Banking for economic development [Archives:2003/05/Business & Economy]
The Road Ahead
BY RAIDAN A. AL-SAQQAF
A banker is one who accepts deposits for the purpose of lending and investments in order to make a good utilization of money collected and deposited and hence take part in the economic development of the nation.
However, the key factor for success in banking is collecting and accumulating money from the public cheaply and lending it out at a price as high as possible with the least risk involved in order to keep the cost of capital to the bank to a minimum and the return to a maximum.
Yet, banking appears to be a fully complicated system requiring immense efforts to understand and deal with. In a sense this is true, but still; for a banker to encourage more people to take loans, he has to shift his orientation from the security being offered and how much profits the bank is going to make, to the purpose of the loan; how will giving this loan help in the economic development of the individual and the nation?
Another point is that only those who have and are willing to offer securities to the bank can get the loan, and in turn utilize this money in further investment and so on. In other words those who are rich enough to offer suitable securities can avail of the credit facilities of the bank while other people can’t. And as a result, the rich get richer while others don’t even if they have the ideas, qualifications and experience.
In addition to that, in the last couple of decades there hasn’t been even growth in our urban and rural areas. For example, the number of business transactions in the urban areas have increased at a much higher rate than those in the rural areas. How can we develop our country if we only focus on the urban and neglect the rural areas where at least 60% of our population live?
Therefore, it is crucial that we improve our economic situation through providing credit to those who need it in order to start new small-scale businesses and shift the focus from giving credit to big industries and those who can offer big securities to small scale businesses which have a good purpose and are likely to succeed even though they can’t offer much of a security.
That, and that only will help create more income for the business, more employment and business opportunities, and help the economic revival and development of our country. This is the role banking should play in our economic development.
Remember: Bankers can help economic revival through shifting focus to the purpose of the loan rather than the securities offered, to motivate those with good business ideas to ask for loans and start new small businesses. This in turn will help improve the standard of living and provide employment.