Dr. Atiur Rahman :
Throughout my professional life – be it in the academia or in the policy world – I have always believed that for finance to be sustainable, to save capital from itself, it needs both human and humane capital. Finance needs skills that can serve not only those who provide capital but, more importantly, the larger society.
Human capital has to be humane.
When I look back at our national journey in Bangladesh, starting in 1971, when, in our early years, in a war torn country, facing global commodity shocks of the 1970s and famine at home, we had to defy gravity and everyone’s predictions just to survive, and when I also look back at my very own humble beginning as the son of a small peasant, I have always felt a deep passion for including the excluded. My research therefore mostly focused on how to include the marginalized poor into the formal system, economic, financial, and social.
Back in 2009, when I was appointed as the Governor, my first and overwhelming thought was: ‘what can we do to make the financial sector more inclusive and humane?’ I have to confess the answer was neither clear, nor obvious. Unsurprisingly, these questions rarely have a single or simple solution. After a seven year journey, I still have been asking the same question.
From academia to the world of central banking, I took with me a lesson from my three decades of field work that any such goal has to be a long and arduous journey. To be more precise, it has to be a caravan journey, not a solo sprint. Naturally, as you all appreciate as leaders in your institutions and communities, these journeys are often bumpy, facing resistance and skepticism, both from within and outside; and need constant experimentation and evolution.
So right at the beginning of my seven years in Bangladesh Bank, my first strategic priority was to transform the institutional philosophy from ‘I’ to ‘We’. To create an interconnected and efficient financial community, we went for massive digitalization. The goal was to democratize finance, to try to reach the farthest, at the quickest possible pace, and with lowest costs.
Many of you when you hear Bangladesh, the image of floods, cyclones come to your mind. True, Mother Nature has always not been that kind. Because we are the most densely populated country in the world, barring some city states, we also live very close to each other and to Mother Nature.
We therefore wanted to nudge finance to be more respectful toward Mother Nature, to hug the base of the pyramid a bit tighter. After a seven-year-long journey, what I find most gratifying is that many of these initiatives have now grown deeper roots, growing in the local soil, far exceeding the initial expectations of both the skeptics and the supporters.
The journey continues and has to continue.
REFRAMING FINANCIAL SYSTEM FOR SUSTAINABLE DEVELOPMENT
Weather here with the backdrop of great changes and an uncertain global environment. The global aspiration of SDGs of ‘leaving no one behind’ is both just and prudent, as the world is facing complex forces that are pulling societies in different directions, with rising inequality and populism in a connected, digital world. And we have seen abundant reflections of the both during Brexit and recently concluded US Presidential election debates.
We are, therefore, in the middle of a journey and looking for appropriate toolbox of measures to i) support capital reallocation to promote real economy for all, ii) ensure better risk pricing reflecting market principles, and iii) provide appropriate governance and practices to foster an environment of trust and stability.
The global agreements, such as SDGs, have created an environment to systemize and scale up some of the early innovations we are witnessing. This broader consensus in the post-GFC world focuses on three vital goals: efficiency, effectiveness and resilience. These goals can materialize only through: i) greater collaboration between private and public sectors; ii) better understanding between the national and international levels, and iii) complementing public finance impacting the real economy.
Mark Carney of Bank of England rightly said: “Achieving SDGs will require mainstream finance.”We therefore need to build a new system-one that delivers sustainable investment flows, that respect market principles, social cohesion, and environment.
HUMAN CAPITAL FOR TOMORROW’S FSI
As you all are experiencing, technology is now transforming finance at an unprecedented pace. It is a powerful force and a reality that cannot be denied or defied. It has to be harnessed. But managing technological revolution requires a rapid evolution of market leadership, policy leadership, and regulatory innovations.
Human capital development forms the critical anchor of that evolution of leadership and innovations.
Tomorrow’s finance therefore would require capital – both organizational and human – that is consistent with and brings out the best of the powerful forces of globalization and technology. Needless to mention that the pace of these changes can feel overwhelming in developing economies like ours.
A necessary condition for a successful transition is the skill set of the workforce. Competitive edge is all about skills, especially in a human capital-intensive industry like finance. With global demand and economies in constant churning, managing financial institutions therefore calls fora more flexible, team-centric, tech-savvy, and diverse workforce.
In today’s finance, technology is helping with the diffusion of service delivery. As a result, most decisions are being decentralized to the points of service delivery. With decentralization comes the need for self-supervising team work. The old hierarchical organizations with a sequential chains of command is not flexible enough to cope with this “new normal”.
Technology and demography are intertwined. Young can adopt technology faster and better. If we look at the big picture, we see the Millennial employees constitute a third of the workforce. We therefore need to harness the creative energy of the youth more efficiently, especially in the finance industry. They need both techniques and ethics. Ethics can and should anchor technology.
When it comes to talent development in youth, the feedback from the stakeholders is important to match demand with supply. There is certainly a need for ‘one-stop’ wealth-management training for young graduates, encompassing products, ethics, inclusion and compliance to create a healthy pipeline of talent who can grow and serve the industry.
The retail and corporate banking need staff who can keep up with changing products, cross-border network, and better communication skills. Investment banking needs employees with better international perspectives so that they can grasp cross-border demand for the financial products and their supervision. Regulators can encourage human capital accumulation by developing a competency framework to deepen on-the-job learning.
Industry can proactively work with the universities and the training centers to prepare the university graduates; provide information on the opportunities and the skill sets in demand. Central Banks can serve as a mid-wife to bridge the gaps between industry and academia by bringing them together. The universities, particularly the business faculty, must work as match makers between the FSI and the new graduates. Apprenticeship or internship programs can also help with two-sided matching.
The type of human capital we are talking about cannot be developed just within an organization. This requires a wider collaboration among industry, academia, professional bodies, and regulators. They can all work together to develop the curriculum, to create internship and mentorship programs, to promote job fairs and professional training. Professional bodies, for example FAA can play a pro-active role in this case. I am confident FAA can and has been providing such opportunities at home and abroad.
In short, it takes an ecosystem, or more aptly, a village, to help the finance industry rise up to the challenges of time, technology, and the temperament of the world which is indeed in a flux. Industry alone cannot do this. Academia or regulator alone cannot do it. Young students alone cannot do it. We all need to come under a united umbrella.
In Bangladesh, we embarked on our humble journey to forge that umbrella.It may be a small, humble umbrella. But it is an umbrella approach.
HUMAN CAPITAL DEVELOPMENT: THE BANGLADESH BANK EXPERIENCE
Our journey in the Bangladesh Bank has been exciting, of course, full of challenges, but thankfully rewards too. I feel fortunate to have come from an academic background of participatory research and field work. I had natural affinity to and conviction in a participatory approach to innovation and management.
Of course, participatory approach does not always guarantee the certainty of a quick and neat solution. It is often noisy and iterative, but thankfully more robust too, if we can be sufficiently patient and attentive. We can and do make mistakes but then turn around to use the lesson to devise a more workable solution.
After my appointment, I started with the mission of changing the mindset within the regulators in Bangladesh to promote the idea that financial inclusion along with better supervision implies more stability. To deliver that agenda, we needed to revamp the human capital and ultimate instill a culture of learning.
In our first management retreat, back in 2009, a few weeks after I took up my new role, when I pleaded with the managers to take a hard look at the business-as-usual approach, I could sense there were strong reservations. That reservation did not dissipate in a week or a month or even a year.
They were continuously encouraged to find the problems within their institution and of the industry, and think about solution. The mountain of inertia was high and the burden of tradition was heavy. They eventually came out with a five year strategic plan which they pledged to revisit every year. I can tell you that they came back every year and made such retreats to brain storm. I wanted to make sure we encourage innovation while maintaining continuity, not always an easy balancing act. We are management team to be on the listening mood. We actively encouraged innovation, opened discussion within departments. After a slow, quiet start, each department came up with innovative ideas about how to make their own departments more user-friendly. This was a sea change, since the regulators traditionally focused more narrowly on the culture of compliance, often overlooking the costs or the ultimate objective. The banking community, including the Bangladesh Bank, all started a customer feedback mechanism, promoting accountability. We also wanted our young recruits to get a sense of the real economy and who the industry should ultimately serve. We wanted to deepen the ethical anchor, which is badly needed in a society undergoing four critical transitions: industrialization, urbanization, technology, and demography.
We encouraged our new recruits to go two weeks of rural immersion to learn more about the rural economy, agriculture sectors and SMEs. We started offering extensive education and training opportunities, at home and abroad. We tried to revamp our exchange program with various central banks and to upgrade our central bank training institute and Bangladesh Institute of Bank Management. We also leveraged online financial certification programs, such as CFA.
To give our staff a broader development philosophy, we tried to accelerate our work on gender equity in staffing and recruitment. Gender equity is an important pillar of our development priority. Needless to say, we have a long way to go. The Bangladesh Bank provided a gender policy and established one of the best child cares centers in the country. Other financial institutions have started following suits.
The central bank also got the finance industry on board to provide corporate social responsibility support for the education and health of the extreme poor households, skill development for their children and addressing climate change challenges for the coastal and riverine people.
To encourage, leverage, and manage technological transition, Bangladesh Bank formulated an indicative guideline for mobile financial services in 2012. I am happy to share Bangladesh is now the second largest MFS providers in the world, with 35 million customers. Fast adoption of technology in the payment system provided the needed speed for monetary transmission channels and thus helped attain sustainable growth for the country.
Bangladesh Bank also provided leadership to help the industry embrace green financing policies and push the green growth agenda of the nation. The industry was also incentivized through various refinancing schemes and recognition models to give more credit to the small entrepreneurs, particularly women entrepreneurs.
Despite these weaknesses, the human capital in FSI has been very supportive to the socially responsible financing strategy that the central bank has been leading over years. I am extremely thank to the industry to ask difficult and critical questions to bring realism, to inject sustainability in many of our initiatives. Agriculture feeds us and employs around 50 percent of our workers. To lift up the economy, we have to lift up agriculture. As many as three hundred thousand sharecropper families, mostly women headed, have been receiving refinanced low cost agricultural credit through partnership between the central bank and largest NGO called BRAC. In fact, more than USD 500 million worth agricultural credit is yearly given through the innovative partnership between private banks and the MFIs. The bank’s support for the exporting textile sector is well known to many.
All this innovations in financial service industry could be made possible only because of the motivated human resources engaged in this sector. We had to constantly challenge, innovate, and implement new ways. It is the people, it is their evolving human capital that provided the escape velocity for the reform programs and initiatives. It is too early to tell how many of these programs will evolve and reach the desired destinations. But one thing I can tell you, in fact share with you is: if we want capital to be humane, we have to invest in human capital. Finance has to serve not just the shareholders but the society and the environment. It is a long journey.
Let’s continue this journey. Not Alone. But as a caravan. With human and humane capital.
(Dr. Atiur Rahman PhD is a former Governor of Bangladesh Bank, now serving as Professor, Department of Development Studies, University of Dhaka)
