the bangladesh january - march 2019 moddassar ahmed siddique fca mohammad zahid hossain fca s. m....

January - March 2019

January - March 2019THE BANGLADESH

1JANUARY - MARCH 2019 | The Bangladesh Accountant

ISSN 1993-3649

EDITORIAL BOARD CONTACT US

ChairmanDr. Md Abu Sayed Khan FCA

Co-ChairmanHarun Mahmud FCA

Members Sidhartha Barua FCA Gopal Chandra Ghosh FCA Amanullah Khan FCA M Idris Ali FCA Masih Malik Chowdhury FCA Md. Anisur Rahman FCA A. K. Gulam Kibria FCA Md. Abdus Salam FCA Moddassar Ahmed Siddique FCA Mohammad Zahid Hossain FCA S. M. Rafiqul Islam FCA Nirmol Chandra Sarker FCA Meer Sajed-Ul Basher FCA Md. Zillur Rahman FCA Md. Jasim Uddin FCA Amiya Bhousan Bhowmik FCA Md. Ali Akther Rezvi FCA Md. Saiful Islam FCA Sk. Md. Tarikul Islam FCA Md. Ismail Rashed FCA Mohammad Fakhrul Alam Patwary FCA Ashraful Haq Amin FCA Sahabub Alam Khan FCA Al Amin Juel FCA Md. Wadud Ahmed FCA Kazi Shah Omar Faruk FCA Md. Farid Uddin FCA Md. Anwar Hossain ACA Ismat Jahan ACA Md. Ziaul Alam ACA Md. Shahidul Islam ACA Md. Abdul Wahab Akanda ACA Ataur Rahman ACA Farhad Hussain ACA Md. Muktadir Hossain ACA Momena Hossain Rupa ACA Md. Saiful Islam ACA

Member SecretaryMohammed Emdadul Haque FCATechnical Advisor, ICAB

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"The opinions expressed in this publication are those of the respective authors themselves and do not necessarily reflect the views of the Editorial Board of the Institute of Chartered Accountants of Bangladesh (ICAB) or ICAB itself."

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2 JANUARY - MARCH 2019 | The Bangladesh Accountant

ICAB PUBLICATIONS

ContentsJanuary - March 2019

P7

for more details, please visit

www.icab.org.bd

P13 Is it Really an Inclusive Growth in GDP without Employment Creation? Mohammad Zahid Hossain FCA

P16 10% Interest Rebate to Good Borrowers : is it Necessary? Khan Tariqul Islam FCA

P22 Evolution of Regulatory Frameworks for Environmental Reporting: A Comprehensive Analysis with Special Reference to India and Bangladesh Dr. Mohammed Fazlur Rahman Khan

P32 Factors That Induce Bank’s Financial Stability: A Study on Bangladesh 1 Mallika Saha 2 Kumar Debasis Dutta

P41 The Concept of One Person Company (OPC) with its Potentiality Towards the Economic Growth of Bangladesh Abdul Wahab FCA

P4 Editorial

P6 President’s Desk

P7 Interview

ICAB publications include, inter alia, a quarterly journal titled 'The Bangladesh Accountant' and a monthly mouthpiece 'ICAB News Bulletin'. In the quarterly journal articles of ICAB Members, Members from other Accountancy bodies, Academics and Business Leaders from home and abroad are published. These articles cover a wide area of our profession, i.e, Auditing, Accounting, Financial and Economic. The monthly news bulletin publishes latest ICAB events mostly of the month it is published. This bulletin also acts as an information hub for the Members to keep up to date what is happening in and around ICAB. In addition to these two regular publications, ICAB also publishes books, monographs, booklets and Students’ Study Manuals regularly.



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P44 New Auditor’s Report for more Transparency Md. Shahadat Hossain FCA

P46 Should Joint Audits be Mandatory? An Examination of Recent Global Evidence Dr Javed Siddiqui

P53 Measuring Return on Investment of CRM on Telecommunication Sector in Bangladesh: An Empirical Analysis Md. Omar Faruk

P59 Woman Leadership and Its Impact on Non-Financial Companies’ Financial Performance in Bangladesh Soma Dey

P68 SMEs: Key Drivers of All-Scoped Growth in Bangladesh – A Diagnostic View M Jalal Hussain FCA

P72 The New World for Auditor as Ushered in by Blockchain Technology Khondkar Atique-e-Rabbani FCA

P74 Technological Transformation – the Future of Auditing Md. Monowar Hossain FCA

P81 Where Does Bangladesh Stand in Solar Power? M. Idris Ali FCA

News & Events

News Bulletin

Journal

Circular & Notice

Digital Highlightswww.icab.org.bd

The first quarter issue of The Bangladesh Accountant is expected to be a blend of reflections regarding issues on business and financial reporting. The ICAB Journal “The Bangladesh Accountant” is the platform where members of the Institute and the writers demonstrate their professional and pragmatic thoughts to promote and innovate matters of accounting, finance and pertinent issues for the economy. As this issue has no specific theme, it has covered a wide range of contemporary topics. We have endeavored to collect views and opinion of academics and reserchers on economic development prospects and recent issues of Bangladesh. Fellow members of the fraternity, especially the most recent qualified members in ICAB, your judgment, advice, and inspiring words for “The Bangladesh Accountant” will always be treasures for its progress.

At present, the economy of Bangladesh is rolling its pace of growth in a progressive manner with some favourable economic indicators such as macroeconomic stability. A well-developed financial sector might play a key role in defining a path of economic development characterised by sustainable, long-run economic growth. The fact that Bangladesh is among the five fastest growing economies in the world, according to the International Monetary Fund (IMF) is yet another enormous endorsement of the country's extraordinary growth momentum.

The economy will grow at 7.3 percent this year, which will be the second highest in the world, as per the IMF report 'World Economic Outlook, April 2019’. The IMF projected that Bangladesh will see less inflationary pressure and an improvement in its external position this year. Inflation will be 5.4 percent this year, which was 5.6 percent last year.

Despite challenges, the country maintained robust growth. Regardless of macroeconomic challenges, GDP growth is projected to be vigorous. The significant growth drivers are expected to be exports, manufacturing, and services, driven primarily by domestic consumption.

However, private investment, which stagnated in recent years, is expected to pick up with growing confidence on infrastructure development prospects, strong domestic demand, and stronger global markets.

Macro stability challenges include a rise in inflation due to increase in international inflation as well as expansionary macroeconomic policies and persistent external deficit due to continued growth in payments for food, industrial raw materials, capital goods and machinery imports.

With around two million young people entering the job market every year, Bangladesh must achieve export-led growth by breaking into new markets


“The economy will grow at 7.3 percent this year, which will be second highest in the world, as per the IMF report 'World Economic Outlook, April 2019. ”

Editorial



Dr. Md. Abu SayedKhan FCAChairman – Editorial BoardCouncil Member - ICAB

with new products to create more and better employment opportunities. The country needs to create an enabling environment to increase female labor force participation, improve the business environment, strengthen the regulatory framework, and enhance infrastructure project management. Poverty has been falling but the pace of poverty reduction has to be faster.

It is a well-known fact that economic development and growth will not be achieved if finances are not well managed. Accountants render financial services to business owners and the community at large. This role of accountants is more important now that the world is trying to recover from the shock of the financial meltdown that just rocked the global economy at large.

The future could be bright for Bangladesh. But success requires urgent action and coordination among various sectors. All of the nation’s stakeholders – government and political parties, business, civil society, financial sectors – must urgently seize the opportunity to move Bangladesh forward, as entrepreneurs have seized the opportunity to create jobs and income. We look forward to continued close relations and growing people-to-people ties as Bangladesh takes di�cult steps to embark on a path of progress.

The Government has envisioned a plan to attain status of developed country by 2041. To achieve this long-expected dream, development of infrastructure, power, energy, technology, knowledge and skilled manpower are ardent necessary. Regrettably still our education system requires to match with the need of our industry. Coalition among the education, profession and skills are highly needed for ensuring sustainable development.

The Government also needs to bring forth greater coordination between their relevant authorities and private sector institutions like the- Bangladesh Employers Federation (BEF), the FBCCI, and other important Chambers of Commerce. This will enable the examination of new business opportunities and that will facilitate at the end of the day necessary growth within the matrix of achieving the SDGs. Sustainable development needs to be inclusive, integrated and integral. The time has come to set aside old di�erences and begin a process of reconciliation, so that the country can undertake the reforms needed to safeguard its future.

The scholarly thoughts and pertinent suggestions evolving from the articles may augment thoughts of policy makers in framing policies for the government. We solicit interest of policy makers. The articles in this issue of The Bangladesh Accountant will certainly give an in-depth understanding of globalization of business and financial reporting.

In this year 2019, I have been entrusted with the responsibility of heading the Editorial Board. I would appreciate and welcome comments and suggestions from our fellow members and learned readers. As always, the Editorial Board looks forward to your spontaneous augmentation to its relentless e�orts for- The Bangladesh Accountant. We want to continue to unveil treasures of wisdom in you for furtherance of ICAB in its journey onward. Improvement is a continuous phenomenon and we will go for it as the readers and our fellow members would share their insights so that we can take our Journal – The Bangladesh Accountant to a new height.

With kindest regards to all.

“In this year 2019, I have been entrusted with the responsibility of heading the Editorial Board. I would very much appreciate and welcome comments and suggestions from our fellow members and learned readers.”

President’s Desk“This publication needs to project not just the technical matters and issues of our profession, but also how we play an important role in development of our beloved country. ”

As I understand, the journal of the Institute is a platform of sharing of knowledge on concurrent economic and professional issues. It intends to add value to the development of professional skills as well as help the government and other external agencies to formulate policies for thriving economy of the country. This publication needs to project not just the technical matters and issues of our profession, but also how we play an important role in development of our beloved country.

Although there is no theme of this current issue, the articles published in the journal mostly focused on National Budget 2019-20. The importance of Budget for a country does not require any elaboration. Our members can play a critical role in so many di�erent capacities, from performing key management function to providing essential services as auditors. However, Chartered Accountants play a very important role and support the relevant authorities to successful implementation of budget.

This journal gives us invaluable insights of the economy generally micro & macro economy, trade, commerce & investment, capital market, fiscal policy measures, tax administration, technical

issues of accounting profession, etc. which put up in a position to contribute articles adding to readers’ knowledge, give thought provoking ideas to key players and provide valuable input to policy makers. No doubt the articles in this publication will meet all these aspects.

ICAB has been providing with National Budget proposals to the government regularly not only to improve its revenue collection, but also make business friendly atmosphere for ease of doing business in Bangladesh. We had already exchanged opinions & views regarding VAT, Tax & Customs policies with NBR Chairman. In addition, we have submitted written proposals focusing salient features and various aspects of the national budget. Not limited to place a volley of suggestions and recommendations in NBR, Taxation and Corporate Laws committee (TCLC) of ICAB organized a Press Conference on ‘Thoughts of Chartered Accountants regarding next National Budget’ aiming to let the people know about ICAB’s initiatives.

In conclusion, I extend my heartfelt thanks to the Chairman, the Co-chairman, Editorial Board and everyone associated with this publication for bringing out this issue successfully.

A. F. Nesaruddin FCAPresident-ICAB


Shehzad Munim, the first Bangladeshi to become the Managing Director of British American Tobacco (BAT) Bangladesh, is also the incumbent president of the prestigious Foreign Investors' Chamber of Commerce & Industry (FICCI) of the country. Mr. Munim joined BAT Bangladesh as a Territory O�cer in 1997 after graduating from the Institute of Business Administration (IBA) of the University of Dhaka. He worked in various marketing roles within BAT Bangladesh before taking up assignments in BAT New Zealand as Group Brand Manager in 2003 and subsequently took over the role of Head of Brand Marketing in 2005. In 2010 he took over the role of Area Head of Marketing for South Asia. Then in 2013 he was appointed as the Managing Director of BAT Bangladesh. Recently Mr. Munim had discussion with the team of The Bangladesh

Interview

Accountant regarding ongoing trend and development of the economy of Bangladesh.

The Bangladesh Accountant: How will you evaluate overall business environment of Bangladesh particularly for Multinational Companies?

Mr. Shehzad Munim: Bangladesh is all set to become the 24th largest economy in the world by 2033. The country is presently growing at almost 8% per annum which makes it a very attractive destination for business investors.

Amidst all these achievements, the overall business environment in the country is also improving gradually. Although numerous operational, infrastructural and policy predictability challenges persist, established multinationals are experiencing decent turnover with the promise of a brighter future.

“WE HAVESEEN THEGOVERNMENTTAKING TIMELYSTEPS INCREATINGECONOMICZONES FORBOTH FOREIGNAND LOCALINVESTORS.”

The Bangladesh Accountant: What challenges MNCs face in dealing with Direct Tax matters? Do you think Corporate Tax rate in Bangladesh should be reduced?

Mr. Shehzad Munim: MNCs face multiple challenges in dealing with Direct Tax matters, of which the most crucial is the un-predictability and inconsistencies of tax rate. Other challenges include arbitrary disallowances of expenses and fixation of gross profit by the tax authority on their own. At most times, MNCs have to fight against these demands before the High court which may take 10-12 years.

Bangladesh has one of the highest corporate tax rates in the region. Hence, irrespective of category, corporate tax rate should be reduced but on a phase-wise basis.

The Bangladesh Accountant: Bangladesh has initiated many mega projects in connection with infrastructure development during the past decade. Do you think this is adequate to get more foreign investments and speed of implementation of projects is satisfactory?

Mr. Shehzad Munim: I welcome all the initiatives and mega projects which have been commissioned over the past decade to improve infrastructure. It is obvious, that the better the infrastructure, the more the e�ciency and hence higher the chances of attracting more FDI.

Awareness - Consultation? - Investment - Advocacy

Awareness: Raise awareness about the prospect of business in Bangladesh through campaigns, seminars, workshops, websites, digital campaigns etc.

Consultation?: Facilitate interested investors through dialogues, chamber to chamber dialogues, capacity enhancements etc.

Investment: Aid investors through execution of ease of doing business facilities, one stop solution, EPZ orientations, infrastructure development and skill enhancement.

Advocacy: Use established MNCs as advocates to share success stories and conduct campaigns to boost investor confidence and set up commissions to expedite problem solving.

The Bangladesh Accountant: Bangladesh could not progress

The Bangladesh Accountant: Do you think that after the successful operation of economic zones, significant number of foreign investors will invest in Bangladesh?

Mr. Shehzad Munim: We have seen the government taking timely steps in creating economic zones for both foreign and local investors. However, it is not enough to attract FDIs as we have to look at the overall aspect of business facilitation like friendly fiscal policies, ease of doing business indicators and the earlier mentioned investment growth model.

The Bangladesh Accountant: MNCs have been playing a critical role in developing e�ective human resources for Bangladesh. Are you satisfied with overall supply of skilled workforce in line with the demand of Corporates?

Mr. Shehzad Munim: It is true that MNCs have had a great impact in the development of e�ective human resources in Bangladesh. Bangladeshi resources are even making their mark across international borders which is very encouraging to see.

Thousands of students graduate every year seeking job opportunities in both MNCs and local corporates, but it is the quality which concerns me somewhat. Apart from a handful of renowned institutions, the quality of applicants from other universities both public and private, leaves a lot to be desired. Hence in order to meet the ever-increasing demand of corporates for quality graduates, it is important to ensure an upgradation in standard of educational institutions across the country.

Having a demographic dividend, it is important for us to assess the need gaps and focus on youth skill development to prepare them for their future job requirements. We need to focus more on vocational and technical training institutions nationwide to improve our HR skill sets.

at satisfactory level in the ranking of ease of doing business. What are the main barriers for Bangladesh to improve in this ranking?

Mr. Shehzad Munim: To improve the ease of doing business, BIDA is taking commendable steps and it is only a matter of time before we start to see the real positive impact.

For e�ective measures like the One Stop Solution model to work seamlessly, there needs to be proper coordination between government agencies. Structural challenges within the authority’s way of work also need to be reviewed and addressed to attract more FDI.

The Bangladesh Accountant: Government is planning to implement new VAT law from July 2019. Do you think the readiness of all stakeholders are adequate for successful implementation of new law? What is the VAT rate suggested by FICCI?

Mr. Shehzad Munim: FICCI has always welcomed the implementation of new VAT & SD Act 2012 as the existing VAT Act 1991 is about 27 years old and involves complexity. FICCI supports a single VAT rate but realizes the on-ground challenges of its implementation.

Since the implementation of multiple VAT rates would be new for Bangladesh, FICCI considers it prudent to allow at least six months’ time for the implementation of the new VAT Law, to give proper preparation time for the

7OCTOBER - DECEMBER 2018 | The Bangladesh Accountant


Shehzad Munim










The Bangladesh Accountant: What are the reasons of unsatisfactory level of new foreign investments in Bangladesh despite having concerted e�orts of Government? Do you think FICCI should play more active role to invite foreign investors?

Mr. Shehzad Munim: In recent times, Bangladesh Government has taken commendable steps to improve the ease of doing business by trying to introduce measures like the one stop solution. However, one the major drawbacks for us is the fact that Bangladesh has been poorly marketed to the world till date. Prospective foreign investors often perceive Bangladesh to be lagging behind by 10-15 years in terms of technology, HR expertise and out dated from the realities on ground.

FICCI can partner with the Bangladesh Government and drive the below investment growth model which can encourage more FDIs into Bangladesh:



















8 OCTOBER - DECEMBER 2018 | The Bangladesh Accountant

Interview





Mr. Shehzad Munim: Since 2009 (GP) no MNC has been listed in the stock exchanges of Bangladesh. There is no clear incentive/benefit structure in place to encourage companies to do so. Hence, a full review of the system is required with a long-term strategic approach to address the issue.

The Bangladesh Accountant: Is proposed hike of gas price justified? Will it adversely impact businesses? If yes, how?

Mr. Shehzad Munim: A rise in the price of essentials e.g. Gas will increase the cost of production for any company which uses it as fuel. Hence it can have an adverse impact on the company’s financials.

The government needs to look into the overall energy cost in relation to competing economies and set prices in such a manner that it does not make our companies/produce uncompetitive in the international market.















government agencies as well as the businesses community to adapt and adjust.

The Bangladesh Accountant: Despite having robust GDP growth, adequate employment is not created in Bangladesh. What are the reasons for this?

Mr. Shehzad Munim: In comparison to our neighboring countries, the government has successfully managed to keep the unemployment rate within control over the past few years. Considering our demographic dividend, it is now important for us to focus on the development of our young generation and ensure the growth of job opportunities accordingly. Focus needs to be given specially to youth skill development, so that young people all over the country can fulfill the need for a skilled workforce across the emerging economic zones.

The Bangladesh Accountant: How can MNCs be motivated to get their companies listed with the bourses of Bangladesh?










9OCTOBER - DECEMBER 2018 | The Bangladesh Accountant

















In my opinion, more emphasis needs to be given to the timely completion of these mega projects to ensure predictability for foreign investors.

The Bangladesh Accountant: In recent past, few member companies of FICCI discontinued their operation in Bangladesh. What are the main causes of such decision?

Mr. Shehzad Munim: It is most unfortunate for us that a few MNCs have had to discontinue their operations here in Bangladesh namely GSK, Accenture etc. One of the major causes we believe are the changes in their global investment prioritization and business restructuring model. However, it is also important to ensure that no discriminatory policies are proposed which can a�ect foreign investors adversely.













10 OCTOBER - DECEMBER 2018 | The Bangladesh Accountant

Interview

Interviewed by:Mohammad Zahid Hossain FCAAssisted by: Mizanur Rahman

ARTICLESThe Bangladesh Accountant | January - March 2019

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2010, BBS). Unemployment rate for 2010 becomes as high as 24.0 percent if underemployment is added to unemployment rate.

SDG and employment Goal 8: Decent work and economic growth

“Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”. (Source: UN website)

Bangladesh has signed the declaration along with more than 190 States to achieve SDGs by 2030. According to the summary statement of Goal 8, “full and productive” employment to be generated for the workforce of Bangladesh. But the question remains, does Bangladesh have readiness to combat the challenges to achieve this target? Many experts questioned the e�ectiveness of the strategies adopted by the Bangladesh Government in this connection.

Current education system of Bangladesh is merely “certificate” centered. Students, Parents, Teachers, Government and all other stakeholders are obsessed with GPA 5 at secondary and higher secondary level and fashionable MBA. These “certificate based knowledge” cannot meet the need of e�cient and e�ective workforce of the industries at home and abroad. The most important sector of the country is RMG where 6 million people

haran Burrow, the General Secretary of the International Trade Union

Confederation and a former President of the Australian Council of Trade Unions quoted that “we need economic growth, yes, but growth can be jobless, so a sustainable development framework for employment must include a job creation strategy.”

Despite registering exciting rate of GDP growth over a decade, Bangladesh has been failing to generate adequate number of jobs whereas more than 65 percent of the population are of working age, between 15 and 64 years. This rate was 54.8 percent of total population in 1950. This is expected to reach its peak of 137 million (69.5 percent of total population) in 2040. The size of the country's labour force is projected to increase by nearly 53 million between 2010 and 2050. According to a recent World Bank study, working-age population will increase by 170,000 every month in Bangladesh. As a result, to keep employment rates constant, 1.1 million additional jobs would be needed every year. Report of the World Bank (2012) reveals that Bangladesh is the only country in South Asia where growth in labour force outpaced growth in employment during the last decade. Thus, unemployment is becoming a critical issue for this emerging Middle Income country. However, unemployment rate remained remarkably low in Bangladesh, only at 4.5 percent in 2010 (Labour force Survey

The Author is aChartered Accountant and

a Fellow Member of theInstitute of Chartered Accountants

of Bangladesh-ICAB

S

Is it Really an Inclusive Growth in GDPwithout Employment Creation?

Mohammad Zahid Hossain FCA


ARTICLE

• Entrepreneur mindset: After obtaining the graduation certificate, the expectation of a student and his family is to get a job for this graduate. Alternatively, this student can become an entrepreneur with a great idea and humble start. However, necessary policy and fiscal support from Government’s side is inevitable to create entrepreneurs. Adequate training, capital under easy terms and conditions (including a�ordable cost), reduced direct tax rate, long term leased land, access to modern technology etc. are extremely key support from Government with least bureaucracy. Karmasangsthan Bank created 20,000 successful entrepreneurs including

to get respectable job not only outside Bangladesh but also inside Bangladesh when they come back home permanently.

• Creation of job through Social safety net (SSN) program: G o v e r n m e n t spending in SSN program is growing every year (Budget for FY 2018-19: BDT 646 Billion which was BDT 452Billion in immediate preceding FY). Currently the focus of Government is to give away short term benefit to underprivileged people. Instead, SSN Projects should be designed in such a way that it can continuously generate job to make people self-sustained and thus poverty can be eradicated according to Government’s plan.

are directly employed. Bangladesh is largely dependent on the foreign expats to lead the industry. Despite having more than 3 decades’ legacy in RMG, Bangladesh failed to develop senior level leaders from domestic sources. Moreover, most of the RMG factories are operating at 50-60% e�ciency level. According to o�cial record, remittances of foreign workers from Bangladesh is USD 5 billion annually. It’s estimated that half a million foreigners are working in Bangladesh whereas only about 100 thousand of them are registered with the Bangladesh Investment Development Authority, Bangladesh Export Processing Zones Authority and NGO A�airs Bureau. On the other hand, more than 6 million of Bangladeshi workers residing outside Bangladesh are remitting less than USD 15 Billion per year while one third of them are eaten up by only half a million foreign workers.

According to report of International Labour Organization (ILO), in the year of 2017, 57.45% of the people working in Bangladesh were in vulnerable jobs. ILO's flagship report titled “World Employment and Social Outlook: Trends 2018” says, of the 63.7 million total employed in Bangladesh in the last year, 36.6 million were in vulnerable jobs. So, it’s also imperative for Government to place these people at safe and decent job apart from creation of new jobs.

How to Create Jobs

Creation of jobs is mostly connected with the improvement of investment environment. Currently Bangladesh is experiencing inadequate investment as well as employment. Apart from creating satisfactory investment facilities, some proposals are stated below to generate more jobs for large workforce:

• Promoting skill based

education: The short-term responses to these challenges require adoption of both formal, semi-formal and non-formal vocational, technical and skill-based education and training. The entire education system starting from primary level will be connected with the need of job creation. Medium and long-term strategy should be formulated having appropriate adjustments in the country's education systems with emphasis on early childhood education and development of soft skills. According to Samir Saran, president of India-based Overseas Research Foundation (ORF), Bangladesh has to invest USD 60 billion every year to educate and train its 60 million people, whose age range between 18 to 24 years to make them capable of participating in the job market.

• Training for migrants from Bangladesh: Bangladeshi workers are “identified” as unskilled in overseas job market. As a result, they are paid significantly less than the workers of other neighboring countries. Hence, Government should take steps to train them up before they leave Bangladesh to meet the need of overseas job market. This will help them













Is it Really an Inclusive Growth in GDPwithout Employment Creation?



How to Create Jobs














ARTICLE

women entrepreneurs in Rajshahi by extending them loan in small amount like BDT 50,000. These entrepreneurs succeeded in various business fields including fisheries, livestock, trading and small and cottage industries. The loan recovery rate of Karmasangsthan Bank is 90% which signifies the honest intention of these people who build their own fortune. Private Commercial banks like NCC, UCB also created many smiling women entrepreneurs by extending them adequate loans under easy terms and conditions.

The consequence of unemployment is not less devastating than a natural calamity. It will surely nullify the GDP growth in di�erent ways including creation of social problems, reduction of revenue of Firms, declining direct and indirect tax income of the Government, loss of human capital, increasing disparities among di�erent earning groups etc. Bangladesh Government must formulate national plan to create adequate number of employments to reach its ambitious milestones.






How to Create Jobs





many other factors like, inflation rate, deposit rate, NPL, operating costs (including increasingly higher cost of technology) competitive factors and risk factors (this last factor is considered irrelevant by many in this country including our central bank(Bangladesh Bank) that’s why there is 5.0% spread capping irrespective of inherent portfolio risks of respective banks).

10% Interest Rebates to Good Borrowers; is it Necessary?

Within the ongoing controversy between borrowers and lenders, BB issued a circular in 2015 (BRPD Circular No. 06 dated March 19, 2015) for refunding 10% interest rebate to good borrowers. Let us examine why the BB policy is irrelevant, though we have no objection to incentivizing good borrowers. But question is how they should be defined and rewarded?

How to Define a Good Borrower?

• BB has defined in the circular that – If the loan of a borrower has been unclassified – standard for consecutive three years, then the borrower should be considered a good borrower. It is a good, but brief definition.

However, a good borrower may be widely defined having the following characteristics:

• Who is paying back the full amount of loan/loan installment (principal &

nterest Rate Controversy in General at Home

and Abroad

Interest rate is a highly controversial issue throughout the world, particularly key policy rates fixed by the central banks as a vital tool for implementing monetary policy, controlling aggregate demand, inflation, employment and growth. As for example, in an interview with The Wall Street Journal on 23 October 2018, US President Trump said “Every time we do something great, he (Fed Chairman Mr. Powell) raises the interest rates”; he also said that “Mr. Powell almost looks like he is happy raising interest rates “. Recently (26 September, 2018) Fed raised its key policy rate (target range for the Federal Funds Rate) by 25 basis points to 2.00%-2.25%. Trump was not at all happy with Fed raising interest rate.

In Bangladesh, interest rate is more controversial because on the one hand borrowers have an ongoing complaint that banks are charging higher interest rate, therefore, they can’t do profitable (or more profitable) business that’s why they can’t make even greater contribution to the national economy. According to them, banks are making super profits while showing excuses that because of very high level of default loans and now-a-days higher operating expenses, thanks to increasingly higher use of technology, they cannot lower the lending interest rate further than the existing rates. Lending interest rate course depends on

I Borrowers are supposed to pay back loan with interest on time. What is special about that?

As per agreement, the borrowers are supposed to pay back loan with interest on predetermined due dates. There is otherwise nothing special in it. So why the question of further incentive is coming up? Because of highly pervasive & notorious default culture in our banking sector, and because legal process, incentives are exceedingly biased towards defaulters, that’s why may be such ideas are cropping up.

Apparently it sounds very reasonable to reward good borrowers because of pervasive default culture (willful default culture to be precise). It is di�cult in our market to find out really good borrowers or relatively good borrowers (particularly within bigger and medium corporate borrowers) because our market is infested with willful defaulters that’s why good borrowers may be projected as angels. Though paying back bank’s loan as per original terms should be a normal thing.

If that was the case in our market, (that should be the case in an ideal market) then there was no need to portray good borrowers as angels. The point is that the good borrowers are doing the right things, nothing more than that. They are not indeed doing any favor to the banking company extending them loan. Therefore, there

which has significantly cut down their interest rates, in the market even beyond what is otherwise warranted based on current inflation rate, risk profile of the borrowers and allowed by prudent credit norms & practice of the banking companies. That’s why the matter of incentivizing good borrowers should be left with the market.

Unhealthy Competition is Driving Down Interest Rate and Eroding Credit Base

Unhealthy competition is indeed, increasingly resulting in lower interest rate, higher than required funding allowing diversion of fund away from the purpose, it is taken, to unproductive sectors, eroding the credit base of the borrowers, increasing business, financial, collateral and concentration risks of the lending banks, so much so that, this unhealthy competition practice may eventually lead to collapse of individual bank or banking companies in the country in the long-run.

The Policy is Backward-looking

The policy is backward-looking, It is very cumbersome, time consuming and costly to calculate over three years period. Any such policy should be forward-looking. What will happen if after getting rebate, a borrower becomes a defaulter and the loan has to be fully or partially written o�?

potential and the 3rd one is for income tax, VAT, custom authorities – highly understating the financial position and results–only historical, so that no tax or significantly less tax is payable; who is not a tax defaulter.

It is di�cult in our market to find out that many good borrowers (particularly within bigger and medium corporate borrowers) strictly within the above-noted definition. There are of course some really good borrowers in our market but they will be less in number and percentage. Then there are some relatively good and many good borrowers. But then there are many bad borrowers as well and some, very big, really bad borrowers in our market.

Incentives to Good Borrowers are Built-in, in Dynamic Pricing System of Interest Rates

Incentive to good borrowers are inherently reflected in the dynamic pricing (interest rate pricing) policy & practice of the banks. In a free market economy usually pricing (the ‘invisible hand’ of Adam Smith) determines relative demand and supply and ensures most e�cient allocation of resources. Good borrowers/relatively good borrowers get the best deals from any bank in a competitive market. So much so that, now a days, all the banks are chasing the same borrowers who are perceived to be the good or relatively good borrowers;

• Who has never had any overdue,expired,excess over limit, classified or forced loans; who has never approached or enjoyed any extension, or rescheduling restructuring of any loan;

• Who is completing all terms & conditions including full & perfected documentations of mortgage /security formalities, charge documents , covenants as per sanction letters accepted by the borrower, before disbursement of even a single Taka ;

• Who is not deceiving ,engaged in any forgery or fraudulent activities in financial statements or any other documents or statements including

interest) as per original terms and conditions and as per original repayment schedule without delaying for even a single day after the due date;

• Who is paying back loan on due date without any persuasion, reminder, monitoring and supervisions (remember that persuasion, reminder, monitoring and supervisions entail huge operating costs; there are very prominent borrowers in the market , who as a matter of habit , finance a part of their funding requirements (working capital) by deliberately keeping loan installments unpaid until before it is becoming 90 days overdue and classified);

control and punish law breaking criminals who are destroying the social peace, justice and prosperity.

BB does not need to be concerned about good borrowers. All the banks are competing for good clients, which bank doesn’t want perceived good borrowers? They will be taken care of by the market itself; therefore, incentivizing good borrowers should be left with the market. Rather, stringent, instant and decisive punishment for defaulting borrowers must be ensured by BB particularly for the willful defaulters.

Undue incentives to big defaulting borrowers having loan exposure of Taka 5,000 million and above.

In fact, this policy came after BB introduced undue incentives for big defaulting borrowers having more than Taka 5,000 million exposures (BRPD Circular No. 04 dated 29 January 2015)

should be no question of giving further incentive on retrospective basis.

Whether any other central bank has ever taken any such measures anywhere in the world?

BB should examine whether any other central bank in the world had ever formulated such policies (concession to big borrowers and 10% interest rebate to good borrowers), if yes, whether it was sustained and what were the outcomes in terms of positive results for banking sector, businesses and the economy.

BB should not be concerned about good borrowers rather BAD borrowers (particularly will full defaulters)

Law enforcing authorities of the government are not concerned about good law abiding citizens. Rather they must be concerned and concentrate their full e�orts and resources to monitor,

period of one year preceding the insolvency commencement date, with a bad intention, that transaction will be treated as cancelled. Proceedings under this code have already started in India, now the ball is in the court of lenders, any defaulter will immediately become bankrupt and lose everything.

In Bangladesh incentives including ine�ective legal system have been always biased towards defaulters ensuring their full control over the defaulting entity until before case is finally settled that may take years together if not decades.

In Bangladesh ball has always been in the courts of the borrowers. Legal, political and social systems are designed in a way, it is nearly impossible to get back money from defaulting borrowers, if at all how many years or decades it will take only god knows. In the mean time, the defaulting borrowers will be in the control of the company.

has taken strict measures in India to streamline NPL resolutions. This code is time bound – from the day one when a loan becomes overdue, Bank may take maximum 180 days time (which may be extended only once for another maximum 90 days) to agree a resolution with the borrowers. If any resolution cannot be reached within maximum 270 ( 180+90) days then automatically the borrower will be transferred to insolvency process that has to be also closed within maximum 90 days (which may be extended only once for another maximum 45 days). As soon as insolvency process starts borrower will lose all authority and control over the management of the company, everything will be taken care of by professional agencies appointed as per law for this purpose, banking companies will form the board of directors. No injunction can be imposed on such proceedings and if the company or its board has made any transaction within the

default related writ should not usually take more than 30 days. It is hundred times easier to prove whether someone is a loan defaulter or not than proving whether someone is a murderer or not. In the same way money loan court cases should be resolved within maximum 90 days, if necessary existing law should be changed. Diversion of funds should be tried under criminal law. We are talking about Taka 890 billion outstanding default loans on the balance sheets of banks ,that is after writing o� Taka 370 billion (net of recovery) . Altogether , the amount of default loans as of June 30, 2018 was Taka 1,260 billion that is 13.9% of total outstanding loan and 5.6% of our GDP.This Taka 1,260 billion default loan does not include restructured & rescheduled loans. It is a very big drain on our national resources and progress that’s why such special legal measures are highly warranted provided BB along with MOF can convince the Supreme Court and the lawmakers.

Similar law necessary like 'The Insolvency and Bankruptcy Code,2016' in India with provision for automatic transfer of defaulting entity to insolvency proceedings if no resolution can be reached within 180 days, with borrowers immediately losing control over the entity

In this respect, the measures taken by the Reserve Bank of India (RBI) may be mentioned. Based on 'The Insolvency and Bankruptcy Code, 2016' RBI

general and particularly big & willful defaulters are taken to task instantly and decisively. BB should work out plans with due consultation with bankers how the willful big borrowers should be taken to task. Stringent measures should be taken against defaulting borrowers who are not paying back loan on time with this and that excuse, many of them are willful defaulters . One such measure should be expediting the legal process. Now-a-days, filing writ petition has become fashionable by identified big defaulters. Filing writ petition is a fundamental right given in our constitution; therefore, anyone can do that. However, the matter can be resolved very quickly. BB along with Ministry of Finance (MOF) should take up the matter with the Honorable Chief Justice of the Supreme Court so that at least a separate dedicated bench(if not more) is established solely to resolve such writ petitions filed by the defaulters. This is highly important considering the contribution of banking companies to national economy and adverse impact of higher non-performing loans on investment, trade (internal & external), capital formation, employment and GDP growth.

Writ petition by defaulters should be preferably settled within maximum 30 days, because it is 100 times easier to determine by the High Court whether someone is a loan defaulter than determining whether someone is a murderer.

In any case, resolving a loan

capacity) let along increasing the production capacity.

Looking at the way, the big defaulting or yet-to-be defaulting borrowers are increasingly seeking longer terms for restructuring, rescheduling and repaying their loans; it appears that the true intention of any such borrower may be to have a very long-term forward-contract that can be completed & delivered, by the borrower to the lender, only in the after-world.

10% rebate to good borrowers just to counter the criticism of incentivizing big defaulting borrowers?

BB introduced this 10% interest rebate program (BRPD Circular No. 06 dated March 19, 2015) just to counter the criticism for extending undue advantage to big (Taka 5,000 million or higher) defaulting borrowers. BB wanted to demonstrate that they are not only supporting very big defaulting borrowers, rather, they are also supporting good borrowers of all sizes. If BB has any good intention to reward the good borrowers, then why did it take long 44 years to introduce such rebate program and why was it required to be triggered and preceded by huge incentive for big (Taka 5,000 million or higher) defaulting borrowers?

Rather stringent measures be taken against defaulters including separate HC bench

BB should rather take stringent measures so that defaulters in


10% Interest Rebate to Good Borrowers : is it Necessary?or Incentives to Good Borrowers be left with theMarket with BB Concentrating on Bad Borrowers?

Khan Tariqul Islam FCA

The Author is aChartered Accountant and

a Fellow Member of theInstitute of Chartered Accountants

of Bangladesh-ICAB

many other factors like, inflation rate, deposit rate, NPL, operating costs (including increasingly higher cost of technology) competitive factors and risk factors (this last factor is considered irrelevant by many in this country including our central bank(Bangladesh Bank) that’s why there is 5.0% spread capping irrespective of inherent portfolio risks of respective banks).

10% Interest Rebates to Good Borrowers; is it Necessary?

Within the ongoing controversy between borrowers and lenders, BB issued a circular in 2015 (BRPD Circular No. 06 dated March 19, 2015) for refunding 10% interest rebate to good borrowers. Let us examine why the BB policy is irrelevant, though we have no objection to incentivizing good borrowers. But question is how they should be defined and rewarded?

How to Define a Good Borrower?

• BB has defined in the circular that – If the loan of a borrower has been unclassified – standard for consecutive three years, then the borrower should be considered a good borrower. It is a good, but brief definition.

However, a good borrower may be widely defined having the following characteristics:

• Who is paying back the full amount of loan/loan installment (principal &

nterest Rate Controversy in General at Home

and Abroad

Interest rate is a highly controversial issue throughout the world, particularly key policy rates fixed by the central banks as a vital tool for implementing monetary policy, controlling aggregate demand, inflation, employment and growth. As for example, in an interview with The Wall Street Journal on 23 October 2018, US President Trump said “Every time we do something great, he (Fed Chairman Mr. Powell) raises the interest rates”; he also said that “Mr. Powell almost looks like he is happy raising interest rates “. Recently (26 September, 2018) Fed raised its key policy rate (target range for the Federal Funds Rate) by 25 basis points to 2.00%-2.25%. Trump was not at all happy with Fed raising interest rate.

In Bangladesh, interest rate is more controversial because on the one hand borrowers have an ongoing complaint that banks are charging higher interest rate, therefore, they can’t do profitable (or more profitable) business that’s why they can’t make even greater contribution to the national economy. According to them, banks are making super profits while showing excuses that because of very high level of default loans and now-a-days higher operating expenses, thanks to increasingly higher use of technology, they cannot lower the lending interest rate further than the existing rates. Lending interest rate course depends on


ARTICLE

Borrowers are supposed to pay back loan with interest on time. What is special about that?

As per agreement, the borrowers are supposed to pay back loan with interest on predetermined due dates. There is otherwise nothing special in it. So why the question of further incentive is coming up? Because of highly pervasive & notorious default culture in our banking sector, and because legal process, incentives are exceedingly biased towards defaulters, that’s why may be such ideas are cropping up.

Apparently it sounds very reasonable to reward good borrowers because of pervasive default culture (willful default culture to be precise). It is di�cult in our market to find out really good borrowers or relatively good borrowers (particularly within bigger and medium corporate borrowers) because our market is infested with willful defaulters that’s why good borrowers may be projected as angels. Though paying back bank’s loan as per original terms should be a normal thing.

If that was the case in our market, (that should be the case in an ideal market) then there was no need to portray good borrowers as angels. The point is that the good borrowers are doing the right things, nothing more than that. They are not indeed doing any favor to the banking company extending them loan. Therefore, there

which has significantly cut down their interest rates, in the market even beyond what is otherwise warranted based on current inflation rate, risk profile of the borrowers and allowed by prudent credit norms & practice of the banking companies. That’s why the matter of incentivizing good borrowers should be left with the market.

Unhealthy Competition is Driving Down Interest Rate and Eroding Credit Base

Unhealthy competition is indeed, increasingly resulting in lower interest rate, higher than required funding allowing diversion of fund away from the purpose, it is taken, to unproductive sectors, eroding the credit base of the borrowers, increasing business, financial, collateral and concentration risks of the lending banks, so much so that, this unhealthy competition practice may eventually lead to collapse of individual bank or banking companies in the country in the long-run.

The Policy is Backward-looking

The policy is backward-looking, It is very cumbersome, time consuming and costly to calculate over three years period. Any such policy should be forward-looking. What will happen if after getting rebate, a borrower becomes a defaulter and the loan has to be fully or partially written o�?

potential and the 3rd one is for income tax, VAT, custom authorities – highly understating the financial position and results–only historical, so that no tax or significantly less tax is payable; who is not a tax defaulter.

It is di�cult in our market to find out that many good borrowers (particularly within bigger and medium corporate borrowers) strictly within the above-noted definition. There are of course some really good borrowers in our market but they will be less in number and percentage. Then there are some relatively good and many good borrowers. But then there are many bad borrowers as well and some, very big, really bad borrowers in our market.

Incentives to Good Borrowers are Built-in, in Dynamic Pricing System of Interest Rates

Incentive to good borrowers are inherently reflected in the dynamic pricing (interest rate pricing) policy & practice of the banks. In a free market economy usually pricing (the ‘invisible hand’ of Adam Smith) determines relative demand and supply and ensures most e�cient allocation of resources. Good borrowers/relatively good borrowers get the best deals from any bank in a competitive market. So much so that, now a days, all the banks are chasing the same borrowers who are perceived to be the good or relatively good borrowers;

security related documents that may materially change the perceptions and decisions of the lenders and a�ect their financial interest ;

• Who is not overstating revenue, profit and cash flows and understating costs , loss and risks knowingly & willfully before taking the loans (and doing the opposite after taking the loans);

• Who is not overstating, own asset /equity, net worth and fund requirement to lenders (and understating to the tax authorities);

• Who is not concealing his total liability with all the banks /financial institutions local or foreign;

• Who is not diverting away fund from the purpose /business/company/project for which it is proposed by the borrower , approved by the lenders and taken by the borrower ; who is not over-invoicing imports (for sending out excess fund out of the country) and under-invoicing exports (retaining excess fund out of the country);

• Who is not keeping three sets of accounts (one for own consumption –the accurate one; 2nd one is for banks-highly overstating financial position, results and cash flows – historical and

• Who has never had any overdue,expired,excess over limit, classified or forced loans; who has never approached or enjoyed any extension, or rescheduling restructuring of any loan;

• Who is completing all terms & conditions including full & perfected documentations of mortgage /security formalities, charge documents , covenants as per sanc

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