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Case study Consumer Credit Marketing

Case study Consumer Credit Marketing

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Consumer Credit Marketing System in Bangladesh:

A Case Study on Dhaka Bank Ltd.

By Ali Haider Mohammadullah

1. Introduction

A commercial bank provides financial services, including debit or credit cards, receiving

deposits of money, lending money and processing transactions. A commercial bank accepts

deposits from customers and in turn makes loans based on those deposits. Some banks (called

Banks of issue) issue banknotes as legal tender. Many banks offer ancillary financial services

to make additional profit; for example, most banks also rent safe deposit boxes in their

branches. The primary purpose of a bank was to provide loans to trading companies. Banks

provide funds to allow businesses to purchase inventory, and collected those funds back with

interest when the goods were sold. For centuries, the banking industry only dealt with

businesses, not consumers. Commercial lending today is a very intense activity, with banks

carefully analyzing the financial condition of its business clients to determine the level of risk

in each loan transaction. Banking services have expanded to include services directed at

individuals and risks in these much smaller transactions are pooled. In the recent time,

commercial banks are more concerned about the consumer credit. They provide various types

of credit to the consumer to fulfill their personal needs. This is very important for a country

to develop the life standard of people. Consumer credit is the best way to develop the living

standard.

In this assignment we try to discuss about consumer credit marketing system and that’s why

we have done a survey. With the basis of survey we prepared our finding part and try to clear

the consumer credit borrower’s view. We also try to discuss about role of bank, role of credit

and role of consumer credit in Bangladesh economy.

1.1 Role of Bank in Bangladesh Economy

Bangladesh pursues a liberal market economy. Bangladesh Bank is the apex bank of the

country responsible for promoting healthy growth and development of the banking system.

Banks and insurance companies, both in the private and public sectors, are operating freely

and contributing to the economy. Foreign banks like American Express Bank, Standard

Chartered Bank, Grindlays Bank, Indosuez Bank, etc. function in Bangladesh through their

branches.

There are other specialized financial institutions like the Bangladesh Shilpa Bank (Industrial

Bank), Bangladesh Shilpa Rin Sangstha (Industrial credit organization), Krishi (Agriculture)

Bank, House Building Finance Corporation, Grameen (Rural) Bank and several cooperative

banks. The Industrial Promotion and Development Corporation (IPDC) of Bangladesh and the

Investment Corporation of Bangladesh (ICB) provide equity support to public limited

companies in the private sector. The government has recently replaced the Controller of

Capital Issues by establishing a full fledged Securities and Exchange Commission with

enhanced power for the growth and development of the Securities market in Bangladesh.

Liberal fiscal policy has resulted in the highest forex reserve.

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During the last three years a number of steps have been taken to strengthen the country's

banking system. These include improvement of the regulatory environment. Enforcement of

loan classification guidelines and recapitalization of nationalized commercial banks. Over the

past two years, there has been a massive infusion of taka 32,000 million in the NCBs in the

shape of government bonds to make up for capital and provisioning shortfalls. (Bashar)

The country’s economic performance in the four quarter (April-June of FY06) indicated a

marginally slower growth in Gross Domestic Product (GDP) compared to the encouraging GDP

growth and control on inflation in the third quarter of the fiscal year 2006-07. The major

growth area was industry, particularly manufacturing and construction, which recorded

notable expansion in the quarter under review. The performance of the agriculture sector

was relatively weaker compared to that of the previous year.

A favorable aspect of the country’s macro economy during the review period was the return

of stability in the foreign exchange market, and an improvement in the country’s foreign

exchange reserve. Increased inflows of remittances and better performance of the export

sector together helped raise Bangladesh Bank’s foreign exchange reserve by US$ 430 million

in the review quarter to US$ 3,340 million at end June 2006 compared to a decline of US$ 10

million in the corresponding quarter of the last year. The generally stable domestic and

external macro economic environment benefited all the real sectors of the economy. In

particular, the industry sector benefited from increased investment and the creation of

additional production capacity in textile and leather sub-sectors, which boosted

manufacturing production in the quarter under review.

In the monetary sector, the Central Bank continued its restrictive monetary policy stance by

increasing interest rates in the review quarter. While the Central Bank pursued a restrictive

monetary policy, reserve money growth in Q4 of F06 was unusually high, at 19.8% compared

to 9.7% in the last fiscal year. This resulted in a larger volume of currency issue than

anticipated. (Dhaka Bank, 2006)

1.2 Role of Credit in Bangladesh Economy

The new banking system succeeded in establishing reasonably efficient procedures for

managing credit and foreign exchange. The primary function of the credit system throughout

the 1970s was to finance trade and the public sector, which together absorbed 75 percent of

total advances.

The government's encouragement during the late 1970s and early 1980s of agricultural

development and private industry brought changes in lending strategies. Managed by the

Bangladesh Krishi Bank, a specialized agricultural banking institution, lending to farmers and

fishermen dramatically expanded. The number of rural bank branches doubled between 1977

and 1985, to more than 3,330. Denationalization and private industrial growth led the

Bangladesh Bank and the World Bank to focus their lending on the emerging private

manufacturing sector. Scheduled bank advances to private agriculture, as a percentage of

sectoral GDP, rose from 2 percent in FY 1979 to 11 percent in FY 1987, while advances to

private manufacturing rose from 13 percent to 53 percent.

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Consumer Credit Marketing System in Bangladesh: A Case Study on Dhaka Bank Ltd. By Ali Haider Mohammadullah 1. Introduction A commercial bank provides financial services, including debit or credit cards, receiving deposits of money, lending money and processing transactions. A commercial bank accepts deposits from customers and in turn makes loans based on those deposits. Some banks (called Banks of issue) issue banknotes as legal tender. Many banks offer ancillary financial services to make additional profit; for example, most banks also rent safe deposit boxes in their branches. The primary purpose of a bank was to provide loans to trading companies. Banks provide funds to allow businesses to purchase inventory, and collected those funds back with interest when the goods were sold. For centuries, the banking industry only dealt with businesses, not consumers. Commercial lending today is a very intense activity, with banks carefully analyzing the financial condition of its business clients to determine the level of risk in each loan transaction. Banking services have expanded to include services directed at individuals and risks in these much smaller transactions are pooled. In the recent time, commercial banks are more concerned about the consumer credit. They provide various types of credit to the consumer to fulfill their personal needs. This is very important for a country to develop the life standard of people. Consumer credit is the best way to develop the living ...
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