Migrants sponsored banking (MSB) system: NRB bank for Bangladesh

Migrants Sponsored Bank (MSB), that combines commercial viability with patriotism, is a new idea in which initial capital funded by non-resident nationals [NNs], deposit supposed to collect mostly from NNs and lend the subsequent into home country. It is also known as NRB Bank in Bangladesh. The bank has multiple objectives within its single structure and typical deposit-lending functions:

The first objective is to be a platform of NNs for their better investment into the home economy and
Long term objective is to reduce dependency on international financial institutes [IFIs] for external financing in home economy.

In the backdrop of the long-standing demand of Bangladeshi diaspora, Md. Bayazid Sarker an economist and Central Bank official of Bangladesh first developed a theoretical structure of such a bank and made the formal announcement on December 15, 2007 in Dhaka It is contained in a research paper entitled “Alternative Resource of World Bank for External Financing in Bangladesh: A Foreign Remittance Approach”.^[1]^[2] Government asked to Bangladesh Bank [BB] for its feasibility and after long policy review BB called for NRB bank applications in 2011 and finally issued three NRB Bank [Non-resident Bangladeshis Bank] licenses in 2013 though newly born banks need much effort to come into its basic and broad objective. Newly born NRB Banks are NRB Commercial Bank Limited, NRB Bank Limited and NRB Global Bank Limited ¹³. Bangladesh is thus a pioneer in introducing migrants sponsored banking system.^[3] The MSB can be better fit in developing or emerging economies having a good base of diaspora or NNs in abroad. Any labor exporting developing or emerging economy can introduce the new banking idea when they can name their MSB as NRN for Nepal or NRK of Kenya and so on.

Defining migrants or non-resident nationals [NNs] as sponsor of migrants’ sponsored bank.

Migrants or ‘non-resident nationals’ can be defined as migrants/expatriates, working or residing in abroad may have other country’s citizenship or different forms of permanent resident status. Those people can be treated as non-resident nationals or migrants for their home country or the country where they born having home country’s language as mother tongue. Sponsorship may be extended up to the first generation of migrant subject to satisfy few more conditions imposed by the home country’s discretion. Since receiving second country’s citizenship, the term is better to defined as ‘migrants’ or ‘non-resident nationals’ rather than non-resident citizen. Hence, the idea accepting country may redefine its own migrant’s sponsorship; however, the basic concept is to bring sponsor money from working and earning abroad.

Migrants’ Remittances

Expatriates’ Remittance or workers’ remittance or migrants’ remittance or wage remittance or inward remittance^[4] whatever it is called, it means a non-resident national earnings from abroad against any non-export activities. In case of Bangladesh the receipt amount, reported by scheduled banks to Bangladesh Bank through prescribed FCS-7 statement. Thus, remittance from migrant Bangladeshi, Bangladeshi businessman in abroad are also included. It includes in form of Drafts, Telegraphic Transfer (TT), Electronic Money Transfer (EMT) and purchase of Travelers` Cheques (TC). Though bill purchases are also treated as inward remittance but it cannot be mentioned as wage earners` remittance or migrants’ remittance.

Structure and functions of migrants’ sponsored bank

The major Stakeholders of the proposed bank may be as follows:

Sponsor Directors: Potential non-resident nationals can bring capital to be a sponsor director. Even first or second generation of non-resident nationals can be allowed under some conditions. They can be awarded as CIP [commercially important person] in light of such existing facilities in Bangladesh, US Dollar Premium Rules, 2002^[5] and US Dollar Investment Rules, 2002.^[6] Home country government may hold limited amount of MSB shares which will not be treated as controlling share. The example used for Bangladesh, may eligible for other similar economies as well. An entity registered in home country or other than home country, hundred percent owned by nonresident nationals can be allowed to be a sponsored shareholder under additional conditions imposed by countries’ own discretion. For allowing entity, respective financial regulator (Central Bank or Financial Services Authority) can include some condition prioritizing their non-resident nationals’ best interest in home country.
Share Holders: All non-resident nationals should have priority to buy ordinary shares or preference share or other form of share. Even any entity [in form of associations/group/company/group of companies/joint venture/firms] hundred percent owned by non-resident nationals may get preference to have the shares. For allowing entity, respective financial regulator (Central Bank or Financial Services Authority) can include some condition prioritizing their non-resident nationals’ best interest in home country. First or second generation of non-resident nationals can be allowed under certain conditions. A limited number of shares can be sellout to resident national through secondary market. Employees may have priority to buy those shares.
Depositors: Wage Earners can be the main depositors in form of foreign currency initially. Wage Earners/expatriate nationals/ non-resident nationals may keep their deposit for certain duration before disbursement to their beneficiaries or repatriating to the source country.
Borrowers: Foreign currency involved long term financing project (public/private), Sector Corporation that needs to have foreign exchange financing and the private sector entities to take external debt at local or international rate. Other usual types of lending can be allowed in analyzing the market condition and country’s own prudence. Even government can borrow introduce foreign currency denominated special Treasury Bond [Eurobond] if require, and sell it out to the MSB.

Other functions may be as follows -
(i) Introduce some expatriate friendly banking product that will attract expatriates’ investment. One of the option may be foreign remittance backed local currency bond or corporate bond that can help the local public debt minimizing the exchange risk or ‘Dutch-disease’ problem.
(ii) Ensure safe, secured, cheap and speedy remittance delivery services.
(iii) Help to other banks for remittance delivery services. It means the proposed bank should be the complementary in remittance delivery services rather than competent.
The above functions with proposed structure can solve the remittance sending and delivery problems as well as to minimize the hundi or co-existence of informal remittance system. It can ensure a better investment opportunity for non-resident nationals to home economy with better return. The proposed financing in long-term foreign currency involved project may reduce counties’ irrational dependency on World Bank, IMF or any other IFIs. Finally, it will carry on long run multiple positive impacts to the home economy. As a result, this proposal can be mentioned as ‘‘one stop multi-solution approach’’ for remittance, foreign direct investment and ultimate development in Bangladesh and similar developing economies. In near future, it will be able to finance to selective government project, like construction of bridges (such as Padma Bridge in Bangladesh) or highways, nuclear power plant, mine exploration project, deep seaport project, beach development project, heavy industry project at international lending rate. At least one decade successful operations possibly make the bank efficient to be development partner to other developing countries.

Management of migrants’ sponsored bank

Proposed migrants’ sponsored bank can be run under private management following home country regulation and international best practice. The migrants’ sponsored bank should be registered as a banking company under respective state laws. Corporate governance shall be conducted by non-resident nationals following home country regulation and international best practice. If home country government is in the board, should ensure not to dominate over board decision.

Benefits, drawbacks and reinvestment

Informal (hundi) remittance can be transformed into formal or official channel.
Economy may receive more migrants’ remittance which is non-debt bearing foreign asset;
As a unilateral transfer, remittance may strengthen BOP of home country results local currency appreciation.
Sponsor capital can directly influence to favorable BOP and secondary effect of local currency appreciation.
Most of the remitted foreign currency can be used in productive purposes.
Fund collected from abroad but invested into the home economy having minimum foreign exchange risk or mass repatriation risk.
Economy can get additional investable money for fostering growth and development
Both financial and intellectual effort from non-resident nationals finally leads to re-brain drain.

Drawbacks: If increased amount of official remittance cannot be used in productive purpose, it may cause of ‘Dutch disease’ problem.

Reinvestment: Migrants or non-resident nationals should have option to reinvest their dividend or even principal amount to home country, to host country or to third country, however, preference should be given for reinvestment into the home country.

Why International Financial Institutes’ Alternative is Necessary?

Persuading higher growth and development, developing economies require additional investment. Economy looks for either domestic or external sources. Policy makers prefer external sources to elude pressure on domestic sources. Then they look for lower rate external lending sources such as World Bank, IMF and other international financial institutions [IFIs]. However, developing economies are not so pleased with IFIs and affixed conditions. After World War-II, the World Bank or International Bank for Reconstruction and Development (IBRD) was born in the Bretton Woods Conference ¹⁹ in 1944. Since then, World Bank has been working as a development partner of the least developed countries (LDCs) and the developing countries like Bangladesh. LDCs and developing countries depend heavily on the World Bank for their long-term development financing. This UN-recognized organization is much appreciated but criticized too. The organization has already completed 50 years but still there is much debate on its success. Excluding Israel and Egypt, the success story would be much poor. Though lower rate of interest and the grace period of repayment are the main positive side imposed conditions are the major cause in most of the unsuccessful projects.

Then what is the alternative option to the developing economies to meet their investment and development demand for persuading higher growth? The simplest answer may be as “it depends”. It means it depends on the character and trends of respective economy. Migrants’ remittances may be an effective alternative depending on its way of use. The study focused especially on labor exporting economies like Bangladesh, where migrants’ remittances are playing significant role to abate negativity of its BOP. Formation of a remittance backed bank or migrants sponsored bank [depositor-mostly remitters, lending to foreign currency involved business and project even to the government, owned by potential non-resident nationals (NRBs for Bangladesh, NRNs for Nepal and so on)] as an alternative of IFIs for external financing in home country.

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