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"An efficient debt-market holds key to growth of FIs"
4/29/2004
The Financial Express talked to Syed Ehsan Quadir, Deputy Managing Director of Industrial Development Leasing company of Bangladesh Limited, better known as IDLC, the company which first introduced lease financing in the country and discussed the future prospect of leasing in Bangladesh. Following are the excerpts of the interview:
Question (Q): What is the prospect of leasing in Bangladesh?
Answer(A): The industry has experienced impressive growth, attracted new entrants and now stands firm as a mainstream alternative for mid/ long term financing. It is extremely popular with entrepreneurs and has contributed significantly to the economic development of the country. Owing to its popularity many Banks now offer leasing. The industry has experienced an impressive growth of 24 per cent in 2003. We foresee a healthy growth in the foreseeable future.
Q: Is leasing an expensive form of financing?
A: No. Specially now, due to severe market competition, customers are becoming the ultimate beneficiary.
Q: Is term finance from commercial banks cheaper?
A: Taking into consideration the flexibility and pace of service delivery, I am not sure. However in pure pricing terms, commercial banks do have a pricing edge, but again the gap is narrowing fast due to competition.
Q: If that is true than why do FIs complain about Banks entering the leasing market?
A: "Level playing field" is a very important factor. All participants in any given market should be in a level playing field. If one group is at a disadvantage, on the long run, the disadvantaged group will be pushed out of the market.
Creating a level playing field does not necessarily mean banning the advantageous groups' activity, it can also mean creating opportunity for the disadvantaged group to overcome their handicap, in case of FIs that would mean improving their ability to raise funds at competitive cost.
Q: The Financial Institutions Act of 1993 does allow FIs to mobilise term deposits, does it not solve the cost of fund problem?
A: It does somewhat cut the intermediation cost but still effective cost of deposits is higher. FI's do not have non-interest bearing deposits like current accounts, moreover there are tenure restrictions on deposit with FIs, these restrictions directly affect the flexibility of depositors and hence FIs pay a premium to attract the depositors.
Q: What about issuance of marketable debt?
A: The need for an efficient debt market has long been felt by the FIs. The historical poor performance of publicly traded debentures has tainted the perception of debentures among the investors. In order to restore the confidence of general investors in debt instruments all concerned parties should give all out support to the FIs in their bid to issue public debt.
Q: How?
A: To encourage issuance of public debt, the issuance cost should be reduced and all stakeholders in this regard namely the issue manager, underwriter, trustee, brokers, bankers to the issue and the Securities & Exchange Commission should play their due role. The nationalised commercial banks should be encouraged to place their surplus fund in debentures issued by FIs. Other institutional investors notably the general and life insurance companies should also be encouraged by all quarters to participate in these debt issues.
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