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“Micro-credit has become one of the star shows of this government”

Interview - May 22, 2013
Bangladesh’s Minister of Finance Abul Maal Abdul Muhith talks to World Report about the country’s huge need for investment in power and infrastructure, and provides an overview of Bangladesh’s economic growth, his published ideas on how to dramatically reduce corruption and his key role in establishing the micro-credit industry in his country.
Bangladesh’s rise in the global GDP growth rankings has been impressive, bout would you say there is anything that has impeded it from even greater growth?

The first one is adequate availability of energy and power, whether it is in the form of electricity or it is other energy sources like gas, coal, whatever it is. This is very important because in my view the growth of the economy has been impeded somewhat by the backwardness in the energy sector. I personally believe that if we had had a better supply of energy resources in 2009, we would have moved to a higher level of economic existence at the moment. We did very well, we are number five in the world in average growth over the four years. Some countries did very well in one year, then went down. We have been very steady. Above us is China, where in these four years there has been an addition of gross domestic product by 40%. The next one is India where the addition is roughly 31%. The next one is Nigeria where the addition has been about 29.5%-30%, then it is Turkey at 28.3%; next is Bangladesh at 25.5%. Now Indonesia has done very well, Myanmar, the same with Vietnam, and Mexico is the same – they have gone up then down so they are not equal to us. But there are a number below us who are between 20% and a little higher, including Australia.

So stability in the power supply is one of the main factors.

Yes, stability is very important. My point however was that we must reach a stage, and I hope that we will do it by 2015, when there will be no energy crisis. Sufficient energy resources will be available in the country for anybody to think of an investment. How it will happen is that we have placed orders by now for power plants that will provide more than the needs of the country by 2015, or 2016 if there is slippage.

In energy resources we are somewhat poorer because that is a gift of God and you may or may not find it. We have increased the total supply but not adequately, we need to find more but we do not know. But there is a strong point in our favour which is a very good supply of coal. Of course coal has its difficulties, two difficulties amongst others. One is the difficulty everywhere that it is not very environmentally friendly. This is all over the world and of course measures have been taken over the last 20 to 30 years to reduce the pollution effect of coal. We should be the beneficiaries of the developments in technology because we are just going to exploit it, so we can use the best technology so that the pollution impact is not so big. There are known ways now to reduce coal dust; in the United States in the Colorado region they use it very successfully. There are many techniques for reducing coal dust.

Sulphur reduction is also possible and we are very lucky that the sulphur content of the coal that we have is very, very small. Another good quality of our coal is its heat element is very high. But there is a serious problem in the exploitation of that coal. In such a densely populated country the moment you go for open pit you displace such a large number of people. You may take precautions against environmental damage but you cannot take any precaution against the dislocation of people.

Furthermore, our coalfields are rather too deep. The nearest coalfield in terms of depth is the Phulbari, which is at a depth of 400 metres. That is the stock which is easily exploitable. The other mines are much deeper. Barapukuria, which we exploit now, is deep mining. There are at least two deep mining difficulties. One is that there is risk when you go down. Secondly, the best exploitation in deep mining would be a quarter of the stock. With open pit mining you get almost 80% of the stock and rock falls are much more controllable. In deep mining it is really difficult.

Our country is all sedimentary soil. If you have rocks you can manage to keep them in their position, but this is a country without rocks. So there is that difficulty. But I personally think that even with these difficulties we must go for open pit mining.
We can undertake good rehabilitation programmes. We have done rehabilitation programmes in Bangladesh in two places that have been very successful. One was Jonah and now we have completely rehabilitated the displaced people, although no work has begun on the bridge yet. But the rehabilitation programmes have been completed all with our own money. We have spent about $2 billion on that acquisition and rehabilitation. And we have taken care of environmental concerns as well. We can do the same thing for Phulbari. It would be a much larger task because the dislocation of people would be much larger. You would also have to ensure that they had some alternative means of earning because they would lose their agricultural land as well. But in the context of the whole nation it looks to me that it would be ultimately profitable to undertake open pit mining and dislocate these people.

You are talking here about the need for Bangladesh to provide sufficient energy, and that is the first thing that any investor looks for. So given that Bangladesh is not in a position to compete, for instance compared with Mongolia which is the most attractive place, what are the other things, in which other sectors should they focus?

I said number one is energy. Number two in Bangladesh is transportation. We have the highest density of roads in the world, both in terms of area and in terms of population. But the standards are very poor. There are not too many paved roads and the standard of those is also poor. So we have to improve that because currently we have roads where the maximum capacity is 10 tonnes and most of our regional roads have only three tonnes capacity. You do not use three tonnes capacity for transportation now, you go for seven, ten, and so on. My own prescription is that we have enough roads, therefore our future policy has to be on maintenance and upgrading.

Not more road building?

Not more building: upgrade them and maintain them well. Then come the greater difficulties. I will not talk about skills now I will come to that last of all because skills is very complex topic. It is very interesting; illiterate Bangladeshi people have a tremendous capacity for upgrading their skills. So I will come to that later. The third thing that is impeding us in our progress is highly centralised government. If our local governments had more powers, more functions to do, things would be better. Let me give you a simple example: education. Our education from the primary level to university is all controlled from Dhaka.

The whole country?

The whole country. 150 million people, 144,000 sky kilometres, all governed by one government. It is wrong. Primary education can be taken care of at the district level. Secondary is the same, it can be taken care of by the districts. If you want to go slightly bigger you can have divisional education boards. I have no objection to higher education remaining centralised, but school up to the age of 12 must go to the local councils.

Look at the area of disaster relief, we are wonderful in disasters. We are one of the best countries in the world in disaster relief. We provide assistance to the United States as well. Again it is highly centralised which is not necessary.
Of course in the instructions we have some decentralisation because we activate the district administration without any waiting for central direction to be given. This can be completely turned over as a subject of the local government. The same applies to our health service and population service.

I have personally prepared a list which is in my book “Agenda for Good Governance” (published in 2007), where I have identified 17 functions which can be transferred to the districts. Central government would retain responsibility for setting the targets for the nation, setting the policies, and inspecting and maintaining the policies and particularly the standards. And there are another 12 or 13 subjects which must be central.
In my scheme of things, collection of revenue would be a joint responsibility. Divide some into central and some into local, but have a system of assignments from the central government. This is because, you know, it is very difficult to decentralise income tax; it has to be the same in the country. And ultimately income tax is the largest source. So you may have to have some assignments from the income which is central government’s to the local governments. These are in my view, points one, two and three.

Fourth, connected with that indirectly, is the governance issue, where corruption comes in; the autonomy of various institutions delivering various services, and regulating and enforcing various laws. Let us take the police. The police is a highly centralised service in Bangladesh. There is no necessity for having it centralised. Yes, the forensic department can be centralised for standards with decentralised units as it is now, but it is finally stamped by central government. Criminal records, yes, that must be centralised. Inter-district offences are offences that must be centralised, but there is no need to transfer the subject of law and order to the central government. It should be given to the districts. The police chief of a district should be independent. Yes, he will be subject to certain controls by the central office, if it is an inter-district case give it to them. If it is a matter of record go to the centre, you also send your records to the centre, that is how the centre will remain involved. So we can think about organising the police force in a very different way in this country. I prefer the United Kingdom’s system over the American system as far as police control is concerned. In the United Kingdom the police are only centralised for limited areas of action and those are the things that I would like my country to have. But the police force should otherwise be decentralised. Yes there are certain specialised forces that you need that would be central. For example, industrial police, tourism police, they can be central units, it does not matter where they are. But usual law and order in the areas, that should be given to the areas.

The Minister of Foreign Affairs was telling us about this corruption you are mentioning. He said that you have a new system of corruption committee by which any citizen can put a question to an official or to a minister.

But you see in the police force, and I have not yet finished with that, we do not have an appeal board in this country. The appeal board system in the United States is very good because it is not simply police people. It is the city or state administration plus representatives of the people on the appeal board. Whenever you are using the coercive authority of the state you have to be very severely subjected to discipline and control. And in that discipline and control mechanism the best system is participation of people's representatives.

Next of my parts of governance is corruption. Corruption is a national malaise. Corruption has two levels, maybe more, but two are important. One is the top level where you make deals for various big things like a treaty and so on. And I mention treaties because this is a subject of constant problem with our neighbours. Treaties are very difficult. So this is one level, high level corruption. In our country we obtained a masters certificate in corruption in the energy sector. Therefore in a regime which lasted for five years, not a single watt of additional capacity could be generated because deals could not be struck.

The other level is lower level corruption. For any liquidity function you collect money, the traffic policeman collects money and that allows him to violate the rules. The man who releases a document, he takes money, the level of which depends on the value of the document. The man who records the transaction of land ownership, he takes money. These are the small bribes, but if you add them up it is a big element.
The first thing that top level corruption requires is example from the head. If the head rots, no way. This is number one, that by the example of important leaders, political leaders in particular, you ensure that one is frightened before one takes up corruption.

Two, you need a strong and independent anti-corruption commission and I believe our Anti-Corruption Commission is. It is not as strong as one would like simply because of tradition, but they are trying to improve their image and if given the authority they can do it. We have a law before Parliament which would legitimise to some extent their independence. The Parliamentary Committee sat over it for a long time and ultimately they have recommended it. They have recommended a strong law because under this law the Anti-Corruption Commission can take up a case against anybody in the country. Right now they can take up a case against any politician, but they cannot take up a case against corruption without permission from government of a certain level. That is in the recommendation that the Parliamentary Committee has made that has also been eliminated.

This is a very strong and important message about independence of governance. I am all in favour of it. In fact I moved the Amendment in the Committee and many others also did. So I hope that this Bill will pass either this session or next session before the end of our term. So it would also be legally authorising and making them independent. They have also been given very good powers of investigation now because they can investigate, they can ask the police or a private company to investigate, they can call Scotland Yard to investigate, anything. That is the power they have been given. This is good but traditions have to be set and that takes time and leadership.

Small corruption is very difficult to remove so you have to take systemic measures. We are very clear about how we want to do it, which is through the use of information technology. That is the biggest antidote against corruption.
Let me give an example. The most corrupt ministries and departments are the police, land records, the courts, and also public works (whether it is roads or buildings). Grading them is very difficult, I will not try because it is very difficult to say who is more and who is less corrupt, but these are the four areas of major corruption.

One thing we have done is we have introduced on-line tendering in some of the major agencies, like those who give contracts for road building, waterworks and various kinds of water and flood protection, and power generation. Major tendering processes have been put on-line and the rest are being done; eventually this will happen. Finally in a period of four to five years, except for small contracts of local work, almost everything will be on-line. And that ensures transparency and then people will try to manipulate even that, but since it is transparent you can always complain.
I think that our media is an irresponsible media, but one good thing they are doing is they are a strong watchdog for ensuring non-corrupt transactions. A watchdog against corruption; in that area they are quite good. Something happens, it comes out in the newspapers so you get a complaint and you have to look into it.

The situation with the police is that they are supposed to be very corrupt. For example, if I go and lodge a complaint the police may not record it for some reason, it could be political or it could be money. If my complaint is recorded because I go on insisting on it, then the enquiry could be delayed or misdirected. Then the enquiry is done and it is doubtful if I should be indicted or not, you can manipulate matters there too. Then after the indictment or release stage, you take money in deciding when it should go to trial. All these processes can be eliminated by the use of information technology.
What I do is, for the big register that the police maintain, I create software (that is not very difficult, it has already been done), so that every case is recorded in the computer. And we give people access to the computer. So then, let us say that it is my job to assign the hearing dates. If it is on the computer, then people can question why they are given a hearing date of say the 12th, when some other person who brought his case 10 days later also got given that same day. So you have to follow some rules then we have transparency and the elimination of corruption.

The other side of it is we are trying to raise the salaries to a reasonable level so at least we can eliminate the plea that you have to take bribes in order to survive.
The same thing can be said about the court system and much more can be said about the land system. Land records are the worst jungle in Bangladesh. Today in order to prove my ownership of a plot of land that has been owned by my family for three generations I have to trace my ownership back to 1856 or something like that before I can sell it. This is because our land records system is bad. There is no system of issuing land holding certificates which has legal validity.
So what is done is I trace my ownership back to the survey that was done in 1856 where perhaps my great, great, great, great-grandfather was named. Then another example is if I am claiming ownership of land that my grandfather bought in 1905 I would have to produce that document. I also have to produce subsequent records that show whether it has been sold or not, and someone else can produce a document and challenge me. But, there is no indisputable authenticity to these records.

Therefore in the courts of Bangladesh 75% of the cases relate to land ownership. If you can digitise land records, you eliminate in one stroke 75% of the cases in the courts which are another source of corruption. And today it is very simple; we have done it on an experimental basis in some areas. You do the survey, then check it up with digital mapping, an aerial map which is given in detail, mix the two and you get a reliable land record. Make it a must-have land record, preserve it well and whenever there is a change it has to be reported to the master office. So the whole system of land records becomes transparent, reliable and authentic. In my view it eliminates prevalent corruption to an extent not less than 60% over the whole of the country. This is because it involves corruption in surveying, issuing certificates, registration, sales – all kinds of corruption which would all be gone in one stroke. Also corruption in the court system because there the dates are fixed according to the wealth of the people.

This principle you are talking about of information and communication technologies has also been applied to banking and mobile banking...

And has it improved? Yes, it has substantially reduced corruption.

What will be the new advantages? What is coming in the future for the mobile banking sector and how can this help the people as a social matter?

Mobile banking has helped people in so many ways. One is that mobile banking has certainly promoted remittance through official channels. One of the advantages of Hindu was that they used telephones and within days you would get the money. Now mobile banking has made that useless because now mobile banking is giving the same service that the Hindu-wallah used to give. Mobile banking does not require money to go from here and there, it has made transfers very simple and risk free. Also because of the system for mobile banking, I know that because only I have the mobile telephone so only I can take the money. So it is also ensuring the identity of the person. It is in every way efficient and corruption free. Land digitisation has been my personal agenda for the last four years. Progress is poor because as I said it eliminates so many tiers of bureaucracy. It is difficult but it has begun and it will be irresistible in the course of time. I am sure the next government, if they continue with the programme... If it is an Awami government they will of course continue with the programme. Anyone can make modifications. It will be complete in five years and this completion can be faster because in the meantime we have a pretty good, young group of digital technologists. So even if you take it district by district you can find 64 companies who you can just employ to do the work and you can do it in one year.

What could the impact be on small farmers, for example, who are now depending maybe on micro-finance?

Micro-finance, I will come to that later. There also the small farmer benefits by land records. At the moment land records are in such a way that the farmer, even if he is a Bhagidar does not have rights. It depends on the wishes of the owner and what he may or may not give you. But once you have the land records, you record the decision that this is Bhagidari land so that fellow automatically establishes a right. This will not entitle him to a bank loan because bank loans usually go on good security and all that. His Bhagidari right may not give him the bank loan, there micro-credit is important.
I should tell you that micro-credit has never been promoted as well as it has been done by this government. Despite Professor Yunus’ propaganda all over the world (and I call it false propaganda), the micro-credit system which Mr Yunus used to control did extremely well in various ways. He established a right to credit, yes that is his gift. He emancipated women in a big way by making it available to women, particularly by making housing loans available to them, (only when the ownership of the plot is transferred to her). He also made the system workable and efficient by creating a system which is highly decentralised. It is the branch office of the Grameen Bank where all the decisions are taken. It does not go to the headquarters for approval or anything, except in certain special cases. And he introduced a system, originally by hand now by machine, which puts the levers of control in the hands of the headquarters without being overly intrusive in their control of the loans. These are the gifts of Professor Yunus. The trouble is he is an egotist – ‘I am the most important person, without me this would collapse, so I must continue.’ That is the problem. And since I cannot continue I want to see that it is winded. He will not say that but I am saying it.

How? Not he but his followers started a campaign in 2010 saying do not deposit any money into the Grameen Bank because the government will take it. It is going to the government bank and you know government banks are horrible. So there was a run on deposits in 2010. We recovered in 2011 and now people have faith. Most of the deposits of micro-credit come from the villages, not necessarily from their members because anyone can deposit. The other thing is that this is being run now by a managing director who is not that competent. Everybody knows it; Professor Yunus also knows it because he was his finance coordinator. We have been trying to recruit a good managing director; Professor Yunus is opposing it. He has put in all these girls to say that now we shall nominate the committee to select this fellow and the committee must be headed by Professor Yunus. No way. As long as I am there, there is no way that it can be headed by Professor Yunus because he will ruin the concept of micro-credit.
I am as good a founder of micro-credit as he. I enacted the law in 1983 against the opposition of the entire banking community of this country. I was the Finance and Planning Minister. Professor Yunus has written almost half of a chapter on me and how I helped him. I told him at that time that micro-credit in this country has been practised in this country for a hundred years.
When the Cooperative Act was passed in 1904, from then onwards micro-credit has been an important thing in this country. But it never did well simply because it has always stayed tied to individuals. A good deputy commissioner, a good social leader, he increased the micro-credit institution and it died with him.

It is not only true of Bangladesh. There is a book – I have forgotten the name, I think it is by a British or Australian author, I am not sure – in which he has detailed how credit operations are always tied to individuals. I put this challenge to Professor Yunus – prove that it can sustain without you. I also advised him at that time not to be satisfied with your bank; set up the ground for five Grameen banks. Up to a limit he honoured it, the maximum number of branches of Grameen as late as 2002 was 1,100. After that he changed it. Now micro-credit branches, Grameen branches, are about 22,000-25,000. I would have preferred that if instead of Grameen Bank Dhaka there was a Grameen Bank Rajshahi, and Khulna, and Sylhet, and Mymensingh. But again it also has difficulties. Management of a huge workforce is difficult and you do not always get managers of the quality of Professor Yunus.
We have amended the law and set up the Committee but Professor Yunus went to court and there is a court restriction on nominating any director. What is it? To me it is the destruction of the Grameen Bank. It is like I am not there so there should be a deluge. Sorry, anyway, micro-credit my side of the story.
Since Professor Yunus left, micro-credit has become one of the star shows of this government. 27% of the total credit that is available to the country today is micro-credit. It was around 6-7% when we came into office because we are allowing other micro-credit institutions to function.
Yes, I must say, PKSF (Palli Karma-Sahayak Foundation) which was set up in 1991 has expanded micro-credit operations. Professor Yunus was a party to it. I was not in the government; I was a private person. They get funds from the government or from donors and then they give it to micro-credit organisations. They lend to something like 2,000 micro-credit organisations and they lend to other people. They lend big amounts of money, like something to BRAC, but then they also give small money to small banks.

We have now also set up a Micro-Credit Regulatory Agency which had the blessing of Professor Yunus and another important figure in the industry, who blessed it but they did not totally accept it because there were some differences about rules. These differences were resolved in 2009 under me with their cooperation and concurrence, and it is a vibrant institution now. They have succeeded in reducing the charge (I would not use the term “interest”) for micro-credit. They have fixed it at 27% and Grameen Bank is somewhere around that. But there are others, like ASA, that used to take 40%, 50% and all that. Now more or less all the micro-credit institutions are lending at a maximum charge of 27%.
I say “charge” for the reason that it also includes all of the insurance money if you fail. It also includes your deposits where you get an interest rate which is lower than the market rate. So all these things included it comes to 27%, although the rate of interest is probably 16% or something like that.
Another thing which is still harmful is it is possible for one borrower to take loans from many sources and thus become a permanent victim of the debt trap. Micro-credit institutions are trying to establish a system by which it will be easily known, again via the use of information technology, that this borrower has already taken money from so-and-so. So they will be able to restrict that.

So going a little bit into the United Kingdom communications side, it not only has commercial relationships but historical relationships with Bangladesh. What are the commercial relationships with the United Kingdom that are improving and what do you see in the future between Bangladesh and the United Kingdom?

The United Kingdom is a big partner in trade, although certain advantages that were there in the old days do not exist any more. You know at one time there were the Imperial Preferences; they disappeared some time in the 1960s or 1970s. But traditional ties have remained. Then, we have a substantial Bangladeshi population in the UK. And another thing is that their staple now is curry and rice. Even now we send a lot of people there for this rice and curry industry. I must say, whether it has been a Conservative or a Labour government, Bangladesh has always received very good treatment from the UK. I remember when we first came into existence it was [Ted] Heath and then came Labour; I do not think that it made any difference in our relations. Then came Margaret Thatcher, and even the Iron Lady had good relations with us. I think that all in all the trade relationship has been growing. I think that globally we get much less aid than we used to get in the past.

Yes, you are the second one, India is first and Bangladesh is second in the world.

And this is protected even now, despite your own great difficulties. So I think that we have a very happy relationship with the United Kingdom. And I think that even with the Yunus issue we have a good relationship. I have had some exchanges with [the UK Work and Pensions Secretary] Iain Duncan-Smith. I have some of his letters and have responded to some explaining the situation to him. I think it is understood much better.

Bearing in mind that the United Kingdom is the largest cumulative investor in Bangladesh, in which areas could you still see more investment – in energy, agriculture, infrastructure?

We have a huge deficit in two sectors in particular: energy including power, and transportation. So my pitch is always for more investment in those areas. But, I would also say that the domestic market in Bangladesh is a growing market and a good market at the moment.
I was in government up to 1983, then I left it and came back to government in 2009, exactly 27 years later. In 1983 it was a country of almost 90 million but the market was a market of 10 million. Today, it is a country of 150 million and the market is 50 million. That is the change that we have made in handling poverty and inequality. So it is a growing market. I would advise United Kingdom investors in particular, many of whom know it well, to get in here in the agricultural industry, and the food processing industry. You can export but even for the domestic market you can come to invest here. We have very little love for direct foreign investment; you have given the ranking as 27th, that is now. If you take two years earlier, it was probably 50th or so because in the last two years it has increased a little bit. We crossed the billion-dollar mark only last year.

What are the reasons for this?

MUHITH: A bad image of the country. How were we known until recently? As the country of floods and famines and beggars. Not a “basket case”, that I think we overcame that in the last millennium, but still a poor, disaster-prone region with climate difficulties and all that. But what is not recognised is that in this critical period this market has expanded from 10 million to 50 million. The inequality which is growing in most countries as they remove poverty, we have been able to lick it in the last nine years. The first time that we recorded some improvement was in 2005 to 2010. That is largely because of government programmes; social security, pensions and so on. We do not have a pension system in the country but gradually some kind of pension for the poor and deprived (the invalids and all that), they are taken care of. Then we had a food security programme under which a lot of free food is still distributed. We are thinking that we should reduce it now. Free food may be reduced and we may introduce vouchers so that you get cheaper food.