DFIs urged to improve performance

The national economy is at a crossroads due to the Covid19 pandemic.

Financial institutions including banks need to improve their working so that their actions support the economy and the country and people can escape poverty at large. Addressing bankers at an event on Friday, a senior banker Naved A Khan said that the purpose of creating development financial institutions (DFIs) to finance projects in the country has been lost as they have shifted to investing in equities and government papers. There is a huge need to enhance banks’ financing for sectors such as the small and medium-sized enterprises (SMEs), agriculture sector and microfinance industry, which can help drag people out of poverty in the country, he said. “The entire concept of development finance has… (been lost). Unfortunately, the movement of DFIs towards investment in equities and fixed income papers was done at a cost of what they were built on,” he said.

“Development financial institutions need to step up and at the same time, some banks also need to take initiative concerning development finance because if they fail to do so, then this economy cannot strengthen and this country cannot move forward,” he said. The agriculture sector is doing a good job of expanding the national economy. It provides employment to 36% of the workforce and “yet the largest bank has just 4% of its loan portfolio in agriculture sector”. “Traction in the banking sector is indeed required if we truly believe in growing this economy and lifting people out of poverty,” he told the participants. “I suggest we focus on this area not just from the lending point of view, which is only 10%, but also from the supply chain perspective.” The SMEs sector contains around 90% of the enterprises, employs 80% of the workforce, contributes 40% to GDP and yet we have only 9% (banks) lending to the sector. “Growing economies need SMEs and stabilisation of economy depends on this sector. You really need to think about it because without support of SMEs, the economy cannot grow and sustain GDP growth,” he said.

A lot of work has been done on digitalisation in the financial sector. “We have just 6.8 million customers in the micro financing sector while the market potential is over 20 million customers.” “Our micro finance penetration level is just 0.25% while India’s is 2.2%., Bangladesh’s 4.3%,” he said. “Our ratio in micro finance is lowest than anywhere else.” The official said, “We need to shift from traditional mindset of creating shareholders value…towards creating values for stakeholders including you, the society and the economy at large.” He said that amidst the changing paradigm of the world, it was important to look beyond the shareholders and address the challenges.