cycles banks get dried up of their lifeblood---an ominous signature of stagflation. Savings taken out from banks and kept hidden elsewhere may mean no decrease in total savings, but may result in a decrease in investment through banks in economic activities causing a shortfall of demand rather than to economic growth---a situation often termed as the 'paradox of thrift'.

Given the poor health of most of the companies enlisted with our stock markets the windfall gains and profits from the shares changing hands are ephemeral in nature that may at one stage hit a holder of a share with a real hard time at the end of the day. Although experts report success in determining future gains from a share through 'Technical Analysis' and 'Fundamental Analysis' of the companies concerned many economists suggest that because of 'efficient market theory' it is also unlikely that any amount of analysis can help an investor make any gains above the stock market itself. In a normal distribution of investors it is always ironically the richest, the outliers, who in a game of chance have always flipped the heads and the poorest the tails.

The poor people, especially the farmers who are permanently living in rural areas, set aside and preserve in their indigenous warehouses a part of their harvests for future use, for personal consumption as well as for sale to meet their future cash requirements. They are not really interested in holding money in a bank's savings accounts for future needs as interest rates offered by banks are not commensurate with the gain they expect from future sale of their hoarded harvests, though they incur a substantial amount of loss from pilferage and wastage of their hoards due to unscientific way of preservation and thievery.

They however save their disposable income with some NGOs who offer them much higher rates of interests compared to government-owned banks who offer only one percent more interest than in urban areas. And the NGOs to cover their cost of fund lend the savings to intending borrowers at abnormally high rate, thereby making the poor in need of loans utterly bereft. Moreover, exploiting the gullibility of the rural people some mushrooming NGOs, as we often find in newspaper reports, offer the lure of high return on deposits only to flee away with the poor's money on a future date.

The rural people who toil in the fields to grow crops for our survival will have to gradually leave their profession of cultivation if their stay in the villages and engagement in the fields are not made attractive and financially rewarding and if the government fails to protect their savings from losing their value. It is only the government-subsidized banks that can help a cultivator shield his savings of hoarded crops if the cultivator finds his sale proceeds not eroding in a bank---a scenario possible, if the bank offers him insurance against inflation.

There is already a disturbing symptom visible as we find women working in the fields as cultivators and also in the construction sites as haulers of heavy loads they are not at all physically fit for instead of taking care of their in-house chores and rural men pulling rickshaws and driving locally fabricated 'nasiman' vans (a hotchpotch made of unscientific parts perilously plying on roads and highways) instead of working in the fields they are bodily fit for.

Such trend of women shunning their time-honored and feminine roles inside homesteads and men shying away from their traditional and masculine roles as cultivators does not really augur well for our future. Tons of money our government spends to subsidize fertilizer or power for the poor pass a plethora of intermediaries who take cuts to line their own pockets and only a minuscule amount of the subsidy ultimately percolates to the pockets of the rural poor. Stopping all kinds of present subsidies in cash or kind if only savings and loans offered by banks for the rural poor are heavily subsidized by the government---to the extent of two percent above inflation for savings and two percent below bank rate for credits---a broad base of national savings with the banks could thus be developed easing the present crunch of liquidity and a wider rural population could enjoy all kinds of banking accommodation.

Such subsidy of savings in the rural areas will encourage our cultivators to sell their produces immediately after harvest instead of taking risks of hoarding their food grains in their homesteads once they would learn that their savings with a bank will always be guarded by an interest rate above inflation which means a cultivator will enjoy 12 percent of interest rate for his savings with a government-owned bank, if the present rate of interest is 10 percent.

Poor people in the rural areas are not as fortunate as rich people in the urban areas who buy government bonds like 'savings certificates' at rates higher than the inflation rate. Because, village people cannot really accumulate enough money to buy those certificates of high denominations and there is no scheme floated by the government that may allow a rural saver to save a small amount of money every month to earn as high as 12 percent interest like that of a 'savings certificate'.

Moreover, a cultivator does not also get much opportunity to buy those 'savings certificates' of high denominations from a rural outlet of a bank even if he can manage money by selling their harvests, as bankers serving in rural areas feel loath to sell those government-issued 'saving certificates' out of fear that their banks would be deprived of their own deposits they have garnered once the rural people get the taste of high-interest bearing government-issued certificates.

Duel interest rates for savings---higher rates for government-issued savings certificates and lower rates for bank-issued fixed or savings deposits---have made bankers dubious about counselling their clients with better ideas on savings. If the banks were allowed to retain sale proceeds of 'savings certificates' for lending to cultivators---instead of transferring the proceeds forthwith to the central bank---the bankers would have been more encouraged to motivate the rural people to buy those 'savings certificates', thereby also enriching the deposit bases of the banks. And the banks cannot afford to offer to the cultivators interest rates for their own deposit products as high as that of 'savings certificates' unless the government heavily subsidizes the deposit products meant for rural poor.

The reason behind huge subsidization in agricultural sectors in any developed country is not merely for currying favours with the rural people to win votes. The amount of money defrayed to cultivators in Japan or in any western country as subsidies for agricultural produces is more than enough to import many times the same quantity of the produces from countries where cost of labour is too low.

Still, peasants in any developed country are guaranteed to enjoy perpetual agricultural subsidization. One of the reasons behind agricultural subsidy is to keep the community of farmers engaged in their cultivating profession so that people, in case of a war or any natural calamity when importation of food from abroad may not be possible, don't die from hunger due to lack of farmers on fields.

Once a farmer gets the taste of working in the comfort of shades inside a factory or in an air-conditioned office---we must remember---he won't go back to the fields under the scorching sun to toil whatever the incentives offered in the event of a war. His progeny too would be too used to sedentary professions in the towns to hold ploughs in villages in a future emergency.

So, for our own interest we must keep our farmers happy and content. Subsidizing their savings in a bank is a novel way to help the cultivators feel pleased with their disposable income kept in a rural bank branch the way government-owned banks offer loans to farmers at a rate of interest lower than their cost of fund. Of course, the government in that case have to defray the banks with the cost of funds thus incurred for subsidizing interests on both savings and loans for rural people.