Collapse Of Regulatory System

Three incidents lay it bare, Regulatory system provokes a sense of despair.

Three incidents recently brought to fore collapse of regulatory system in Bangladesh. First one was put forward by the US President Donald Trump who alleged that USAID had granted $29 million to a 2-men-run NGO in Bangladesh in a bid to strengthen democracy. In Bangladesh, NGO bureau that oversees NGO activities and foreign funding of local NGOs denied presence of such NGO and acceptance of fund. Transparency International Bangladesh also echoed similar stance. NGO bureau is under the auspices of Prime Minister's office but rumor has it that its foreign financing approval is given by the military intelligence. The money for the project here came during the tenure of previous regime. USAID gave the money to Democracy International and which NGO in turn received the money still remains a mystery.

I do not think the US President made such allegations without evidence. He must have documentary evidence that led him to disclose the thing publicly.

If the allegation is true, it proves how this oversight of NGO activities completely broken and how corrupt practices swallow purpose of NGOs. Misappropriation of climate fund is an apt example. Both govt and TIB's findings divulged nitty-gritty of it (Read "Climate Commitment Or Enhancing Corruption?" published here on February 16,2024).

This again proves how lack of transparency of the security establishment led to spread of corruption in other sectors. In this case ,the NGOs. If there were proper accountability in place ,then this money would not end up in this way in the hands of some opaque NGO.

Another incident is the chronic crisis of soybean oil amid tariff waiver on soybean oil import. Previously, at the wholesale level, soybean oil transaction was taken place without any money receipt. I do not know whether this practice is still being taken place. I touched the issue couple of times here. Only handful of big groups including an Army-run subsidiary operate this industry. One of the groups laundered money abroad with blessings from security establishment and jeopardize the supply chain by disrupting the supply. Another group is under the scanner of the Anti Corruption Commission. All the business conglomerates engaged in soybean oil business have media outlets. This way they can shape the narrative. I earlier discussed here why it is bad for consumer welfare when a company has significant market share in the input market as well as in the final output and in the media( read "Enforce Laws To Protect Consumer Rights" published here on September 4,2019).

Routine functioning of Bangladesh Competition Commission (BCC) is absent here. It recently published an announcement, seeking complaints from people. Intervention of BCC is needed in the soybean oil market. It should convene an audition ,inviting representatives of big groups and ask them explanation for the rising prices of bottled soybean oil. This will at least give the market a signal that government is functioning.

Another incident is the attack on an administrator of a Mobile Financial Service(MFS) provider and his subsequent resignation. The administrator was appointed by the govt in the scam-ridden MFS(Read "What Does Nagad Ownership Row Reveal?" published here on September 12,2021, and "BB Detects More Suspicious Transactions" published here on March 19,2022).This attack unveils govt cannot consolidate its grip over trouble-ridden entity. Parallel administration is still strong, challenging govt's authority.

The three incidents are an eye-opener that the regulatory environment is in tatters and requires serious overhaul. Without proper regulatory set up, govt cannot ensure routine functioning, let alone carry out ambitious reforms.

Sketches Of Reforms Emerge

Witch hunting in anti corruption drives Leaves a society where polarization thrives.

Govt is unveiling its reform programs. Economic reforms are more conspicuous than others. Specifics of the reforms will emerge in more than 3 months. One advisor hinted that the government identified 6 sectors for reforms. Elections will be held after the reforms,reiterated by the Chief Advisor.

Meanwhile, newly appointed governor stressed his commitment on not injecting money into trouble-ridden banks owned by a major conglomerate. He even made it clear that government would take the shares of the banks if it necessitated. Previous regime printed money and injected into specialized trouble-ridden banks in the name of promissory demand notes. In addition, central bank appointed administrator to a mobile financial platform. Details of its stakeholders come under scanner.Its license to operate digital banking is also scrapped. $406 million in 20 days of this month boasts remitters' confidence on this govt. However, heavy torrential rainfall caused flash flood, affecting lives of 3 million people. If the waterlogging continues for more than two weeks ,then there will be a little bit worry for the govt. Luckily, it has some funds at hands saved by slashing development expenditures of previous regime. Growing support of international communities also ensures future post-flood rehabilitation commitment if it is needed. Post flood cultivation will require less agricultural subsidies in the affected areas as alluvial soil will substitute part of the inputs. But now the govt is cash strapped and has already approached World Bank to provide $1 billion as budget support to clear energy dues.

Education advisor switched to old syllabus and students have to again choose a discipline from science ,arts and commerce at grade 9.Ministry of information resumed broadcast of opposition media outlets. Other broadcast and media houses also witnessed significant change in ownerships. Draconian laws are still being reviewed.

UN fact finding mission has arrived to start preliminary works on how to start probe on mass student killing. I earlier stressed on setting up a permanent lab under UN so that individuals, journalists, marginalised groups,insurance companies,judiciary, corporate can avail its services to get independent and impartial probe of an incident. Meanwhile, UN can also provide support to SME programs ,run by govt and private banks. As govt is pursuing contractionary monetary policy, enough resources cannot be mobilized to SME programs. UN observers and support are also needed to proper functioning of the police stations.

Speculations are abound that the Army led joint task force will start a drive against the corrupts. I oppose such campaign in many of my pieces and argued that such move only sows seeds of panic and amplifies money laundering activities. An economy characterized by more than 50% of undocumented wealth cannot withstand ensuing consequences of such drive. Furthermore, division and polarization in the society will contribute to increase the budget deficit,creating an uphill task for future govts to fill it. Instead of nabbing the corrupts, it is more important to build institutions, to strengthen the existing ones ,to ensure proper functioning of them and to make policies. Even if the task force is keen to go ahead,then it should start with the corruption in defense procurement, electronic voting machine scam, Sena edible oil's Taka 11 billion overdue loan repayment to Sonali Bank and money laundering accusation ( some say Taka 6 billion) against the Army during the 1/11 govt (see references). This will surely improve public image of the Army. Otherwise, witch hunting in the name of anti-corruption drive will create further polarization in the society,which at any cost should be avoided. Interim govt is here to make lasting changes. It means creating institutions, giving accountability a firm footing and setting up a check and balance mechanism.

References:

1. "Rin Porishodhe Sorkar E Darostho Sena Edible(Sena Edible Resorts To Govt To Clear Loan Repayments)",Daily Prothom Alo,May 28,2022. Link: https://www.prothomalo.com/business/%E0%A6%8B%E0%A6%A3-%E0%A6%B6%E0%A7%8B%E0%A6%A7%E0%A7%87-%E0%A6%B8%E0%A6%B0%E0%A6%95%E0%A6%BE%E0%A6%B0%E0%A7%87%E0%A6%B0-%E0%A6%A6%E0%A7%8D%E0%A6%AC%E0%A6%BE%E0%A6%B0%E0%A6%B8%E0%A7%8D%E0%A6%A5-%E0%A6%B8%E0%A7%87%E0%A6%A8%E0%A6%BE-%E0%A6%8F%E0%A6%A1%E0%A6%BF%E0%A6%AC%E0%A6%B2
2. "Panch Sho Koto Taka'r EVM Jacchey Bhangarite( Taka 5 billion Worth EVM Goes To Salvage Yard)",M Humayun Kabir,Daily Ajker Patrika,June 24,2024. Link: https://www.ajkerpatrika.com/343016/%E0%A7%AB%E0%A7%A6%E0%A7%A6-%E0%A6%95%E0%A7%8B%E0%A6%9F%E0%A6%BF%E0%A6%B0-%E0%A6%87%E0%A6%AD%E0%A6%BF%E0%A6%8F%E0%A6%AE-%E0%A6%AF%E0%A6%BE%E0%A6%9A%E0%A7%8D%E0%A6%9B%E0%A7%87-%E0%A6%AD%E0%A6%BE%E0%A6%99%E0%A6%BE%E0%A6%B0%E0%A6%BF%E0%A6%A4%E0%A7%87
3. "Sarkarer Kachhey 500 Koti Takar Sohoita Chai Ansar O VDP Unnayan Bank(Ansar And VDP Development Bank Asks For Taka 5 Billion As Credit Assistance)",Khabor Sangjog,May 15,2024.Link: https://www.khoborsangjog.com/trade-and-business/40963/%E0%A6%9C%E0%A6%B0%E0%A7%81%E0%A6%B0%E0%A6%BF-%E0%A6%AD%E0%A6%BF%E0%A6%A4%E0%A7%8D%E0%A6%A4%E0%A6%BF%E0%A6%A4%E0%A7%87-%E0%A7%AB%E0%A6%B6-%E0%A6%95%E0%A7%8B%E0%A6%9F%E0%A6%BF-%E0%A6%9F%E0%A6%BE%E0%A6%95%E0%A6%BE%E0%A6%B0-%E0%A6%B8%E0%A6%B9%E0%A6%BE%E0%A7%9F%E0%A6%A4%E0%A6%BE-%E0%A6%9A%E0%A6%BE%E0%A7%9F

Is Bangladesh Bank Really Independent?

Meddling in decision making Yields result no one seeking.

Bangladesh Bank raised the policy rate by 50 basis points, detailing its inflation containing measures in the monetary policy statement for July-December. However, the increase may not be good enough to contain the inflation. Real interest rate is still negative( -4.26% for deposit and -1.35% for lending)¹. This means inflation is still higher than nominal interest rate. And we need to raise the interest rate high. Many argue inflation is hovering around 15%. Rate charged by unofficial money lenders could be a good indication of the market rate.

Central bank's argument of injecting $13 billion into market and mopping up Taka in the last one year sounds hollow as inflation officially is around 9.94%. It is not clear how it oozed the demand pressure.

Another thing I discussed earlier following the MPS in January is that Bangladesh Bank flaunts export receipt growth as an indication of demand increase of Bangladeshi items abroad². However, inflationary pressure is still there and prices of lower end items that Bangladesh export in bulk quantities also rise. Bangladesh Bank's own figure on policy rates of advanced countries show an upward trend since December 2022(see picture). Of course demand for Bangladeshi items is in rise in other countries, but the growth in export receipt does not account fully the growth in demand. Inflation played a role here and ratio between export earnings and volume could have yielded a better picture. Cargo handling through Chattogram port also declined significantly in recent months.

Policy rates of advanced countries (Source:MPS,Jul-Dec,2023,Bangladesh Bank)

Bangladesh Bank labelled the decision to downgrading the credit rating of Bangladesh by Moody's as a geopolitical one. Why did some banks based in Dubai and Singapore lower the credit limit and increase loan conditions for Bangladeshi banks if this is so? Both UAE and Singapore have good relations with Bangladesh and affluent Bangladeshis in general pick up the two countries as second home. Singapore is one of the top five investor countries.

Central bank also claimed that it takes decision independently and there is no political intervention.

Central bank is run by prudent and competent personnel. Their integrity and commitment to run an organization is not questioned here. Unfortunately , it is no distant island in Bangladesh’s command and control political atmosphere. On some occasions, past actions revealed how its independence was compromised:

• Bangladesh has long been following multiple exchange rates. Gaps in the rates discouraged bringing foreign currency home and played a conducive role to send foreign currency abroad. Many economists argued this mismatch plus incentives on remittances went in favor of speculators and money launderers. And future depreciation of Taka will benefit opportunists who willfully delayed bringing their earnings at home. It is naïve to say Central bank is ignorant about this fact. I think political pressure held it back from taking the right stand.
• In November last year, while an IMF team was in an official visit to Bangladesh, a little known Nabil Group swindled around Tk 90 billion from several Islamic banks.Till date,whereabouts of the money is not known.This plundering shook depositors' confidence so much that many were prompted to withdraw their money,leading to a liquidity crisis in the Islamic Banks. To address the crisis, central bank provided Tk 147.90 billion credit to the troubled Islamic banks through promissory demand note³.Govt literally printed the money and injected it into the ailing banks⁴. Troubled banks were not able to manage loans from other banks. I think this supply of fund through promissory demand notes was a political decision to restore depositors’ confidence. Similarly it is not clear how Nabil Group managed to get such a huge loan evading Bangladesh Bank radar. Clearly, independent decision making power of Bangladesh Bank is compromised here too.
• Bangladesh Bank recently approved application of Nagad Finance PLC to operate as another non-bank financial institution⁴. It will finance Nagad,set up in 2019 and country’s leading mobile financial services operator. Regulations prior to 2022 clearly stated that MFS operators work as subsidiary of a bank. Nagad is an exception. It is not subsidiary of any bank.Later MFS regulations 2022 allows non-bank financial institution to operate mobile financial services(see pictures). Approval of Nagad Finance hints strong political lobbying.Bangladesh Bank intervened when age limit of a managing director of a specialized bank crossed a threshold limit.But here we see a multibillion Taka company operates year after year not meeting vital criteria and regulations have been changed for its smooth operations.Political objectives here influenced the actions.
  

  MFS Regulations 2018

  

  MFS Regulations 2022

Apart from that Equity And Entrepreneurship Fund (EEF) and EEF for ICT have been misused on several occasions. Often it was found that external influence played a role in some cases.

Bangladesh Bank cannot act freely in the present context. Its exercise of sovereign decision making power has been limited in recent years as political intervention is more frequent. Despite cautious optimism and adherence to contractionary monetary policy , inflationary situation may spiral out of control if central bank kowtows before political pressure.

Notes And References

1. Monetary Policy Statement, July-December,2023,Bangladesh Bank
2. "Will MPS Attain The Goals?",Rezaul Hoque,January 20,2023.For more read at https://hoquestake.blogspot.com/2023/01/will-mps-attain-goals.html?m=1
3. "Receding Trust In Banks",Rezaul Hoque, https://hoquestake.blogspot.com,January 13,2023.For more read at https://hoquestake.blogspot.com/2023/01/receding-trust-in-banks.html?m=1
4. " Inflation Woes Remain",Rezaul Hoque,April 15,2023.https://hoquestake.blogspot.com,For more read at https://hoquestake.blogspot.com/2023/04/inflation-woes-remain.html?m=1
5. "Nagad Finance PlC Gets Bangladesh Bank Approval",bdnews24.com,May 17,2023.For more read at https://bdnews24.com/amp/story/business%2F42fo8053ep

[Update:This piece has been updated by me on June 23,2023 at 10:07, at 12:50 and at 13:12 Bangladesh Standard Time. Updates include: 10:07: references 12:50: screenshots of the Mobile Financial Services Regulations 2018 and 2022 and inclusion of phrase "...and regulations have been changed for its smooth operations.Political objectives here influenced the actions." at the end of the para highlighting Nagad Finance PLC issue 13:12: screenshot of policy rates of advanced countries and correction of "since April 2023" to "snce December 2022" in para discussing export growth and demand for Bangladeshi items]

La Semaine Dernière A Mes Yeux

(29 octobre --- 04 novembre)

Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
29	Pain tchapati,Omelette	Riz,Purée de haricot,Ruhi,Courge amère	Pain tchapati(fait par moi),Ruhi,Lait	Lait
30	Pain tchapati,Papaye-haricot	Riz,Ruhi,Radis,Pois chiches,Soupe aux haricots mungo	Lait	Riz gonflé avec oignon,huile de moutarde,poivre,pois chiches
31	Pain tchapati,Papaye,Lait	Riz,Ruhi,Louffa,Purée de haricot,Soupe aux lentilles	Pain tchapati(fait par moi),Ruhi	Riz gonflé
01	Pain tchapati,Omelette	Riz,Bombili,Citrouilles	Riz gonflé avec pois chiches	Riz gonflé
02	Pain tchapati,omelette	Riz,Ritha poisson,Tête de Ruhi dans soupe aux haricots mungo,Épinard d'eau	Pain tchapati,Soupe concentrée aux haricots mungo	Lait
03	Pain tchapati,Œuf poché, Soupe concentrée aux haricots mungo	Riz,Ritha poisson,Papaye-Pomme de terre	Paratha,Riz,Soupe concentrée aux haricots mungo,Ritha poisson	Lait
04	Pain tchapati,Papaye-Haricot vert-Pomme de terre,Lait	Riz,Ruhi,Feuilles de gourde calebasse,Papaye-Pomme de terre,Soupe aux lentilles	Pain tchapati,Pois chiches	Riz gonflé avec pois chiches

BB Detects More Suspicious Transaction

Central bank detects transaction suspicious
Not all indicate act malicious.
Growth of mobile financial service
Hardly brings offer for local ICT office.

Bangladesh Financial Intelligence Unit(BFIU) of Bangladesh Bank in its annual report claims that it has detected 5280 suspicious transactions in 2020-21. In 2018-19,suspicious transactions were 3675. BFIU notes that the growth in suspicious transactions is mostly due to fraudulent and multilevel marketing activities of e-commerce platforms. Banks have reported 4495 suspicious transactions during this period,financial institutions and exchange houses have reported the rest. However, head of BFIU underscores that reporting of suspicious transactions does not indicate rise in clandestine transactions or criminal activity; rather it indicates increase in awareness about reporting the incident of suspicious transaction¹.

Generally, e-commerce platforms do their transactions online and through mobile financial services, which have registered commendable growth in the last one decade. But every mobile financial operator has to maintain unique bank account,known as trust and settlement account whose role is to convert digital money into actual money,against every mobile financial account opened as per the mobile financial services guidelines laid out by Bangladesh Bank.Despite having 51% share of Nagad, Department of Posts did not own the trust and settlement accounts. Those were owned by 49% share holder of Nagad,Third Wave Technologies Limited². This information was brought to surface when Third Wave Technologies Limited had tried to change the ownership of the settlement accounts of Nagad in a bid to avoid paying the clients in the wake of a scam. The objective was to put responsibility of clearing client’s money on the other owner's shoulder,here Department of Posts. As the news became public, Bangladesh Bank intervened and required that Nagad abstain from opening new account without prior consent of Bangladesh Bank and Department of Posts.³

Banks are obliged to report about transactions over TK 1 million. In addition, they can also report on transactions that they deem malevolent. During pandemic, when most of the economic activities were stalled and transportation with the rest of the world was disrupted, meteoric growth of e-commerce platforms raised suspicion. Many feared the platforms were used to legalize black money and launder money abroad. Regulatory environment was weak back then.This kind of transactions was reflected in the mobile financial service provider's bank account. BFIU back then froze many accounts sensing illegal MLM activities. Many used Nagad ,offering lucrative rates,to run their e-wallets to do e-commerce transactions. It is not known what percentage of suspicious transaction belongs to Nagad subscribers. Since row revolved round eValy,e-orange and clients mostly drawn from Nagad, Nagad subscribers may constitute a large part of the accounts fell under suspicious category.

Nevertheless, this should not be the pretense to clip the wings of mobile financial services, which did a tremendous job in financial inclusion. The services are now diversifying its product range. Now many can open savings account using such services.Mobile financial service operators should concentrate on procuring local software. This is no rocket science that our local software developers will not be able to develop. Many brokerage houses in Bangladesh use local software. Mobile financial service operators may follow their steps.

The head of BFIU anticipates correctly that suspicious transactions may grow in future and it is wrong to categorize every suspicious transaction as criminal offense. This observation came at a moment when government continues legalizing black money in ICT sector in the current budget⁴[*]. So apart from e-commerce,many startups may pop up to avail this opportunity. Government has to make sure that this kind of capital turns out to be productive and catalyst for the industry instead of just relabeling the money,which does little help for the industry in terms of job creation, innovation and adding values. While the number of suspicious transaction goes up, central bank should take the onus to spell clearly which one is an act of malevolence and which one passes the scrutiny.

Notes And References:
1 “Suspicious Transaction Reporting Up By 43.67%,BFIU ”,Shamprotik Deshkal, March 15,2022. For more read at https://en.shampratikdeshkal.com/economy/news/220327725/suspicious-transaction-reporting-up-by-bfiu

2 “What Does Nagad Ownership Row Reveal?”,Rezaul Hoque, https:hoquestake.blogspot.com,September 12,2021.For more read at https://hoquestake.blogspot.com/2021/09/what-does-nagad-ownership-row-reveal.html?m=1

3 “BB Bars Renaming Bank Accounts Of Nagad Without Its Approval”,New Age,September 06,2021. For more read at https://www.newagebd.net/article/148399/bb-bars-renaming-bank-accounts-of-nagad-without-its-approval

4 "Bangladesh Retains Option To Legalise Dirty Money By Raising Fines", bdnews24.com,June 29,2021. For more read at https://m.bdnews24.com/en/detail/economy/1908159

[Note:This piece has been updated on March 22,2022 at 11:04 AM Bangladesh Standard Time (BST).
*The update includes reference to legalizing dirty money in ICT sector.]

What Does Nagad Ownership Row Reveal?

Row inside a public company
Reveals corruption of many.
Flaunting image of public property
Many made a fortune hefty.

Recently, a debate over the ownership of a leading Mobile Financial Service(MFS) operator has come to fore. Nagad has increasingly offered attractive rates through intensive promotional campaign since it began its journey in March 26,2019. It has been widely presented as a public-private venture between Department of Posts and a private firm. But a row between stakeholders divulged that Department of Posts did not consolidate fully its grip on Nagad. Despite having 51% ownership of Nagad,account that MFS maintains to convert digital money into actual money,known as trust cum settlement account, in commercial banks belongs to 49% owner of the company,Third Wave Technologies.

Recently, Third Wave Technologies changed the ownership of trust cum settlement accounts to the name of Nagad Limited.¹

As the row became public, Bangladesh Bank intervened and said from now onwards without consent of Bangladesh Bank and Department of Posts no new account would be allowed in Nagad.

Even the director general of the Department of Posts in a video message claimed that it awaited government’s nod to consolidate Bangladesh Post Office's ownership in the company.²

Recently, another e-Commerce company went into bankruptcy after the owners have embezzled Tk 1.1 billion. Many vendors and customers complained about their dues to the authority. When some of them had get back money or refund,Bangladesh Bank froze their Nagad account for indefinite period for verification and citing suspicious transaction. That was when this ownership debate popped up.

Despite being the majority owner of the company, Department of Posts cannot establish its control of the operations of the company. It is important to note that ownership of Nagad is based on a revenue sharing model.

Earlier another controversy of Nagad had come to fore when a foreign-based news site had revealed the owners of Nagad during its heyday. The names included staffs of Prime Minister’s office and influential ruling party leaders. Long before the news broke out,they all sold their shares sensing gravity of such revelation.

It is indeed a puzzling matter how part of a public service company is being used by others for their profit motive without giving the majority share owner its just dues.

It is not the first time that resources of a public company is used by a private one. A leading telephone operator took lease of Bangladesh Railway’s unused optical fiber network.

But this time controversy arose over ownership of this joint venture. There is no doubt that through the sale of shares previous share holders of Nagad gained a lot. Flaunting image of Bangladesh Post Office, they manipulated people’s trust.

As per Bangladesh Bank,there are 15 banks who are operating Mobile Financial Services in the country. Number of active users reached 4.09 crore at the end of June,2021. Average daily transaction rose to Tk 2,099.80 crore in June,2021. This signifies how important the MFS has become in vernacular lives of Bangladeshis.

Some mobile operators ,as many alleged, led their clients to subscribe Nagad services. Some denied it saying they had sought client’s consent through SMS.³

This thing has not become an issue unless some e-commerce platforms went into bankruptcy. Latest addition is the dhamaka which laundered Tk 116 crore abroad.Earlier,eorange had swindled Tk 1.1 billion and eValy had failed to meet merchant plus client’s obligations of Tk 411 crore. Many MFS companies,including Nagad, fell victim to deceiving acts and halted transactions of many accounts which failed to comply Bangladesh Bank regulations of suspicious transaction.

At this time Nagad ownership row surfaced on the media. It is a shame that many use public projects and company to make personal gains. In the name of self-financing the Padma bridge project, we witnessed how project cost has swelled over the years and a small group of people and government bodies pocketed huge amount of taxpayer’s money bypassing all alleys of accountability. Nagad ownership row is the latest addition to ongoing misuse of public company.

Notes And References:

1 “BB Bars Renaming Bank Accounts Of Nagad Without Its Approval”,New Age,September 06,2021Link here

2 “Nagad To Reopen Account After Transaction Scrutiny “,DS Sourav,Saddam Hossein,Meraj Mavis,Business Standard,September 08,2021 Link here

3 “Nagad,Robin Sign Deal On Financial Inclusion”,New Age,January 20,2021Link here