Connecting the poor to the capital market

Share Shah

Long ago when the bureaucrats were just and thoughtful someone sitting in the ivory tower of the Pakistan Industrial Development Corporation (PIDC) had a bright idea. Long before this idea PIDC which was later bifurcated into two wings --East Pakistan and West Pakistan had been the pioneering institution for setting up ventures. It was responsible for the first and the largest jute mill -the Admajee Jute.
   It was responsible for establishing the Karnaphuli Paper Mill and in fact many very large organizations which gave us our initial industrial and manufacturing base. Some of the companies which are traded today in the stock exchanges were set up by this conglomerate. The Heidelberg Cement plants, the Eastern Cables are some of the enterprises which are the favourites of the investors.
   The PIDC strategy was to find entrepreneurs with established track record and put large industries to the management who could run them. Alas our jute industry dwindled to nothing and was looted while the people look on. Another strategy of the founding fathers of PIDC was to link these large industries to the nascent capital market.
   In the 1950s Adamjee was a hot stock. Karnaphuli Paper which was divested through the stock market was another. Much later in late 1960s last effort was to divest a textile mill and a sugar mill. While the effort succeeded, these companies were taken over by the nationalisation order of 1972. Thus putting a death nail into the coffin of the free market.
   I am sorry to regress from the main theme of this paper which is connecting the poor to the capital market. The idea was great but perhaps the beneficiaries of the scheme were still not yet ready to appreciate its merits. To cut a long story short what was actually done was that primary school teachers were each given a share in the start up the Quami Jute Mill set up in Sirajgunj. The mill was started and functional but the school teachers were not happy with this piece of paper. They wanted their money back and soon enough these shares were traded at a discount and eventually were taken over by interested quarters.
   A similar effort was made in the 1980s with the floatation of some former PIDC companies which were managed by the spun off sector corporations which were earlier divisions of the EPIDC. The strategy was to ensure some participation of the employees by giving them share placement prior to the public offer for sale. There seemed to be a strong argument in its favour because by giving the employees a stake, it would augment their interest in the enterprise. But what really happened was the employees were soon talked out of their shares and the real beneficiaries were not the stakeholders but the savvy brokers.
   Much later when the stocks were listed and even much later when more and more people started knowing about the fortunes of the market these people realized that they were duped. And this is one reason why the general feelings about brokers on company boards are restrictive and frowned upon. The whole broker community has suffered because of the chicanery of a few stock brokers.
   A friend who is a French national working in the Hong Kong stock market once told me that she had worked as an intern in the Grameen Bank and had found Dr Yunus captivated by the idea to connect his poor to the capital market. His idea was at that time very fuzzy. But today we see the connection of the Grameen companies to a mutual fund which is now in the process of starting another mutual fund. On paper this is a great connection. The poor are now connected to the capital market. But one question that really remains unanswered is that do the poor really know about the benefits of this connectivity?
   The ways things are the real beneficiaries are the Grameen companies which have invested large sums in the fund and of course the fund manager who is going to be making a lot of money. Perhaps not unlike the primary school teachers and the employees of the divested companies, the poor would have got more out of the money if spent directly in augmenting their earning power. It would be prudent if Grameen Bank would sit down and re-evaluate its strategy after all it knows that the GrameenPhone did very well but did not do what the Grameen Bank wanted. There are no more telephone ladies because everyone has a cell phone!

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Dr. Gazi Mahabubul Alam

Today Islamic banking is very popular. Not only the branches of Western bank located in the Islamic region but also the branches located closer to the Muslim community in the Western countries provide Islamic banking service. Theoretically little difference may be noticed within the general and Islamic banking system. Research needs to be conducted what difference really exists between general banking system and Islamic banking system.
   People often misled about the genesis of the banking system. They always correlate some facts of Western countries especially of Italy where banking system began. However, some forms of banking system were introduced by the disciples and followers of Prophet Mohammed.
   Scholars observe that regular practice of decent and applicable law and its proper implementation develop an atmosphere of ethics. The business law for banking sector is an old phenomenon. The banking law is being revised frequently. Historians say that increase of frauds and dishonest people forces the society to have banks.
   Banking history shows that a bit solvent group but poorer economic background deposed their little 'hard saving' in the bank. They did not spend their deposited money even in a difficult situation as they thought they might need money while they will be in more serious crisis or danger. Evidence from a number of countries shows that keeping deposit, a significant number of depositors died because of existing pattern of law; their dependents were unable to draw deposited money and so 'nominee system' was forced to be introduced latter. This situation provided a scope for clever bankers to be affluent in over night. Increase of advantaged group in banking system followed a competitation that lead to have a good banking system by havening rules, regulation, legislation and public policy.
   Micro-credit is not rigorously considered as a product of banking system albeit their criteria of function and their schemata must be bordered by the concept of banking. Within the current climates, NGOs are mainly working in the area of micro-credit or micro-finance.

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