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The Poor Man’s Economist

Article - February 27, 2015

The central bank governor of Bangladesh Dr. Atiur Rahman has been lauded for his contribution towards promoting socially and environmentally responsible financing in Bangladesh without compromising macroeconomic stability

The perception of bankers has been severely tarnished as a result of the financial crisis. To many the word ‘banker’ could conjure up an image of a Gordon Gekko-like figure, preaching the ‘Greed-is-Good’ philosophy from the 50th floor of a towering office building in Wall Street or Canary Wharf.

Following the financial crisis many would also hold a view banks as chief instigators of economic downfall rather than economic growth. But Dr. Atiur Rahman, Governor of Bangladesh Bank (the country’s central bank), believes financial institutions should be viewed as “powerful tools for development”. And in his own country he has worked tirelessly to make that the case.  

“It is still a mixed picture in the sense that banks are still seen as sucking money and taking it from others. But in Bangladesh we have seen some very positive steps on socially responsible financing,” he tells The Worldfolio.

Redefining the role of a typical central banker, Dr. Rahman has not only focused on fiscal stability, but also on financial inclusion, responsible lending, green banking and good governance. His successful policies have helped millions of unbanked Bangladeshis to open bank accounts and pushed banks into lending to farmers, SMEs, women entrepreneurs and green textile businesses, while at the same time curbing speculative investments. Dr. Rahman could change one’s perception of a banker; he is at heart a philanthropist who believes—or indeed, in his own county, demands—that banks must be “much more human and more socially responsible”.

The governor’s achievements, both monetary and social, have not gone unnoticed by the world banking community. In February he was crowned the 2015 ‘Central Banker of the Year’ for the Asia-Pacific region by The Banker, the London-based magazine owned by The Financial Times, for his significant contribution towards promoting socially and environmentally responsible financing in Bangladesh without compromising macroeconomic stability.

At the presentation ceremony in London at the House of Lords, Chief Editor of The Banker Brian Caplen said, “What impressed the editors about Dr. Rahman’s performance was not only the basic things he has done that we expect from a central banker, which is to keep an eye on inflation, to provide stable economic conditions and a good financial system, but also some of the rather unique and interesting things he has done in terms of contributing something to the social good in Bangladesh.”

He has also been recognised by The Gusi Foundation. Describing him as the “Poor Man’s Economist”, the Manila-based charity awarded the governor with the ‘Gusi International Peace Prize’ in November for his work in establishing peace by reducing poverty in Bangladesh.

Pioneering Policies

Back in 2009 at the height of the crisis when Dr. Rahman took over at Bangladesh Bank, lower external demand was having significant impact on Bangladesh’s exports. One of his decisive actions was to offset this by injecting capital towards farming and non-farming SMEs in order to stimulate domestic demand.  

Getting the commercial banks on board in investing in ‘the small man’, rather than big corporates was not easy. But Dr. Rahman managed to convince banks that by allocating a larger percentage of their loan portfolio to include small farmers and businesses was more than social responsibility, it also made business sense. Banks make their money back because, as he says, the “small people don’t really default that much”.

“Our monetary policy strength is that we do not put money in the air, as many western countries have done. We put money on the ground so that some seeds are sown and we get products,” he explains. “These are the policies which can really reach the underserved. Basically, we are not placing money in unproductive expenditure or in something speculative. Instead, we are providing money to agriculture, green textiles and SMEs. We make it mandatory that at least 15% of the funds are given at a lower rate of interest.”

The central bank’s financial inclusion program has helped to get millions of poor people onto the banking system, including street children. Unfortunately child labor is a fact of life in Bangladesh, and while it will not disappear anytime soon, at least under the Bangladesh Bank’s programme, street children can now open bank accounts with as little as 10 Taka (about 12 cents). This is particularly pertinent considering these children are often easy targets for thieves.

Like in many other developing nations, technology is helping banks to reach the unbanked. The financial inclusion programme has also focused on the expansion of technology, which has particularly impacted rural areas. While the number of physical branches remains low, the number of ATMs has skyrocketed: in 2005 there were seven ATMs per 1,000 people in Bangladesh; now there are 52. Twenty million Bangladeshis now have mobile bank accounts; this allows workers in the capital Dhaka and abroad to easily transfer money to their families.

“Mobile banking has helped people in so many ways. One way is that it has certainly promoted remittances through official channels,” says Finance Minister Abdul Muhith, while Dr. Rahman comments that, “Already 8% of our population in Dhaka regularly sends their money with the mobile apps to their children and their wives. All the garment workers send their families money through their mobile bank. These are the new technologies which have brought so many people into the financial system; and it is a source of stability and satisfaction that finance has reached them.”

Another pioneering scheme that landed Atiur Rahman the ‘Green Governor’ award at the 2012 United Nations Climate Change Conference in 2012 is his green banking program. Environmentally friendly practices are particularly important in Bangladesh’s enormous textiles industry. Textile factories in Dhaka currently consume 300 liters of water to produce 1kg fabric (the global standard is well below 100 liters per 1kg of fabric). In an effort to stimulate green textiles production, the government recently launched a $500 million fund that aims to help factory owners meet the cost of implementing energy efficiency measures—measures that will not only be good for the environment, but will also increase profitability.

Dr. Rahman says that, “The Central Bank itself is financing a cluster of green-rated factories. I am sure that if hundreds of these factories come up, Bangladesh will be on the map as a center of green production. The Central Bank is taking the lead, not anyone else.”

While the bank has taken the lead in a number of pioneering programmes, it has not neglected its main duties. Inflation has dropped from 12% in 2011 to around 7%, and the Central Bank has set a target of 6.5% to be achieved by June 2015. The Taka has also remained stable despite the often difficult situation both externally and domestically.

“Our currency has been running really stable for the last few years. Ours is now the strongest currency in the region,” says the governor. “The Bank of Bangladesh has proved itself to be very prudent. It has also proved to be business-friendly, inclusive, humane and tough. We have been reducing inflation but we are also stimulating growth; and the banker prizes which have been given to me say exactly that: that I've stimulated growth and I’ve also ensured stability. I had to do both; I had to walk on both legs”.

By Jonathan Meaney, staff writer at The Worldfolio