This document discusses the role of banks, credit, and consumer credit in the Bangladesh economy. It provides background on commercial banks and their role in lending money and processing transactions. It describes how banks in Bangladesh, like Dhaka Bank, provide various types of consumer credit to help develop people's living standards. The document outlines the history of banking in Bangladesh and the role of specialized financial institutions. It also discusses issues with credit administration in the past, as well as the success of the Grameen Bank in providing loans to the poor.

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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
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2. 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.
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.
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3. 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.
The transformation of finance priorities has brought with it problems in administration. No
sound project-appraisal system was in place to identify viable borrowers and projects.
Lending institutions did not have adequate autonomy to choose borrowers and projects and
were often instructed by the political authorities. In addition, the incentive system for the
banks stressed disbursements rather than recoveries, and the accounting and debt
collection systems were inadequate to deal with the problems of loan recovery. It became
more common for borrowers to default on loans than to repay them; the lending system
was simply disbursing grant assistance to private individuals who qualified for loans more
for political than for economic reasons. The rate of recovery on agricultural loans was only
27 percent in FY 1986, and the rate on industrial loans was even worse. As a result of this
poor showing, major donors applied pressure to induce the government and banks to take
firmer action to strengthen internal bank management and credit discipline. As a
consequence, recovery rates began to improve in 1987. The National Commission on
Money, Credit, and Banking recommended broad structural changes in Bangladesh's system
of financial intermediation early in 1987, many of which were built into a three-year
compensatory financing facility signed by Bangladesh with the IMF in February 1987.
One major exception to the management problems of Bangladeshi banks was the Grameen
Bank, begun as a government project in 1976 and established in 1983 as an independent
bank. In the late 1980s, the bank continued to provide financial resources to the poor on
reasonable terms and to generate productive self-employment without external assistance.
Its customers were landless persons who took small loans for all types of economic
activities, including housing. About 70 percent of the borrowers were women, who were
otherwise not much represented in institutional finance. Collective rural enterprises also
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4. could borrow from the Grameen Bank for investments in tube wells, rice and oil mills, and
power looms and for leasing land for joint cultivation. The average loan by the Grameen
Bank in the mid-1980s was around Tk2,000 (US$65), and the maximum was just Tk18,000
(for construction of a tin-roof house). Repayment terms were 4 percent for rural housing
and 8.5 percent for normal lending operations.
1.3 Role of Consumer Credit in Bangladesh Economy
Commercial banks play an important role in the financial system and the economy. As a key
component of the financial system, banks allocate funds from savers to borrowers in an
efficient manner. They provide specialized financial services, which reduce the cost of
obtaining information about both savings and borrowing opportunities. These financial
services help to make the overall economy more efficient. One of the important financial
services is consumer credit.
In recent years, there has been a rapid increase in consumer credit. At the same time,
despite high average annual growth rates in this segment for the past three years, the
market is set to expand further. In our country, commercial banks introduce many types of
consumer credit, like, house loan, car loan, personal loan, education loan, teacher loan, any
purpose loan, marriage loan, vacation loan etc.
1.4 History of the Bank
Bangladesh economy has been experiencing a rapid growth since the '90s. Industrial and
agricultural development, international trade, inflow of expatriate Bangladeshi workers'
remittance, local and foreign investments in construction, communication, power, food
processing and service enterprises ushered in an era of economic activities. Urbanization
and lifestyle changes concurrent with the economic development created a demand for
banking products and services to support the new initiatives as well as to channelize
consumer investments in a profitable manner. A group of highly acclaimed businessmen of
the country grouped together to responded to this need and established Dhaka Bank
Limited in the year 1995.
The Bank was incorporated as a public limited company under the Companies Act. 1994.
The Bank started its commercial operation on July 05, 1995 with an authorized capital of Tk.
1,000 million and paid up capital of Tk. 100 million. The paid up capital of the Bank stood at
Tk 1,289,501,900 as on June 30, 2006. The total equity (capital and reserves) of the Bank as
on June 30, 2006 stood at Tk 2,188,529,224.
The Bank has 37 branches across the country and a wide network of correspondents all over
the world. The Bank has plans to open more branches in the current fiscal year to expand
the network.
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5. The Bank offers the full range of banking and investment services for personal and
corporate customers, backed by the latest technology and a team of highly motivated
officers and staff.
In our effort to provide Excellence in Banking services, the Bank has launched Online
Banking service, joined a countrywide shared ATM network and has introduced a co-
branded credit card. A process is also underway to provide e-business facility to the bank's
clientele through Online and Home banking solutions.
Dhaka Bank Ltd. is the preferred choice in banking for friendly and personalized services,
cutting edge technology, tailored solutions for business needs, global reach in trade and
commerce and high yield on investments. (Dhaka Bank, 2006)
The main activity of the Bank is banking related business. The activity includes deposit
collection, extending credit facilities to different corporate organizations and small &
medium enterprises. The Bank issue ATM Cards to the accountholders and it issues Credit
cards to the customers through its Personal Banking wing. Moreover, it has different types
of loan products such as Personal Loans, Car Loans, Any Purpose Loan, Vacation Loans etc.
Being the member of Dhaka and Chittagong Stock Exchanges Dhaka Bank helps people to
perform share trading. The accountholders of the bank can enjoy the SMS banking and
Internet banking facilities, which is a part of modern technology.
Besides conventional banking Dhaka Bank Limited offers Shariah-based Islamic Banking
Services to its clients. The Bank opened its first Islamic Banking Branch on July 02, 2003 at
Motijheel Commercial Area, Dhaka. The second Islamic Banking Branch of the Bank
commenced its operation at Agrabad Commercial Are, Chittagong on May 22, 2004. Dhaka
Bank Limited is a provider of online banking services and any of its clients may avail Islamic
Banking Limited services through any of its branches across the country. (Dhaka Bank Ltd.)
2 Objective of the Research
2.1 To understand how to prepare a research work
2.2 To understand consumer credit
2.3 To understand consumer credit marketing system
3 Literature Review
3.1 Nonprofit credit counseling organizations have been helping consumers manage
debt for more than 50 years. Credit counseling concerns about conflicts of interest
and the emergence of a new type of credit counseling agency have triggered
significant legislative and regulatory activity. The older counseling organizations rely
primarily on credit-factors for their revenues, and this may create the appearance of
a conflict of interest. These concerns and others have triggered significant legislative
and regulatory activity. The credit counseling industry is an important one, but its
activities and effects are not widely understood. Still the available research does give
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6. us some insight into the effects of consumer credit counseling and debt
management plans on borrower behavior and the implications for the industry and
regulation. (Hunt, 2005)
3.2 By using consumer testing systematically, the Federal Reserve is taking an innovative
approach to revising its regulations and improving the effectiveness of disclosures.
Consumers who do not have accurate information and an understanding of what
that information means will have difficulty choosing among competing products and
making decisions that are in their best interest. We are finding about consumers,
how they use information and how we can simplify disclosures and enhance
consumers’ understanding. Better-informed consumers will strengthen market
competition. Consumer testing for credit cards will also help us improve mortgage
disclosures and contribute to a more robust, competitive, and responsible subprime
market. (Kroszner, 2007)
3.3 As credit management professionals everybody have a clear responsibility to identify
and report frauds to the police. If we all treat fraud more seriously, the losses need
not continue rising. There are also direct benefits to the businesses we represent. In
credit, collections, risk management and now fraud prevention, main thing is that it
is much less costly and less effort to prevent a fraud than to attempt to collect a
difficult debt or a debt that has arisen as a result of deception. (Hurst, 2003)
3.4 Little is known about TANF recipients and leavers use of consumer credit. TANF
families are 70% less likely than other low-income families to have a bank account
and much more likely to have participated in a credit counseling program. Race also
matters when it comes to accessing mainstream banking and credit systems.
Targeted programs help TANF families gain greater access to the financial
mainstream. When it comes to specialization programs, however, those involved in
the welfare system are not very different from other poor families. However, by
virtue of their formal involvement with TANF, this population can be more efficiently
served than other low-income populations. (Stegman & Faris, 2005)
3.5 The act of seeking counseling is a valuable “early warning” indicator of financial
trouble. Telephone and face-to-face delivery appear to generate equivalent
outcomes. Creditworthiness improved for debt management plan participants.
(Plunkett, 2006)
4 Methodology of the study
Secondary and primary data were collected for the study. Male and female were selected as
sample unit. 20 male and 10 female were interviewed for this study. No statistical tools
were used for this study.
5 Findings
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7. 5.1 Introduction
The main activity of the Bank is banking related business. The activity includes deposit
collection, extending credit facilities to different corporate organizations and small &
medium enterprises. The Bank issue ATM Cards to the accountholders and it issues Credit
cards to the customers through its Personal Banking wing. Moreover, it has different types
of consumer credit products such as Personal Loans, Car Loans, Any Purpose Loan, Vacation
Loans etc.
5.2 Analysis
Money is any good or token that functions as a medium of exchange that is socially and
legally accepted in payment for goods and services and in settlement of debts. Money also
serves as a standard of value for measuring the relative worth of different goods and
services and as a store of value. Money is essential to everybody and its make the life simple
and smooth. It’s also facilitating our life standard. Credit is denominated by a unit of
account. Unlike money, credit itself cannot act as a unit of account. However, many forms of
credit can readily act as a medium of exchange. As such, various forms of credit are
frequently referred to as money and are included in estimates of the money supply. Peoples
use credit for fulfill their needs. They use it to buy required items or execute their usual
demand. The credit can be Personal loan (Motor Cycle, Air Conditioner), Computer loan, and
Car loan etc. They use their credit as their emergency needs. Some peoples think that with
the credit they have enabled to buy their necessary items, somebody thinks that the extra
amount will help them to meet the expense.
From the survey which we have done before, we can see that from the Figure 1, 40% people
think that consumer credit meets enjoying their life, 20% think that consumer credit does
not meets enjoying their life and rest of the people does not have clear concept about that.
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8. Figure 1 : Consumer credit meets enjoying your life.
In Figure 2 we can see 60% people said that consumer credit increase their standard of
living, 20% people said ‘No’ and rest of the people said some times consumer credit increase
their living standard.
Figure 2 : Consumer credit increase your standard of living.
From Figure 3 we can able to understand that, 40% people agree with, consumer credit
relieves their distress, 20% people does not agree, 20% people said some times consumer
credit relieves their distress and 20% said bit off.
Figure 3 : Consumer credit relieves your distress.
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9. Some people thinks that consumer credit developed and promoted mass prroduction for
durables goods. Consumer credit promoted high employent and in the result of survey we
can see from the Figure 4, that is 40% people agreed with the statement and rest of the
respondent gave mixed answers. In sour country consumer credit create more wealth and
employment. Sometimes it’s preseve our sevings and the bank offered us convenience
credit. We took credit for our pressure of necessary and sometimes for early consumption.
Figure 4 : Consumer credit create employment.
In our questionnaire we found that, most of the family has the monthly expenditure of
minimum Tk. 14,500/= to maximum Tk. 38,700/= and we assume their household income
should be higher than their expenditure and that is acceptable as their borrowed amount.
From the response of question about adjustments because of financial need. We found
some mixed answers because of the respondents were mixed credit borrowers. We are
showing the answers in the Table 1 as follows:
Table 1 : Response from the borrower about the Adjustment of financial needs for
borrowing credit
Statement Strongly
agree
Agre
e
Neutral Disagree Strongly
disagree
Borrowed or used credit more than you
used to
40% 40% 20%
Changed food shopping or eating habits
to save money
20% 40% 40%
Reduced households utility use 20% 40% 40%
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10. Cut back on social activities and
entertainment expense
20% 40% 40%
Cut back on entertainment expense 20% 40% 40%
Postponed medical or dental care 60% 40%
Fallon behind in paying bills 40% 60%
Not registered for classes of your
children
40% 60%
Cannot afford holiday 60% 40%
Cannot afford night out 40% 60%
Cannot afford friends or family for
meals
20% 40% 40%
Cannot afford special meals 60% 40%
Cannot afford other than second hand
clothes
40% 60%
Cannot afford leisure or hobby activities 100%
Economic pressure can impact of your
mental health
40% 60%
Create tensions in marital relationships 40% 60%
Create conflict between siblings 100%
Affect the quality of the parent-child
relationship
100%
Impact the school performance of
children
40% 60%
In the view of Table 1 we can see that, the respondents have not faced any problems to
maintain their family and they don’t need to make enough adjustment for borrowing
credits.
In our survey we found different kinds of borrower. The purposes of credits are car loan,
personal loan, computer loan. They respond some questions in their credit category.
For taking car loan the borrower gave some answers about their changes in lifestyle
activities, interest as lifestyle variables, opinion attitudes as lifestyle variables, etc. They
strongly agree with the consumer credit increased their security & comfort ability to go to
office or working center. They though it’s increased enjoyment and comfortability by visiting
enjoyable place. Consumer credit increased their family member’s facility to go to a
function, working center, relative house, school, college, shopping malls etc. but they have
neutral view for using durable products differ their lifestyle from other of their society and
tour.
In personal loan, same kinds of questions were asked to the respondents. They gave almost
same answer for their questions. The borrowers used their personal credit for using
purchasing air conditioner, motor cycle, etc. Another credit borrower was take computer
loan. She thinks its help to find, store, organize and disseminate information and improve
her ability to maintained account quickly & correctly. It’s also helps to save time because of
getting information.
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11. 5.3 Problems
In this assignment no such problem found. The borrowers also have not enough problems to
take the credit and repay the borrowing amount.
5.4 Recommendation
As we mentioned the borrowers have not enough problems, so we don’t have any
comments or recommendation on that. In the overview we think, the bank should make
easy the procedure of consumer credit system and generalize that to the mass people.
There are some restrictions for consumer credit, which is not so easy to fulfill for everybody.
So the restrictions for consumer credit should be simpler.
6. Conclusion
In conclusion, the rights of Consumers have to be treated fairly and to have more control
over their financial affairs. They need to be in a position to make more informed borrowing
decisions and to have clear and regular information on the state of their financial affairs.
Consumers need to be able to challenge unfair conduct by lenders and, where disputes do
arise, have access to a quick and effective means of resolving them.
Nothing damages consumer confidence quite like being treated unfairly or simply ripped off.
This affects not only the credit industry, but also the health of the economy as a whole.
Responsible lenders have the right to operate in a healthy and competitive credit market,
where business success is based on sound investment decisions and good customer service.
We have to build in the Bangladesh a consumer credit market that is fair, open and
competitive: one that protects the interests of consumers and allows lenders to compete on
a fair and equal footing.
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12. 7. References
Bashar, Shabbir A, “Bangladesh : Economy, Finance and Banking”, Business and Investment in
Bangladesh, http://www.betelco.com/bd/bdsbus/economy.html
Dhaka Bank Ltd. www.dhakabankltd.com
Dr. Econ (2001), “What Is the Economic Function of a Bank”, Educational Resources,
http://www.frbsf.org/education/activities/drecon/2001/0107.html
Hunt, Robert M, (2005), “Whither Consumer Credit Counseling?”, Business Review - Federal Reserve
Bank of Philadelphia, Fourth Quarter 2005
Hurst, Peter, (2003), “Organised fraud - the consumer credit industry's response”, Credit
Management, 2003
Kroszner, Randall S, “Creating more effective consumer credit disclosures”, Financial Services
Research Program Policy Forum, 23 May, 2007
Plunkett, Travis (2006), “CFA and American Express Report on First Phase of Research on Consumer
Credit Counseling Effectiveness”, American Express, June 12, 2006
Stegman, A. Michael & Faris, Robert (2005), “Welfare, Work And Banking: The Use Of Consumer
Credit By Current And Former TANF Recipients In Charlotte, North Carolina”, Journal of
Urban Affairs, Volume 27, Number 4, pages 379-402
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