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Climate Clouding The Economy


The planet is at the forefront of climate change, and the adverse effects of such naturally occurring phenomena are becoming more prominent.

The world is now at a crossroads where nature’s junctions are getting tangled with this modern era’s artificiality. Now more than ever, the uprising of technological and digital warfare is putting the environment in the least of concerns, and the jeopardy is upscaling to an unavoidable presence of the state.

To be able to be in a mode to study and recognize the side effects of a technological revolution which is predicated upon the loss of the essence in our mind and physically in the state of nature heavily in debts us with an unavoidable burden which maybe now too tough to bear.

There are places in this world where this very meaning takes over everything else-promoting nature, and disrespecting the guidelines to maintain its constancy has become the norm.

The race for energy consumption is on: Nations after nations are after the stock of fossil fuels available to us from nature, and the consumption versus the storage and eventual incompetence, remains one of humanity’s biggest concerns. It is hard to digest, but the situation will eventually get out of hand when the human race runs out of fossil fuels, and pragmatic deforestation and wildfires are killing what we as a human civilization call Nature.

What Does Nature Encapsulate?

Is it our moral and psychological freedom or the enjoyment of resources that is still ample for generations to come? We are still a long way away from the tipping point but in a balance in a game of see-saw, a moment of realization still in the heart of millions that we are entirely blindfolded without the balance between nature and nurture to a position from which the return will be nil.

Although there will be severe consequences, the subtext to such intuitive cases lay beyond a normal person’s imagination. The imagination must extend itself so that it hits the core of human values, values that sustain our society and the environment.

The problem of climate change has become a great issue and a challenge for modern environmentalists and scientists; with the melting of polar caps due to rising temperatures because of greenhouse gas emissions, the sea level will rise several meters. Even a rise of 4 to 5 meters will mean that islands and low delta regions across the world will be flooded.

What’s the end result: Fall in almost every sector of the economy and loss in jobs and cuts in employment, all drifting away together from us – the human race in ways unpredictable even for the brightest of minds.

Indulging in counter-productive measures, such as raising economic sanctions to have complete disregard for the future of the human race by doing everything a person has not to do to cause climate change such as dumping waste material into the ocean to kill the natural ecosystem, over the use of fossil fuels to heat up the atmosphere and many other unavoidable ways not yet understood are slowly killing our natural ecosystem and atmosphere in ways completely unimaginable.

The Formula is Simple

When one tries to run nature and put the stamp of authority, nature shows its true power and the most adverse of fashions. As far as recorded history goes, cyclones, tornadoes, tsunamis, famines, and many other forms of natural disasters have occurred due to the obliteration of natural resources and over the productivity of the industrial sector of Nations.

Still, there is a way out, in a way from peaceful sanctuaries which are there in constructs of nature and society and from which the institutions of modern civilization begin to develop what we call an ourselves-a human being.

The zenith of all of creation is a title that could only be heralded by us because there isn’t any other dominant form of species that has put the mental faculty into the building and creating whatever is there in and out of our planet.

Even if our planet becomes hazardous for survival, interplanetary travel and the search for life sustained planet are still some of the best options which exist and paves the way to the invention of modern technology to help us curb our own faults.

The final answer to our solution is simple, regurgitating anomalies and putting that up as the truth hasn’t helped anyone. The Path towards the truth will never end, rather towards the beginning of some rhetorical absoluteness, the might of which will remain unparalleled for decades to come.

But considering the super long-term goals, goals which include the events that will occur in the century to come, gives us a broader perspective to deal with, something which can be taught at schools and places where the young mind is trained to face the problems of the 21st century.

One-fifth of the 21st century has gone away from our lives, and within this time, a lot has happened. Starting from natural disasters to the financial crisis to plagues and infectious viruses, a lot more has happened already in this century than that has happened before the millennium, and a lot more is still to come.

So, without further ado, let us all prepare, in an amalgam of recognition and achievements of facts and figures, polls and election and every other viable method of recognition of human dignity that we realize where we are and what we can do about it.


Engr. Samin Shadman Zahir

Guardian Life has been awarded LEED Platinum Certification in ‘Interior Design and Construction’

Leed Platinum Certification - Guardian Life

With the commitment to build a healthier, happier working environment and ensure an organizational sustainable development, Guardian Life had been working on developing a world-standard & eco-friendly green office space. After months of hard work, Guardian Life Insurance Limited (GLIL) Gulshan Head Office has been awarded the LEED Platinum Certificate by the United States Green Building Council “USGBC” (Leadership in Energy and Environmental Design “LEED”). Guardian Life is the first private company in Bangladesh to be awarded this prestigious USGBC (LEED) Platinum Certificate under the category of “Interior Design and Construction”. Among all Bangladeshi insurance companies (Life and Non-life), Guardian Life is the first and only insurance company to achieve LEED Platinum Certification as of now.

The official certificate handover took place at their very own head office on 16th September with a grand ceremony along with a Digital Press Meet. The handover was followed by a corporate AV that clearly outlined the LEED Certification journey. Mr. Ananta Ahmed, International Green Building Expert, LEED AP (in 5 categories), USGBC Faculty, and Managing Director of 360 Total Solution Limited handed over the certificate to Mr. M M Monirul Alam, Chief Executive Officer of Guardian Life. Dr. M. Mosharraf Hossain, Chairman (In-charge), Insurance Development and Regulatory Authority (IDRA) was present as the chief guest. Sponsor and Patron of Guardian Life Mr. Tapan Chowdhury was present as the Special Guest.

The event was also graced by the Sponsor and Patron of Guardian Life Mr. Syed Nasim Manzur. Among Directors, Mr. Syed Akthar Hasan Uddin and Mr. David James Howard Griffiths were present at the event. The event was led by Mr. M M Monirul Alam, Chief Executive Officer of Guardian Life, and Mr. Shamim Ahmed, Chief Operating Officer briefed the audience about the LEED Platinum Certification journey. The event was also attended by Senior Management of the Company.

September 2020 Issue is Knocking Your Doorstep

September 2020 Issue-The Financial Architect Dr. Jamaluddin Ahmed

September 2020 Issue of The InCAP is now available in Bangladesh, USA, UK, India, China, and Singapore.
Amid Bangladesh, you can get your copy from Pathok Somabesh, Bangle Boi, and many more magazines stand entire the country.

Why are you waiting for? Go and receive your copy!

COVID-19 and BD Economy

COVID-19 and BD Economy-theincap
Mr. Masud Khan, Chairman of GSK Bangladesh

Prelude: COVID-19 and its catastrophic impact around the world and Bangladesh

In June 2020, World Bank published the Global Economic Prospects that describes both the immediate and near-term outlook for the impact of the pandemic and the long-term damage it has dealt with prospects for growth. The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020, using market exchange rate weights—the deepest global recession in decades, despite the extraordinary efforts of governments to counter the downturn with fiscal and monetary policy support. Over the longer horizon, the deep recessions triggered by the pandemic are expected to leave lasting scars through lower investment, an erosion of human capital through lost work and schooling, and fragmentation of global trade and supply linkages.

The pandemic is expected to plunge most countries into recession in 2020, with per capita income contracting in the largest fraction of countries globally since 1870. Advanced economies are projected to shrink 7 percent. That weakness will spill over to the outlook for emerging market and developing economies, which are forecast to contract by 2.5 percent as they cope with their own domestic outbreaks of the virus. This would represent the weakest showing by this group of economies in at least sixty years.

The impact of COVID-19 upon the Bangladesh economy has been no less dramatic in the first two months of lockdown. The economic impact has been felt in three main avenues: first, a drop in domestic economic activity, after the shutdown announced on March 26; the second is a decline in exports of ready-made garments, which represent more than 80 percent of Bangladesh’s exports and have been strongly impacted (overall exports fell by 83 percent year-on-year in April). Finally, there has been a fall in remittances from Bangladeshis living mostly in Middle Eastern countries, affected not just by the pandemic but also by the decline in oil prices.

According to the World Bank, only 15% of the Bangladeshi population earn over $6 a day, and over 90% of the workforce belongs to the informal sector. After the nationwide lockdown commenced on March 26, millions of rickshaw-pullers, day laborers, and factory workers rushed for their villages, leaving the streets of Dhaka with a ghostly look.

The Bangladesh Economic Association (BEA) estimates that nearly 36 million jobs were axed during the 66 days of general holidays announced by the government in a bid to contain the coronavirus. Most of the job losses were in the agriculture, industry, and service sectors. According to Dr. Abul Barkat, current President of the BEA, some 59.5 million Bangladeshi have been relegated into lower/different socio-economic strata during this period. Of these, 25.5 million people are now living in extreme poverty. Bangladesh’s national poverty rate rose to 35 percent in 2020 from 24.3 percent in 2016 due to the adverse impacts of the coronavirus pandemic, according to an analysis of the Centre for Policy Dialogue (CPD). The country’s GDP growth rate is also expected to significantly decline (latest provisional estimate by BBS is 5.6%, although some of the figures are questionable). The CPD also expects income inequality, measured by the Gini coefficient, which might increase to 0.52 in 2020 from 0.48 in 2016.

A large assistance program of four packages totaling some BDT 677.5 billion has been announced by Prime Minister Sheikh Hasina since April 05, 2020. The first package of BDT 300 billion was targeted at the large corporates affected by the crisis with an interest rate of 4.5 percent. Small business enterprises will be able to access a package of BDT 200 billion in credit at an interest rate of 4 percent. The Export Development Fund was expanded by US$1.5 billion at a reduced interest rate of 2 percent. The fourth package includes the Import Refinancing Scheme, which will provide struggling importers with BDT 50 billion at an interest rate of 7 percent. Shortly after, another package worth BDT 50 billion credit has been made available for the agricultural sector at an interest rate of 4 percent. This credit package will be granted and disbursed by commercial banks. This brought the entire assistance program amount to BDT 727.5 billion.

Unfortunately, the stimulus package is yet to get the desired outcome. Prior to COVID-19, the Banking sector was already struggling with high levels of Non-Performing Loans and liquidity issues. Bangladesh Bank has considerably relaxed the repo rate and slashed CRR and SLR rates that have markedly improved the liquidity position of most banks. However, the banks are cagey in lending to borrowers given their past experience and the uncertainty surrounding the future prospects of repayment post-Covid. A similar situation exists regarding the SME sector. Commercial Banks do not have the appetite to lend to such an unorganized sector with little or no collaterals and poor financial reports. It is easier to lend to large corporates who are smaller in number, have collaterals, and can present requisite financials which, unfortunately, in most cases, have to be taken with a pinch of salt. As we speak, Bangladesh bank is working with a Credit Guarantee Scheme for the SME sector that will make it easier for banks to lend. However, no such scheme, which is common across all advanced economies, is being envisaged for the big corporates.

Agriculture employs 40% of the workforce. The government has reduced duties on some agricultural equipment that will encourage mechanization. The above is a good move but will lead to a decline in jobs for farm laborers. No separate subsidy has been announced for this sector. The crying need of the hour for this sector is agricultural marketing since farmers are not getting a fair price for their produce. Digitization and e-commerce have to be encouraged along with auction houses for agricultural produce, as is prevalent in our neighboring country.

The Informal sector employs more than 5 crore people and is 90% of the total workforce in Bangladesh. This sector embraces manual labor, mechanics, construction workers, rickshaw pullers, cart pullers, taxi, auto cab, truck drivers, street vendors, restaurant employees, personal service employees. During the lockdown, other than kitchen markets and superstores selling food items, all other sectors have seen a drastic decline. With fewer people traveling on the roads, there was a sharp decline in the income of rickshaw puller and auto drivers. Almost 6 million people are involved in this occupation. Shopping malls, restaurants, hotels, holiday resorts, long-distance buses, airlines, etc. took a massive hit. Most of the employment in Bangladesh are contractual workers in towns and villages. 

The government has announced 50 lac families for vulnerable sector of 2.5k each. Each family has been considered as four members, which means 2 crore population will be covered through cash subsidy. This is woefully inadequate, considering that the poverty level has gone up to 35% from the earlier levels of 20%.

The crisis highlights the need for urgent action to cushion the pandemic’s health and economic consequences, protect vulnerable populations, and set the stage for a lasting recovery. For emerging markets such as Bangladesh, it is critical to strengthen public health systems, address the challenges posed by informality, and implement reforms that will support strong and sustainable growth once the health crisis abates.


The Economy Going Forward

Bangladesh is a resilient country that has always hogged world news for natural disasters or humanitarian crises. Since independence in 1971, the fledgling nation has experienced and successfully overcome many natural calamities, including floods and cyclones, as well as economic crises such as the Asian Financial Crisis in 1997 and the Global Financial Crisis in 2008. The South Asian riverine nation is on the frontline of the adversities of climate change and is home to one of the World’s largest refugee camps, housing more than 1 million Rohingya victims of genocide in Myanmar. However, the COVID-19 pandemic presents an unforeseen challenge in terms of intensity and enormity.

Despite a global recession which is shaping up to be historic in scale, Bangladesh might be one of only two ASEAN and South Asian economies – the other being Vietnam – to register a positive growth in 2020. A low ratio of public debt to the gross domestic product, which is 33-34 percent, leaves Bangladesh with a fiscal headroom to borrow low-cost funds from the global financial market. The US dollar-Taka exchange rate is very stable, and foreign exchange reserves have climbed to an all-time high of $37 billion.

Remittances have seen an all-time record in the month of July. However, this may be a blip since a large number of migrant workers are returning to Bangladesh with the oil price crash and general meltdown in economies of those countries they were employed.

Another encouraging sign has been in the export of readymade garments, which are seeing signs of recovery with orders coming in from export destinations, although the numbers are not at the earlier normal levels. Part of this could be attributed to the replenishment of depleted stocks during the lockdown, with most of the in-store stocks being damaged due to lockdown. However, there are troubling signs in this sector with competition heating up; Vietnam has just taken over the second spot from Bangladesh and seems to be surging ahead buoyed by duty-free access to US and EU markets.

With the easing of lockdown, Bangladesh’s domestic economic scenario is changing rapidly. The initial fear of the virus seems to be ebbing despite the fact that it shows no signs of withdrawing with the no of positive cases compared to the tests still above 20% compared to the neighboring countries having around 10%. The number of people in the streets and the bazaars seems to be back to the pre-Covid levels. Shopping malls have opened with most corporate houses reporting very strong levels of sales during the Eid month. As a result, the hawkers, daily laborers, and small shop keepers are back to their trade, albeit at lower levels. However, the presence in restaurants and people traveling for leisure, attending the gym, going to salons, or any other place of public gathering is still thin. But the situation is changing rapidly, and we can expect normalcy in the next two to three months.

COVID-19 and the ensuing lockdown has brought to the forefront some radical changes in the business scenario in Bangladesh. When the lockdown was imposed, people were forced to think of alternatives to grocery shopping from kitchen markets and brick and mortar stores. The current crisis has been regarded as the biggest opportunity for online grocers. Super shops in urban areas saw a 50 percent spike in sales since March after the first confirmed case. 

With the onset of COVID-19, some studies claimed that paper money could carry more germs than a household toilet and hence the risk of being infected by using banknotes and coins in financial transactions. Besides, in Bangladesh, the banks also have limited reach in rural areas of our country. This has created a unique opportunity for the growing MFS sector to lead the way for a financially inclusive future. The Prime Minister announced BDT 2,500 cash incentive to 5 million poor families as part of measures taken to keep the economy stable will be paid out using MFS services directly to the families to ensure transparency. Since April, around 1.92 million MFS accounts have been created to provide the workers of Ready Made Garments sectors using the stimulus package announced by the government.

The hitherto unexplored telemedicine sector also saw a resurgence during the lockdown with people consulting doctors online on Covid or other health-related issues.

The lockdown has also seen a resurgence of the IT sector. Since the 2008 recession to early 2020, there has been a meteoric rise led by the FANG stocks (Initially Facebook, Amazon, Netflix, and Google, now including Microsoft and Apple). Even after the COVID-19 outbreak, the stocks of Big Tech companies like Amazon kept soaring. Social distancing and lockdown measures have pushed most white-collar workers around the world to ‘Work-from-home’. This has presented the Video Conferencing Market with a unique opportunity to grow. The industry is forecasted to grow at a CAGR of 9.2 percent during the forecast period of 2020 to 2026. Among them, Zoom has become a household name in the first quarter of 2020. Its daily user count has gone up to 300 Million in April 2020 from only 10 Million in December 2019. In Bangladesh too, some of the big IT companies have seen an upsurge in orders both locally and globally.

In fact, the world in the future will see more of this “work from home” syndrome. Most of the big companies globally have announced that they will continue this practice even after the pandemic has abated. The benefits are enormous for both corporates as well as employees. There will be major cost savings due to the descaling of expensive offices, the travel cost of employees, lesser rentals, and better quality of work with work-life balance. Talents can be sourced from any corner of the world by the FANG companies without the need for visas and physical travel. 

Online education that was hitherto unexplored, suddenly saw a spurt during the lockdown both globally and locally. However, online education in Bangladesh has its limitations in terms of internet availability in remote areas and the consequent cost.

Home entertainment providers are witnessing boom days with half the world’s population put under lockdown. People lapped up video streaming and gaming platforms with sports events canceled/postponed around the world. Streaming has surged dramatically around the world, with all countries under lockdown. The end of 2019 marked the beginning of streaming wars as Disney and Apple launched their own streaming services, respectively. Regardless of that, Netflix reigns supreme. Bangladeshi tech firms have been trying to capitalize on this opportunity as well. Recently, Red Dot Digital, a subsidiary of Robi Axiata Limited, launched ‘Binge’. ‘Binge’ is being promoted as a mix of Internet Protocol TV and online streaming platform. ‘Binge’ joins Hoichoi, iflix, Bioscope, ZEE5, and others in the growing streaming platform market of Bangladesh.

COVID-19 has exposed the glaring weakness of corporates of not having robust supply chains and reliance on a single source such as China. In future, the world and indeed Bangladesh will see greater reliance on domestic sources to ensure uninterrupted supplies of inputs meaning that the era of free trade could again be facing roadblocks.

To summarise, Bangladesh economy is expected to bounce back this year with the 8% growth. It is too early to predict, but an encouraging sign has been the revival of the moribund stock market buoyed with the change in BSEC management that have taken some strong steps to bring the erring stock market manipulators to book, the sharp drop in the deposit rates of banks and the government’s tax incentive to whiten black money in the stock market. However, a lot will depend upon how the financial sector evolves and the steps taken by the Bangladesh bank to bring governance back to the fold.

Once money starts flowing to the households and aggregate demand picks up, the economy will revive again backed by the 17 crores odd population. It is, however, important at this stage to support the vulnerable group, such as people below poverty levels, the informal sector, and the SME who provide the backbone of the economy. The sooner these sectors are incentivized, the quicker the economy will quickly start.

The changes described above in the business world order will surely make their presence felt in Bangladesh with the new generation who are already used to the pleasure of home entertainment and IT. It is also expected that businesses will awake to the new normal and embrace the opportunities unlocked by COVID-19 in terms of e-commerce and work from home that will allow them to cut costs. Online business will continue to flourish as well as IT that will open new avenues for employment and may open new fronts in terms of online agricultural marketing which has now begun on a limited scale but is yet to see its full potential.

About The Author

Mr. Masud Khan is the Chairman of GSK Bangladesh (to be reconstituted shortly as Unilever Consumer Care Ltd) and currently working as the Chief Advisor of the Board of Crown Cement Group Bangladesh. He is a seasoned professional with 40 years’ work experience in leading multinational and local companies in Bangladesh. Prior to joining Crown Cement Group, he worked in LafargeHolcim Bangladesh Limited as Chief Financial Officer for 18 years. Earlier, he worked for British American Tobacco in finance and related fields for 20 years both at home and abroad.

He is also an independent director of Marico Bangladesh, Berger Paints Bangladesh Limited, Singer Bangladesh, Community Bank, and Viyellatex Ltd. His articles on professional and industry issues regularly feature in newspapers and international and local magazines. He regularly features on electronic media on talk shows and interviews and is often in the news for comments on industry and professional issues. He also does public speaking on professional issues in educational institutions and all the Professional Institutes such as Institute of Chartered Accountants of Bangladesh, ACCA, and ICMA Bangladesh. He is also a lecturer in the Institute of Chartered Accountants of Bangladesh for the past 40 years.

He did his Bachelor of Commerce with Honours from St. Xavier’s College under the University of Kolkata. Thereafter, he qualified with distinction both as a Chartered as well as a Cost and Management Accountant from the Indian Institutes being a silver medalist at all India level in the Chartered Accountancy Examination in the year 1977.

The Financial Architect: Dr. Jamaluddin Ahmed

The Financial Architect Jamaluddin Ahmed-theincap

Dr. Jamaluddin Ahmed, FCA

General Secretary, Bangladesh Economic Association
Former Chairman, Janata Bank Limited
Former Member of Board of Directors, Bangladesh Bank
Former President, Institute of Chartered Accountants of Bangladesh


The words Financial Architect, fashioned into unquestionable perfection, has become ever so synonymous with the work that Dr. Jamaluddin Ahmed has accomplished. As a creative financial expert and discreet Chartered Accountant, the receiver of the exceptionally prestigious Commonwealth Scholarship from outside of academics, from his early years’ indications of his wit and talent, has now become an axiomatic phenomenon. 

Just by his background, both in his education as a Ph.D. awardee on “The Adverse Effect of Devaluation on the Foreign Currency Loan User Enterprises of Bangladesh” from the Cardiff Business School, University of Wales (1996). Dr. Jamal is holder of numerous positions in various organizations, his esprit for earmarking into the insight of financial models and systems would suffice the trail that he has left behind for future economic doers.

As a former student of Dhaka University, the flagship bearer of modernizing the Bangladesh financial sector started from ground zero. Since then, we have seen an excellent steady progression in his career. Dr. Jamal has many years of experience in Bangladesh’s financial sector and has used his expertise and knowledge to carry out numerous research work and 50+ publications on Accounting, Auditing, Banking, Tax Revenue, and Corporate Governance. He was tax advisor for many local and multinational companies. Dr. Jamal was a Member of the Board of Directors of Janata Bank Limited (2008-2014) Chairman of Audit Committee (2010-2014) and served as Chairman of the Bank (2019-2020).

Dr. Jamal served Power Grid Company of Bangladesh Limited (2004-2019) as Board Member and Chairman Audit Committee and was a member of the Board and Chairman of Audit Committee of the JICA Financed Coal Power Generation Company of Bangladesh Ltd (2014-2019) the largest Project taken by Japan Government since its inception in 1961. He was also the Member of Board of Directors and Chairman of Audit Committee of Grameen Phone Limited (2010-2014). Advisor to the Board and Audit Committee of Bangladesh Bank, performed as a member of Board of Directors and Audit Committee. He was a partner at Deloitte Touche & Tohmatsu Bangladesh office. He has taken many training courses in the power and energy sector and has completed assignments at numerous banks. As the General Secretary of Bangladesh Economic Association (2015-to date) Dr. Jamal was worked as Co-Author with Professor Abul Barkat “Alternate National Budget for the country-to Develop on the Spirit of Liberation War of Bangladesh.” He participated at Harvard University Seminar on Rising Bangladesh in 2018.

The languages and even the logic would not enough what Dr. Jamaluddin Ahmed gradually did for the institutions that he worked for, the nationalistic endeavor in everything done by him makes him one of the most regarded professionals in the history of Bangladesh.

The InCAP team discussed various issues with him for a long time, which can be entitled “In Search of Designing of An Effective Financial System for Economic Growth”. So this time, we are publishing in the form of a thesis, apparently not like an interview. It’s a complete financial artwork which is written by Dr. Jamaluddin Ahmed.

In Search of Designing of an Effective Financial System for Economic Growth

A crucial aspect of the industrialization process is the development of an institutions dealing with the transfer of payments and mediating the flow of savings and investment. While all industrial societies have such a specialized financial system, cross-national comparison of these systems indicates considerable structural diversity (Zysman 1983). One key difference is the degree to which financial systems are bank-based or market-based. In bank-based systems, the bulk of financial assets and liabilities consist of bank deposits and direct loans. In market-based systems, securities that are tradeable in financial markets are the dominant form of financial asset. Bank- based systems appear to have an advantage in terms of providing a long-term stable financial framework for companies. Market-based systems, in contrast, tend to be more volatile but are better able quickly to channel funds to new companies in growth industries (Vitols et al. 1997). A second key distinction between financial systems is the degree to which the state is involved in the allocation of credit. State involvement in credit allocation can turn the financial system into a powerful national resource for overcoming market failure problems and achieving collective economic and social goals. However, financial targeting also runs the danger of resource misallocation due to inadequate reading of market trends or ìclientelismî (Calder 1993).

While every country has a different mix of institutional arrangements, these two dimensions are useful for identifying broad distinctions between countries in capital- market dynamics. For example, a quantitative comparison of Japan, Germany, and the United States in the mid-1990s along the first banks versus markets dimension indicates a major distinction between the first two countries on the one hand and the United States on the other. The banking systems in Japan and Germany account for the majority of financial-system assets (64 and 74 percent, respectively), whereas banks in the United States (with about one-quarter of total financial-system assets) are only one of a plurality of financial institutions. Altogether over half of the combined assets of the nonfinancial sector (assets of the financial, household, company, government, and foreign sectors combined) in the United States are securitized versus only 23 percent in Japan and 32 percent in Germany. Particularly striking is the relatively small proportion of securitized company liabilities in Japan and Germany in comparison with the United States (15.4 percent and 21.1 percent versus 61.0 percent).

The relative advantages and disadvantages of different structures of the financial system for economic growth have been a long-debated issue in economics. On the one hand, Hamilton (1781) argued that “banks are the happiest engines that ever were invented” for spurring economic growth. Gerschenkron (1962) underlined the crucial role of universal banks in German industrialization between the middle and end of the nineteenth century. Similarly, Calomiris (1995) compared the American and German systems of investment between 1870 and 1914 and argued that the German system was Superior. Moreover, Kennedy (1987) claimed that the failure of British financial   intermediaries to behave as German universal banks did hamper British economic performance in the late nineteenth and early twentieth centuries. On the other hand, Bagehot (1873) and Hicks (1969) claimed that financial markets played an important role in the UK’s Industrial Revolution.

Our starting point is the observation that different financial systems have evolved in different places through time. As a result, there are differences across countries in the level of financial system development and its structure. The basic functions of the financial system, however, have remained constant through time and across countries. What differs across countries is the quality of the functions provided by the financial system to the economy, which indicates its level of development. In the following section, we will discuss the main functions of the financial system and emphasize the differences in the quality of services provided by banks and markets to the economy. The importance of banks and markets in fulfilling their functions indicates their structures, which are defined as the mix of financial markets, institutions, instruments, and contracts that prescribe how financial activities are organized at a particular date (Levine 1997, 2005). To evaluate whether one system has performed better than another over time, it is important to understand how the financial systems are structured, and the determinants as well.

In the literature, the classification of the financial system typically follows a binary approach (Fohlin, 2012). It often focuses on the dependence of savers and firms on banks or capital markets and draws a distinction between countries with market- and bank-oriented systems. Bank-oriented systems are those displaying high levels of bank finance, equity holding by banks, long-term relationships, close monitoring and active corporate governance by banks. Typically, bank-based financial systems correspond to countries in which commercial banks are mainly universal. In contrast, market-oriented financial systems support large, active securities markets, and firms use market-based financing. In market-based financial systems, banks are very often specialized with an important group being investment banks. This oversimplified characterization provides only a partial picture of the financial system, so some authors classify the financial system as relationship-based or arms-length systems, which captures the degree of separation between investor and firm (Rajan and Zingales, 2002).

In theory, every country has   one type of financial system, which falls into one of the distinct categories. In practice, however, the distinction between bank- and market- oriented systems or arms-length and relationship-based financial systems is difficult. The rapid changes in the financial industry in recent decades have further complicated the distinction. In reality, there is no clear-cut distinction between financial systems, and the classifications fit only in a rough manner empirically. Why the differences in the structure of the financial system have prevailed across countries is not well understood. A substantial body of literature tries to explain the differences across countries from different perspectives, including law, politics, and culture. In addition, a number of papers have argued there is a positive nexus between financial system development and economic growth. In recent decades, there has been a rapid growth in financial innovations, such as securitization, which increases the reliance of banks on capital markets as a source of finance. This trend not only leads to the growth of financial intermediation outside the banking system but also has important implications for the role of banks in financial markets. Consequently, the structure of the financial system is now more complex than it used to be. These changes may benefit the general economy by increasing credit availability and reducing the cost of capital, while at the same time, they may make the financial system more fragile and further amplify economic volatility, as mentioned in the financial crisis of 2007.

Financial Architecture and Performance

Markets as well as banks perform vital functions in an economy, which include capital formation, facilitation of risk sharing, information production and monitoring. The case for bank-based or market-oriented systems could be made based on the relative effectiveness with which banks or markets execute these common functions. At the extreme, some argue that market-based systems are inherently superior (see Macey (1998) and the recent literature on global convergence of corporate governance (e.g. Coffee (1999)) while others underscore the intrinsic value of banks (e.g. Gilson and Roe (1993)). By implication, adopting the superior financial architecture would enhance economic performance. There are also middle-ground positions on the role of financial architecture. Some argue that financial architecture is inconsequential to the real sector with the belief that banks and markets are complementary in providing financial services, and that neither has a natural advantage in the provision of all services. Others argue that financial system architecture matters in that markets or banks may have a comparative advantage in delivering particular services depending on the economic and contractual environments of the country.

Financial Architecture As A Matter of Indifference

The indifference view which is partly based on the functional perspective to financial systems, stresses that a financial system provides bundles of services such as project evaluation, risk sharing, information production and monitoring. It is the quantity and quality of these services in an economy that matters, and not the venue by which they are provided (see Levine (2000) for an extensive review of this perspective). Hence, the market orientation of the financial system is of secondary importance, since both banks and markets provide both common and complementary services. This view has recently received more strength from the law and finance literature which stresses the importance of investor-protecting legal codes and their enforcement in enhancing financial services that promote economic performance (Laporta et al (1997, 1998, 1999), see also Levine (2000)). La porta et al (1999) suggests that differences in depth and quality of financial systems as predicted by the quality of the supporting legal system is more important than distinctions in terms of bank or market orientation.

Financial Architecture Relevance

The perspective that holds that financial architecture matters rely on distinct differences in the types of services provided by markets and banks. A key attribute of financial markets – a feature that distinguishes them from banks – is that equilibrium prices formed in markets provide valuable information (about the prospect of investment opportunities) to real decisions of firms which, in turn, affect market prices. This is what is called the ‘information feedback’ function of markets. Tadesse (2000) provides empirical evidence that this market-based governance has a positive impact on economic performance. In particular, it has an effect of enhancing economic efficiency. The relative importance of a given financial architecture (market vs banks) depends on the value of this market information (demand side argument) and how effectively markets perform this information aggregation function (supply side argument).

On the supply side, the relative merits of markets versus banks depend on the effectiveness with which markets can perform their information feedback function. Well functioning markets rely on contracts and their legal enforceability. Impediments to markets such as weak contractability reduce the supply of information aggregation as a market function. In this situation, a bank-based architecture, which survives in weak contractual environments, could be of superior value. Rajan and Zingales (1998b) postulates that the relative merits of the financial architectures are a function of the contractability of the environment and the relative value of price signals. Bank based systems naturally fits in situations with low contractability combined with high capital scarcity relative to investment opportunity. Market –based systems work better in situations of high contractability and high capital availability relative to investment opportunities (implying high value of price signals).

On the demand side, one would expect a revival of market-based systems in situations where information aggregation is especially valued. However, market generated information is not always considered useful for various reasons. First, not all decision environments benefit from price signaling. Allen (1993) and Allen and Gale (1999b) argue that the information feedback from markets would be most valuable in decision environments, such as new industries, in which consensus are hard to achieve about the optimal managerial rule due to rapid technological change, and constantly changing market conditions. Conversely, the value of information aggregation is lower in economies that are dominated by firms with less complex decision environments.

Second, the prevalence and severity of moral hazard attenuates the value of information feedback by financial markets. Boot and Thakor (1997) argue that banks provide a superior resolution of post-lending moral hazard resulting from potential distortions in firms’ investment choices while markets provide improvements in real decisions through the information aggregation. However, the greater the moral hazard problem, the lower is information acquisition in the financial markets, and the smaller the value of market information in affecting real decisions. The value of market information is, therefore, lower in economies dominated by firms that are prone to moral hazard problems (e.g. poor credit reputations). This implies that, other things constant, a bank- based system might fit better to economies dominated by firms prone to more agency problems.

Third, the value of price signals also depends on the ease with which project selection could be accomplished in its absence. The value of price discovery is higher in situations where real decisions could be least likely distorted if not based on external information. Rajan and Zingles (1998b) points that in situations of extreme capital scarcity relative to available investment opportunities, real decisions, even in the absence of market information, are less likely to go wrong because, in this case, it would be relatively clear as to which investment would be profitable. Hence, all other things constant, the more capital abundance relative to investment opportunities in an economy, the higher is the value of information aggregation, and the more desirable a market-based architecture; and vice versa.

The foregoing implies that the real consequences of financial architecture (market-based vs bank-based) should depend on a host of country specific factors including the contractual environment of the economy, the associated severity of agency problems, and the degree of complexity of the decision environment in the economy. In the sections that follow, we examine empirically the real consequences of financial architecture across economies of differing contractual environments and differing prevalence of agency problems. We expect market-based architectures to perform better in countries with stronger contractual environment, and bank-based systems to fare well in contractually weak economies. This is what we call the contractual view to financial architecture. We expect bank-based systems to perform better in economies with firms t fare better in countries with firms that are less susceptible to these problems. This is the agency view to financial architecture.

What Are Components of Financial System in General

Generally, the financial system in a country is considered designing the sourcing of private sector state financing for the economic development of a country.  The most widely accepted theory, the timing of industrialization (TOI) thesis, argues that key differences in national financial systems can be traced back to their respective industrialization phases (Gerschenkron 1962; Lazonick and OíSullivan 1997). In countries where this process started earlyóthe United Kingdom is the key example firms were able to finance new investment gradually from internally generated funds or from securities issues in relatively developed financial markets. Firms in countries in which industrialization started later, however, faced a double disadvantage relative to their advanced competitors in early industrializing countries. First, internally generated finance was inadequate (or, in the case of newly founded firms, nonexistent) relative to the large sums needed for investments in ìcatch-upî technologies and infrastructure. Second, market finance was difficult to raise because securities markets were underdeveloped and investors were more inclined to invest in safer assets such as government bonds. Thus only banks could gather the large sums of capital required, take the risks involved in such pioneering ventures, and adequately monitor their investments. Once established, bank-based systems have a strong survival capacity. This interpretation of history provides support for the recommendation that developing countries follow the model of bank- based development (Aoki and Patrick 1994).

TOI draws on both the German and Japanese cases to back up its claim that bank-based systems were necessary for late industrializers to catch up with more developed countries. For TOI, Germany is the premier example of a developmental bank-based system. In the second half of the nineteenth century, particularly after 1870, joint-stock banks active in both lending and underwriting activities were established. These ìmixedî banks enjoyed a close (Hausbank) relationship with many of their industrial customers. In addition to getting the lionís share of financial services business, these banks often held substantial stock in and appointed directors to the supervisory boards (Aufsichtsr‰te) of these companies. TOI claims that these mixed banks played an essential role in the rapid industrialization of Germany after 1870, not only through organizing large sums of capital unobtainable in nascent capital markets but also through providing entrepreneurial guidance (Gerschenkron 1962). The capacity of these banks for strategic planning was further demonstrated through the organization of rationalization cartels to deal with the overproduction crises in basic industry in the early twentieth century (Hilferding 1968). Finally, it is claimed that the three largest joint-stock banks (Deutsche Bank, Dresdner Bank, and Commerzbank) continued to use their close links with large industrial companies to act as the locus of private industrial policy in the postwar period (Deeg 1992; Shonfield 1965; Zysman 1983). The role of German banks is most frequently contrasted with the U.K. clearing banks, which allegedly have beenmore interested in short-term commercial finance than long-term industrial finance (Ingham 1984). At the end a financial system evolved for the private sector sourcing of finance called Bank Based and Market Based. Meaning the private sector lead industrialization financing source would be from the banking system or from the capital market-by issuing shares, debentures, and bonds listed in stock market, through private equity and alternative financial instruments. In case of State, the governments also finance the infrastructure from issuing bonds and approved financial instruments, revenue collections, borrowing from local and foreign market.   

Bank Based And Market Based Financial System

As in the corporate finance literature, we distinguish between bank-finance and market-finance based upon their involvement with investment projects. Banks are typically more engaged in project selection, monitoring firms and identifying promising entrepreneurs, while market-finance (corporate bonds and equities) is an arm’s length transaction, with little involvement in a firm’s investment decisions. Specifically, we adapt Holmstrom and Tirole’s (1997) agency problem: borrowers may deliberately reduce the success probability of investment in order to enjoy private benefits. Outside investors (the mar- ket) are too disparate to effectively control a borrower’s activities. Financial intermediaries, on the other hand, monitor entrepreneurs and (partially) re- solve the agency problem. But since monitoring is costly, bank finance is more expensive than market finance. A key determinant of financing choices is an entrepreneur’s initial wealth. Entrepreneurs with lower wealth have more incentive to be self-serving than wealthier ones. One way to mitigate this incentive gap is to borrow, at a higher rate, from a bank and agree to being monitored. In contrast, wealthier entre- preneurs rely more on market finance as they face less of an information gap.

In certain cases, for instance when the fixed cost of modern sector activities are large, even bank monitoring is not a sufficient substitute for entrepreneurial wealth – the poorest entrepreneurs are unable to get any type of external  ((Mayer, 1988). See Allen and Gale (2001) for more recent evidence. A bank-based system, where intermediation plays a key role, or a market- based system, where all lending is unintermediated, evolve endogenously in our model. A bank-based system emerges when monitoring costs are modest and when agency problems are significantly extenuated through monitoring. When agency problems are not particularly severe, or when monitoring is expensive, a market-based system emerges. The growth rate under either regime is a function of the efficiency of the system – better-functioning legal systems make contracts easier to enforce and reduce monitoring costs as also the cost of direct lending. Investment is higher, as is the growth rate of per capita income. In this, our results square well with the ‘legal-based’ view espoused more recently by LaPorta et al. (1997, 1998) and for which Levine (2002) finds strong cross-country evidence.

Although neither a bank-based nor a market-based system is specifically better for growth, our model suggests some advantages to having a bank-based system. In particular, since bank monitoring substitutes for entrepreneurial wealth, it enables all modern-sector firms to make larger investments than is possible under purely unintermediated finance. It also lowers the minimum en- trepreneurial wealth required to obtain external finance so that the traditional sector is smaller under a bank-based system. Hence, even when a bank-based and a market-based economy grow at similar rates and have similar wealth distributions, per capita GDP in the former is permanently higher.  Financial and legal reforms which reduce agency problems make it easier for modern-sector entrepreneurs to borrow. This raises the investment rate, and hence GDP growth, under both types of financial system. However, in a bank- based system, these reforms also have a level effect on per capita income. By lowering the minimum wealth needed to raise external finance, they assist traditional sector entrepreneurs to enter the modern sector faster. This speeds up structural transformation – the traditional sector declines in size and the modern sector expands faster. In contrast, reforms in a market-based system may leave the traditional sector relatively worse-off unless they specifically reduce the costs of bank intermediation.

Financial Structure And Economic Growth

Answer: In the literature, three main bodies can be distinguished that investigate the relationship between financial structure and economic growth. The first one directly examines the impact of the structure of the financial system on economic growth. Initially, studies comparing financial systems focussed on one country or only a small set of developed countries. Goldsmith (1969) pioneered this line of research as he tried to evaluate whether the financial structure influences the pace of economic growth. In this study, Goldsmith relied on a careful comparison of the financial systems in Germany and the United Kingdom, but his results on its impact on economic growth were ambiguous. Allen and Gale (2000) discuss financial systems in five industrial economies. Based on the relative importance of banks to capital markets in allocating resources to firms, they argue Germany, Japan and France have bank-based financial systems, while the United States and the United Kingdom have market-based financial systems. They note that all these countries have similar long-run growth rates. Hence, the marginal contribution for having different types of systems on real economic growth is not significant within this small group of developed countries in the long run. In contrast, Arestis, Demetriades, and Luintel (2001), using the five developed countries and time-series methods, argue that while equity markets in the developed countries may be able to contribute to long-run output growth, the influence of the stock market is much smaller than that of banks. Based on this, they argue that bank-based financial systems may be more growth-promoting than market-based financial systems.

Nevertheless, it is not clear from these studies whether their findings can extend to different countries across the world. Indeed, early on, Goldsmith (1969) already expressed the need to further investigate the relationship between the financial structure and economic growth using a larger set of cross-country data. Demirgüç-Kunt and Levine (2001) and Levine (2002) have examined the relationship by employing a broad data set covering 48 countries from 1980 to 1993. They find that neither bank-based nor market-based financial systems are particularly effective in promoting economic growth. Their results were robust to an extensive array of sensitivity tests that included different measures of financial structure, alternative econometric methods, different data sets and more control variables such as legal factors. Moreover, the results changed only slightly when they were looking at different extremes, which are countries with very well-developed banks but poorly developed capital markets and countries with poorly developed banks but very well developed capital markets. However, Demirgüç-Kunt and Levine (1996) find that countries with a well-developed stock market also have well-developed banks and non-bank financial intermediaries. This suggests that intermediaries and markets are complements in providing growth-promoting financial services.

This conclusion has been supported by Beck et al. (2001), who document that countries do not grow faster with either type of financial system. Furthermore, they emphasize that what matters more for the finance-growth nexus is the efficiency of the legal system in protecting outside investors’ rights. Rioja and Valev (2006) find that bank-based financial systems are associated with stronger capital accumulation. Neither of these studies finds empirical support that bank-based or market-based financial systems foster long-run economic growth.

In contrast, Tadesse (2001) finds that the difference between bank-based and market-based financial systems is important in explaining economic growth. Using a sample of 36 countries from 1980 to 1995, he shows that in countries with an underdeveloped financial system, bank-based systems outperform market-based systems. However, in countries with developed financial systems, market-based systems outperform bank-based systems. He documents that a lack of fit between the country’s financial system architecture and its legal institutions can restrain economic performance. Similarly, Luintel et al. (2008) find that the financial structure significantly explains output levels in most countries. They argue that the complete absence of cross-country support for a financial structure reported by certain panel or cross-section studies may be a result of inadequate accounting for cross-country heterogeneity. Taking into account the problems of existing studies and the use of time series and a dynamic heterogeneous panel method, they document that the financial structure and financial development affect output levels and economic growth. In a recent study, Demirgüç-Kunt et al. (2013) find consistent evidence that with the growth of economic activities, the association between an increase in real output and that in bank development decreases, while the association between an increase in real output and that in securities market development becomes larger, suggesting the changing importance of banks and equity markets with the development of the real economy.

The existing empirical evidence suggests that both bank- and market-based financial systems are important for economic growth. Huybens and Smith (1999) argued that it is possible that markets and banks are complements rather than substitutes and it is the efficiency of the financial sector as a whole that is of importance. Levine and Zervos (1998) confirms that higher stock market liquidity or greater bank development is positively associated with contemporaneous and future rates of economic growth, capital accumulation, and productivity growth, irrespective of the development of the other. Thus, a view emerged in the literature that both financial structures might be substitutes in fostering long-run economic growth (Levine, 2002; Beck and Levine, 2004), which supports the recent research on financial crises that we will discuss in the next section of the chapter.

In the past decade, a new perspective emerged on the relationship between financial system development and economic stability. The ‘too much finance’ view indicates that having a too large financial system may have a negative impact on economic stability and growth. This theory is strongly supported by the global financial crisis of 2007-2009, where Rajan (2005) warned prior to it that the on-going evolution of the financial system may lead to a large and complicated system and to an accumulation of vulnerabilities that may then result in a financial disaster. Consequently, currently the question is whether there is a threshold when a financial system supports economic growth and whether one structure of the system is better than the other for economic stability.

Cecchetti and Kharroubi (2012) show the relationship between financial development and economic growth is non-linear. It means that the level of financial development supports economic growth only to a point, after which it becomes a drag on growth. They estimate that the turning point is approximately 100 per cent of GDP for private credit and 90 per cent for bank credit. Similarly, Arcand, Berkes, and Panizza (2015) find that the relationship between financial development and economic growth has an inverted U-shape, where they estimate the turning point to be when credit to the private sector reaches 100 per cent of GDP. Law and Singh (2014) using a different methodology estimate the threshold at approximately 88 per cent of private credit to GDP and report an inverted V relationship.

Sahay et al. (2015) expanded the work and created a financial development index comprising both financial institutions and markets and three dimensions of financial development: depth, access, and efficiency. Using the index, they confirm the non-linear relationship between financial system development and economic growth. According to them, the weakening effect of the financial system on the economy is mainly due to financial deepening, rather than from greater access or higher efficiency. Seven and Yetkiner (2016) extended the research by analysing the impact of the structure of the financial system on economic growth in countries grouped based on the income level. They report that banking development is beneficial to growth in low- and middle-income countries, yet harmful in high-income ones. In contrast, they show that the development of stock markets favour growth in middle- and high-income countries.

Sahay et al. (2015) show that the pace of financial development also matters. They document that when the development proceeds too fast, deepening financial institutions can lead to economic and financial instability. Silvia et al. (2017) confirm the non-linear relationship between financial development and economic growth. They also find that financial development simultaneously and more than proportionally raises growth volatility. A more detailed description on financial development and volatility is presented in the chapter by Loayza, Ouazad and Ranciere.

Gambacorta et al. (2014) report that banks and markets differ considerably in their moderating effects on business cycle fluctuations. On the one hand, they suggest that banks smooth the impact of the economic recession, as they are more likely to supply loans during a normal downturn. On the other hand, they find that their shock- absorbing capacity is impaired when the downturn is associated with a financial crisis. In those situations, they find that in countries with bank-oriented financial systems, the recessions are three times more severe than in countries with a market-oriented financial structure.

Langfield and Pagano (2015) attribute the rise in economic volatility to the increasing role of the banks in the European financial system. They document that the bank-based financial structures are associated with more systemic risk-taking by banks. In addition, the results indicate that the economic growth tends to be lower in bank- based financial structures, particularly during times of large drops in asset prices. Hence, they recommend that reducing the bank bias should therefore be an important intermediate objective of financial policy. The switching of the structure of the financial system seems to be quite difficult, as we discuss in the next section. Moreover, Deidda and Fattouh (2008), using a theoretical model, show that a change from a bank- dominated financial system to a system with both banks and markets can have a negative effect on economic growth.

Consequently, the current research shows that the relationship among financial system development, structure and economic growth is quite complex, but there is currently a growing consensus that ‘too much finance’ can be harmful for economic growth. However, most of the empirical studies utilized only private credit as financial system development indicators. Given that equity and bond markets are also principal sources of finance, it is important to understand better their role and its relationship to economic growth. Consequently, more research is needed on the structure of financial systems and economic growth, which will take into account the recent findings on the impact of financial development on economic growth and stability.

Financial Structure And Political Influence

Another explanation for the design of the financial system is based on political factors. Given the importance of financial systems for economic growth, it is not surprising that the policies for the financial sector are often on the top of policy makers’ agendas, particularly during crises. A large number of papers discuss the impact of politics on the finance-growth nexus, which can be roughly divided into two different views. We will go through both of them in turn.

The first view basically argues that policy makers act in the best interest of society, ultimately maximizing the growth benefits for the entire economy. Therefore, the market failures inherent in financial systems require government interventions beyond regulation and supervision. For example, Song and Thakor (2012) develop a theory of how a financial system is influenced by political intervention that is designed to expand credit availability. They show that the relationship between political intervention and financial system development is non-monotonic. In the early stage of financial development, the size of the market is relatively small, and politicians intervene by controlling some banks and providing capital subsidies. In the intermediate stage when the sizes of both the banking sector and market are larger, there is no political intervention. However, in the advanced stage when the financial sector is most developed, political intervention returns in the form of direct-lending regulations. The second view argues that policy makers act in their own interest, maximizing private rather than public welfare. Therefore, interventions by politicians in the event of a crisis involve diverting the flow of credit to politically connected agents instead of improving social welfare. Rajan and Zingales (2003, 2004) are good examples of this view. They argue that the structure of the financial system may experience substantial reversals when a political majority decides to alter the legal framework. A financial system will develop towards the optimal structure but will be hindered by politics, which are often influenced by powerful incumbent groups. Thus, financial development and changes in structure can occur only when the country’s political structure changes or when incumbents want the development to occur. Similarly, Cull and Xu (2013) document that financial development is driven by the political economy, and furthermore, financial development may reflect the interests of the elite, rather than providing broad-based access to financial services, by modelling the choice of investor protection as a legislative or enforcement choice taken by politicians. Feijen and Perotti (2005) also show that access to external financing can be used by incumbent political and economic elites to protect rents and entrench their dominant position (see also Perotti and von Thadden, 2006)

U.S. financial history provides numerous examples of political influence affecting the development of the banking system. The same is true for emerging economies such as China. By studying the political economy of regulation in the U.S. during the 18th and 19th centuries, Benmelech and Moskowitz (2010) argue that financial regulation is the outcome of private interests using the coercive power of the state to extract rents from other groups, which is further associated with lower future economic growth. They document that the tension between private and public interests provides an explanation for the variation in usury laws observed across states and time. States adopted laws to hamper competition from neighbouring states and lower their own cost of capital. The link between private interests and financial regulation also suggests the endogenous relationships between financial development and growth. Kroszner and Strahan (1999) find that the private interest theory of regulatory changes can account for the pattern of bank branch deregulations in the 1970s and 1980s in the U.S. They argue that innovations that began in the 1970s altered the value of restrictions to the affected parties and the subsequent competition among interest groups can explain deregulation. However, some of their results also show that deregulation occurs earlier when small banks are in a weak financial position, which is still consistent with the public interest theory. Studies on China’s financial sector also suggest that political factors are strongly associated with the bank loan granting and equity financing (see, e.g., Ayyagari, Demirgüç-Kunt and Maksimovic, 2010; Fan, Wong and Zhang, 2007).

Some other studies have tried to use the political structure as a basic factor to explain financial development and economic growth. Both theoretical and empirical studies show that political and economic elites can manipulate institutions (Glaeser et al., 2003). Powerful political interest lobbies influence the type of property rights protection and the degree of investor protections that suit their interests best. Pagano and Volpin (2005) show that proportional electoral systems are conductive to weaker shareholder protection and stronger employment protection, which benefits entrepreneurs and workers while damaging outside shareholders. Other political variables, such as ideological factors, voting thresholds and the tenure of the democratic system, appear to affect regulatory outcomes.

Therefore, political institutions seem to have a first order effect on economic and financial stability in the literature. Poor transparency and corruption or weak regulatory institutions increase the probability of a banking crisis after financial liberalization (Acemoglu et al., 2003). The issue is, even when liberalization leads to a higher level of GDP growth, the distribution of gains remains a relevant question to ensure its sustainability. For example, in Latin America, financial transfers following banking crises have targeted privileged income classes. In the meanwhile, default costs are usually socialized through regressive policies, such as inflationary bailouts or fiscal cuts, that disproportionately hurt weaker social groups and median income households (Das and Mohapatra, 2003). Bekaert, Harvey and Lundblad (2006) show that the volatility of the economy in terms of consumption growth following equity market liberalization depends on the economic, financial, social and political conditions within a country. If a country has a relatively well developed banking sector, less external and internal conflicts, a large government sector and a relatively brighter economic outlook, then consumption growth tends to be less volatile after the liberalization. In this sense, political factors are more important than legal factors in driving economic volatility.

History, Culture And Important Factors Influence Financial Structure

In recent years, a number of studies have pointed to other theories that try to explain the development and structure of the financial system. One of these theories advocates that financial systems have a path-dependent nature. It means that financial system development and its structure is shaped by the initial conditions and historical evolution of the country. Ang (2013) shows that the existing differences in financial development between countries can be explained by the variations in their levels of state experience over the last two millennia. His results suggest, however, that state history has stronger explanatory power for current financial development than financial development over the last half century. Moreover, his results indicate that state history positively affects both bank-based and market-based financial systems and there is no systematic difference between them. Monnet and Quintin (2005), furthermore, argue that history matters not only for the development of the financial system, but may also explain its current structure. On the one hand, Monnet and Quintin (2005) argue that the legal differences in countries with bank-based and market-based financial systems are fading as a result of government efforts to deregulate and liberalize financial systems around the world. On the other hand, institutional convergence has not implied financial convergence across countries. Monnet and Quintin (2005) suggest that financial systems will continue to differ for a substantial period even if their basic characteristics become identical. The argument is based on the assumption that the historical fundamentals of financial systems are relevant and any change in structure is costly. Thus, they claim that the previous structure of a financial system explains and determines the existing structure. The work of Monnet and Quintin (2005) provides some explanation as to why financial structures persist in countries following changes in the institutional framework. However, their work does not provide a clear explanation of why determinants change over time.

Another perspective presents the endowment theory that ties the development and structure of the financial system to the colonial conditions such as geographic factors and the disease environment in shaping subsequent institutional and financial development. Acemoglu et al. (2001) argue that European colonizers pursued different types of colonization strategies with different associated institutions. In some countries, the Europeans installed property rights institutions that protected private property contracts, which subsequently promoted financial development. Acemoglu et al. (2001) underlined, however, that colonial experience is only one of the many factors affecting institutions and henceforth also financial development.

A related theory has been proposed by Stulz and Williamson (2003), who argue that culture matters for financial development since it affects values, beliefs, institutions and how resources are allocated in an economy. Stulz and Williamson (2003) indicate that a country’s principal religion predicts the cross-sectional variation in creditor rights better than the origin of its legal system. They report also that religion and language are important predictors of how countries enforce rights. Based on their findings, they argue that Catholic countries protect the rights of creditors less than do Protestant countries, which may explain why Catholic countries have less developed financial systems. A similar perspective is presented by Kwok and Tadesse (2006), who argue that national culture may be an important determinant of a country’s financial structure and presented evidence that countries characterized by higher uncertainty avoidance (risk aversion) are more likely to have a bank-based system.

Finally, Allen et al. (2016) suggest that a country’s financial system adapts to the needs of the real economy. They show that in countries with a well-developed service sector in the economy, a market-based system is more likely to emerge. In contrast, countries with large industrial sector (fixed assets) are more likely to have a bank-based system. Consequently, their research suggests that specialization patterns in a financial system are influenced by the composition of the economy, which in turn is determined by a country’s endowments. This variety of approaches suggests that there is no consensus with respect to the determinants of financial structure. Moreover, economic and legal factors show strong relationships to financial system design and development, but causality is difficult to establish. Hence, although social and political context play important roles in shaping institutions, it is difficult to pinpoint reliable and consistent relationships among economic, political, legal and financial variables. Moreover, the recent results show that even political and regulatory intervention influences system design and the political system type does not have any systematic or predictable effect.

Financial System Structure For Bangladesh

The IMF  (2011) study on Private Sector Financing for the period 2002-2007 was conducted by Julion Allard and Rodolph Blavy on 17 developed countries with regards to their dependency on Market-Based  and Bank-Based as the  source of Private sector financing. The study ranked the countries with their sourcing dependence greater or equal to 50% from Market have been categorized as Market-Based economy. The other countries those sourcing of private sector greater or equal to 50% financing come from the bank are grouped as  Bank-Based economy. Thus the study reveal that Seven countries are market-based and ten countries are bank-based. Australia, Canada, Denmark, Finland, France, the United Kingdom, and the United States are classified as market- based. Austria, Belgium, Germany, Italy, Japan, Netherlands, Norway, Portugal, Spain and Sweden are bank-based. Given the sensitivity of the classification to data sources, in particular for countries in the middle of our sample, we identify two groups that maximize within-group homogeneity: “strongly market-based” economies and “strongly bank-based” economies. Four countries are strongly market-based—the United States, Australia, Canada, and the United Kingdom— and four are strongly bank-based— Belgium, Portugal, Spain, and Austria. (Sources: National Financial Account, OECD.)

Carlin/Mayer (1999b) analysed the relation between the growth rates of 27 industries in 14 OECD countries and the interaction of industry-specific characteristics with financial variables. They found that in particular the growth of industries relying on R&D is strongly affected by financial variables. The estimates are less robust as regards fixed capital formation. Thus, finance mainly stimulates economic growth by affecting investment in R&D whereas the financing of physical capital accumulation is only of minor importance. They regard their results as providing evidence that the superiority of a particular form of corporate control and financing does not depend on general considerations. Instead, the optimal financial relations for an enterprise depend on the type of economic activity the corporate is involved in. Financing via stock markets may be better suited to high-risk and innovative activity. Bank finance may be more appropriate for more traditional investments that rely on the provision of long-term finance. Also the analyses of Beck/Levine (2000) and Demirgüc-Kunt/Maksimovic (2000) on the firm level demonstrate that the financial structure does not affect the quantity of external financing available to firms.39 New firms and expanding firms do not grow significantly different in a market-based or a bank-based financial system. Instead, the overall level of financial development matters for the growth prospects of new firms. A structural difference that Demirgüc-Kunt/Maksimovic (2000) observe is that security markets facilitate long-term financing and banking systems facilitate shortterm financing. This insight contrasts with the result by Carlin/Mayer above, who see the main merit of banks in providing long-term finance.

Completeness And Adaptability of Financial Structure

Recently, the debate about the optimal financial structure has been put into a new light. It is in particular the importance of legal issues that has raised doubts about the policy relevance of the “bank versus market” approach, given that policy makers are unable to affect the legal origin of the economy.40 Both, financial markets and financial intermediaries, provide capital services, which are important to spur economic growth. Whether a bank-based or a market-based system provides financial services appears to be of secondary importance, which is in line with the empirical evidence presented above. Overall, it turns out that existing financial structures are rather complex with the above mentioned distinction between a bank- and a market-based financial structure falling short of providing a reasonable approximation of reality. Financial structures in developed countries display both categories and differ mainly in the extent, to which markets or banks deliver financial services. For instance, bank lending has an important market share even in the USA, with the country’s financial system being widely perceived as the prototype of a market-based system. In addition, banks are not the only financial intermediaries. Insurance companies and investment funds often also play prominent roles in the allocation of savings. Furthermore, theoretical reasoning permits plausible arguments in favour of both financial markets and banks as providers of capital while empirical research has so far not been able to establish a clear case for one or other of the mentioned prototypes. Instead of focusing on the difference between banks and markets, attention has shifted towards the completeness and adaptability of the financial structure. These issues will be considered in the subsequent chapter. Stulz (2000) regards it as essential that a bank-dominated system be accompanied by active financial markets, which serve as an alternative for enterprises in getting funds thereby reducing the market power of banks. For banks or other financial intermediaries, it is furthermore useful if an active financial market exists because it allows banks to limit their lending to large customers. This seems to be of importance if enterprises are large in comparison to the bank or if they are growing rapidly. Financial markets provide an exit clause for banks through offering enterprises their assistance in going public, which implies the issuance of equity or corporate bonds. Over the life-cycle of firms, their financial needs are likely to change. Small and young enterprises are likely to benefit from the service of banks to provide financing in stages while the bank learns how the enterprises evolve. Small firms may also value that banks provide their services at low transaction costs compared to financial markets. More mature and larger firms rely more on financial markets finding it favourable to lend large sums by issuing bonds or equity. Overall, it is important that the financial structure is complete offering financing through banks and financial markets and being sufficiently adaptive to allow the evolution of financial intermediaries that specialise in financing the needs of small enterprises. In this context, venture capitalists are regarded as hybrids that fill the gap.41 The same principles might hold for countries. As the economies become more mature and the recent technological advances require investment into immaterial capital to a larger extent than in the past, a financial structure with the ability to adjust should develop a bias towards market elements. In Germany and Japan, who have for long been regarded as bank-oriented systems, recent developments suggest that financial markets have become more important. For instance, a rising importance of securitisation, the increasing issuance of equity by large corporations and the formation of risk capital markets have increased the importance of funding via the market in Germany. In Japan, the banking crises of the 1990s have diminished the role of banks in the economy.

How Are Financial Structures Related to Structural Change And Technical Progress?

The discussion on the determinants of economic growth has shifted in recent years from the analysis of factor accumulation towards the analysis of technical progress and its determinants. Endogenous growth approaches stress the importance of R&D in generating knowledge and of innovative entrepreneurs using this knowledge to introduce new products and processes in business. Empirical research attaches crucial importance to R&D activity, human capital formation and the incentives of entrepreneurs.42 Financial patterns are likely to influence innovative entrepreneurs along the lines analysed in section 4.2. In addition to determining the costs of capital, financial structures influence incentives through the evaluation of projects and the way corporate control is exerted. In this connection, financial structures can be either preservative or supportive of structural change. This section attempts to derive evidence of this feature from two sources. The first is the extent of structural change in the financial system itself, showing its ability to adapt and to exploit technical advances. The second source is the completeness of the financial structure, which is the extent of coverage of the innovative enterprises’ financial demands.

Impact of Technological Progress on The Production Process of The Financial Sector

Information and communication technologies are widespread in the “production process” of the financial sector. Thus, technological progress can be expected to change the organisation of financial activity. The availability of automatic machineryand large processing power has already enabled financial intermediaries to streamline activity. The spread of ATM and the reduced density of the branch network are visible signs of this development as regards the retail market. Concerning the wholesale market, the development of financial innovations as well as the remote access to financial markets at different locations, for instance, would not have been possible without the emergence of information technologies. The management of information has become less costly by the use of mainframe computers in the last decade. The recent technical advances relevant for the financial sector are more communication related than related to processing power. New communication technologies facilitate different means of access for customers to their financial intermediaries. The replacement of personal services by remote banking is estimated to yield considerable cost reductions. Transactions via telephone are estimated to cost 40 to 70 % less and those via the internet are estimated to reduce costs to 1 – 25 % in comparison to manually handled transactions.50 Productivity growth in the financial sector is hard to measure owing to difficulties in pinpointing the sector’s output. For the US financial sector, Bailey and Lawrence (2001) identify an acceleration of labour productivity growth by 3.5 percentage points in the second half of the 1990s to about 6.5 per cent annually. Since the financial sector invested heavily in ICT, the acceleration of productivity is likely to a large extent to be due to the increased usage of new technologies.51 A more indirect effect of the usage of ICT can be derived from the study of Petersen/Rajan (2000). They see the efficiency effect of the increasing use of ICT in financial services in falling transaction costs and present evidence that ICT usage has resulted in a reduced physical distance between banks and small lenders. Thus, access to bank loans has become wider for small business in the USA, which tends to reduce their capital costs and raises their growth potential. According to a review by the European Central Bank (1999b), banks in the EU mainly use new technologies to improve internal information management, but have generally been hesitant to exploit technical advances in their relation to customers. Illustrations of this may be seen in the impact of remote banking on bank’s intangible assets such as customer loyalty as well as in their difficulties in assessing the technological risks of electronic banking. The reluctance of EU banks stands in contrast to observations in the US, where financial institutions have increasingly focused on new technologies. Instead of outsourcing their information technology, they tend to link their core competencies with new technologies in a shift towards information providers.

Composition of Financing of Non-Financial Corporations

Micheal Theil (2001) Director General for Economic Growth in his paper-a review of theory and available evidence in the Economic paper- Finance number 158 July 2001 described the composition of financing of non-financial corporations in the Euro Area in 1999. The paper pointed out that long long-term bank loan represents sourcing of private sector financing 19%, the medium term bank loans 16%, short term bank loans 12%, the estimated loans from other financial institutions 3%, the debt financing securities 10%, The debt securities 10%. IN the equity, the quoted shares represent financing of 24%, unquoted shares 13%, and venture capital represents 3% sourcing of private sector financing in the baskets of European Union countries. However, in Bangladesh, there is no structured study quantifying such sourcing of private sector financing in such structures manner. One can estimate such figures which might not claim through empirical study, can only estimate such figures for comparison purpose. These figures might be estimated as, long term bank loans10%, medium term bank loans 5%, short term bank loans 35-45%, loans from other financial institutions 5%, debt securities 3-5%. The quoted shares 10-12%, unquoted shares and other equities less than 10% and ventures capital financing including private equities less than 1% of whole market requirements. Considering the current state of private sector sourcing of financing, one can conclude that Bangladesh Financial  System enjoys ample opportunity to redesign its sourcing of private sector financing for economic growth to compete with other South Asian neighbors, East Asia, Europe, Africa, Latin America and North American Financial System.   

Sigurt Vitols [(2001), source-Avery and Ellichausen, 1986)] conducted study on the structure of postwar financial system in the mid 1990s in the paper on the origins Bank-Based and Market-Based financial system in Japan, Germany and the USA. The findings of the paper indicated that proportion of Banking System Assets in total financial system assets (1996) Japan 63.6%, Germany 74.3%, and USA 24.6%, By comparison the Bangladesh can be estimated most likely over 60%. The proportion of securitized assets in total financial assets (1996) accounts for Japan 22.9%, Germany 32..0%, and the USA 54.0%. Compared to those we can estimate for the Bangladesh 25%. The proportion of securitized assets in total household sector assets (1995) accounts for Japan 12.4%, Germany 28.8%, and the USA 5.9%. The comparative figure for Bangladesh can be estimated less than 5%. The proportion securitized liabilities in total financial liabilities of non-financial enterprises (1995) account for Japan 15.4%, Germany 21.1%, and the USA 89.61%. The comparative estimate for Bangladesh may range from 35-50%. The outstanding financial liabilities of public sector accounted for securities (1995) scorded in Japan 71.2%, Germany 56.7%, and the USA 89.6%. The comparative figure for Bangladesh may stand 40%.  All the information of this study and comparison of those with Bangladesh shows that well planned Financial System Structure was absent for long to captures the opportunities for economic growth of the country. Time has come to recalibrate and design it properly to pave the path of desired Economic Growth in the most efficient way.    

Bangladesh:  Effective Financial System For Sourcing of Finance For Economic Growth

Private Sector: Based on discussion this paper, one cannot replace existing financial system overnight rather it takes a long term position. For sourcing of private sector financing for economic growth Bangladesh can move for a model financial system structure. This may be through Banking Cannel 25-45%, This include Commercial banks, Development Financial Institutions for long term financing, Infrastructure Development Bank (converting current IDCOL, IIFC, or any others), HBFC which is a corporation and converting it into Bank and injecting GoB fund at lower interest, Agricultural Development Bank, NBFIs, and Effective Promotion of  Investment Banking. Develop Equity Market capable of sourcing Finance 35-50% attracting public and intuitional investors, listed companies, private equity and fund from home and abroad, issuing debentures,  and other financial instruments. Creating effective Bond Market in local currency and foreign currency with a share of 20-30% of whole private sector sourcing of fund for long tern finance. Attracting foreign Direct Investment targeting 20-25% of country requirements. 

Public Sector: Bangladesh is a country that lost every infrastructure and productive unit in the war of liberation and 23 years of exploitation like Japan in second World War. Soon after II WW Japan started again and created success story by doing economic miracle. Time is for Bangladesh. Government of Bangladesh supplied huge resources to the public sector and developing infrastructure to support enabling better business environment. To implement the vision 21-30 and 41 as developed country public sector financing source would play a vital role. Keeping all these issues in plan Bangladesh needs recasting its financial system structure. These may be from Banks and financial Institutions source 15-25%, Stock Market 10-20%, Bond Market15-25%, and financing from GoB Revenue Department 45-50%. These are the proposals sated here which is estimate. In reality check, the GoB should form a Committee with skilled professional to design a doable Financial System Structure with a specific Terms of Reference defining the timeline for consideration of competent authority.

Editor’s Lens: The Financial Architect


The whole world has suddenly changed. A miniature invisible virus has stopped billions of people around the world. For sure, no one can say when the last time everyone stopped together like this way. Such a devastating collapse of the world economy is rare in the history of the human race. In this turbulent situation; we all are facing the same struggle, which is the fight for survival.

The effects of the COVID-19 Pandemic affect the publication of your beloved magazine The InCAP, the print version of this magazine came to a standstill. But nothing can stop us; in our web version, we have tried to be consistently aloud, and we are successful. Now the print version is in your hand. It’s all become possible because of your love and support.

This is the time when the world is slowly moving, and The InCAP has arrayed this issue with a detailed analysis of the trade and economic condition of Bangladesh and the world as well. In this issue, we have highlighted the financial analysis of Bangladesh’s prominent economist, Dr. Jamaluddin Ahmed, FCA. He is the General Secretary of Bangladesh Economic Association and former Chairman of Janata Bank Limited. In this context, leading corporate leaders have also expressed their worthy perspectives.

We will survive by strengthening our body immunity system, and obviously, we will win against this invisible adversary. This world will breathe again, normally. Our economy will survive and will come back much more substantial than before.

Stay healthy, happy, and safe.

Nasrin Nahar Jeneva



Adopting New Normal: Life Insurance in 5 minutes through e-KYC at Guardian Life

The COVID-19 has given a new boost in digital innovation worldwide. The selling process of life insurance industry in Bangladesh is dominated by conventional tied agents. However, due to maintaining social distancing and health safety for COVID-19, selling/buying insurance in person became challenging. The digital revolution has given birth to a new connected world where adding value to a customer’s experience is essential. With the relentless pursuit of being a customer-centric life insurer, Guardian Life has implemented e-KYC (Electronic Know Your Customer) solution within its EasyLife app along with a newly designed and revamped EasyLife website.

This is the first e-KYC integration of the whole insurance industry in Bangladesh allowing customers to buy life insurance in just 5 minutes! Guardian Life has introduced this major initiative to have a better and secure customer onboarding process through app/web. From now on, customers would be able to complete life insurance buying journey through e-KYC by just taking pictures of NID (both sides) and nominee NID (both sides) along with face verification (cross matching and verifying information with Election Commission database) process. The e-KYC solution will make the whole customer experience much more convenient and will complete EasyLife customer app/web journey in less than 5 minutes.

The official e-KYC digital launching ceremony took place on Wednesday, 26th August, 2020 where Dr. M. Mosharraf Hossain, Chairman (In charge), Insurance Development and Regulatory Authority (IDRA) was present as the chief guest. The event was also graced by the Sponsors and Patrons of Guardian Life Mr. Tapan Chowdhury, Mr. Syed Nasim Manzur, Mr. Sameer Ahmad and Mr. Syed Afzal Hasan Uddin. Among Directors, Mr. Syed Akthar Hasan Uddin and Mr. David James Howard Griffiths were present at the event. The event was led by Mr. M M Monirul Alam, Chief Executive Officer of Guardian Life and Mr. Shamim Ahmed, Chief Operating Officer briefed the audience about the e-KYC customer journey. The event was also attended by Senior Management of the Company.

The e-KYC integration solution was launched with an attractive online video commercial (OVC) that clearly illustrates the customer journey, click the link to view the OVC:

National Budget Under COVID and Related Issues: Dr. Jamaluddin Ahmed

About The Author

Dr. Jamaluddin Ahmed PhD FCA

General Secretary, Bangladesh Economic Association
Chairman, Janata Bank Limited


COVID -19 is an invisible enemy not limited by the borders of countries. It has adversely affected the economic, social, and political aspects of human life. The running of the “Economic Machine,” through the creation of billions and trillions of economic transactions, has surrendered to the COVID related lockdown cast on the people of Bangladesh. Bangladesh has been at the mercy of the disease since March 2020. Before that, we have experienced natural calamities such as floods and cyclones. Cholera, Malaria, Polio, and many other diseases have been overcome, but COVID-19 has created panic in our public health system, and social life has come to a halt. 

Unlike Europe and other industrialized countries, our nation is built on strong familial bonds, and the joint family system has influenced all aspects of everyday life such as the education system, professional life, business practices, and economic management. This makes our way of life quite unique. The virus has created large barriers and disruptions to our way of life, such as not being able to attend the Janaza of friends and family who have sadly passed away because of it. This means that we cannot perform our day-to-day activities following the religious and familial values in the way that our parents and ancestors have before us. It seems that the biggest challenge of overcoming the coronavirus is that we have to reorient our social, cultural, economic, and political activities. If we think back to earlier this year, we had to abandon all public functions celebrating our Independence Day on the 26th of March. Bongobondhu’s 100-year birthday celebration, our Bengali New Year celebrations, and even the Holy Month of Ramadan have also fallen mercy to COVID-19. 

Most importantly, from an economic perspective, our Economic Machine has been locked for the last 4 months, and we have lost around BDT 4-5 Lac Crore. We do not know how to recover this amount, and at the same time, we are yet to predict the future losses or how long the disease will continue to hamper our economic progress. 

Barrier to The Graduation of Bangladesh to A Developing Country:

Obviously, COVID-19 will adversely affect our graduation to a developing country; however, the magnitude will depend on the continuation of the virus and also the ability of the Global Scientific Community to create a vaccine to challenge it’s spread and growth. The faster we get the vaccine, the quicker we proceed with our development programs and unlock our Economic Machine to reach pre-COVID era output. The adverse impact of the pandemic on our graduation process cannot be denied, but we can overcome this. We must estimate our recovery process using short, medium, and long term categories and revise the graduation plan by creating alternative scenarios and options. 

Impact COVID-19 on Poverty in Bangladesh:

This year, the Bangladesh Economic Association (BEA) presented its Alternate Budget Document 2020 on the 8th of June 2020 over a Zoom conference. This presentation has been an annual practice since the fiscal year of 2015-16. This year, the COVID-19 impact was discussed from different angles. 

This Zoom Conference was attended by 43 different districts of Bangladesh, including Dhaka, our capital. Section 7.2.4 of the BEA Alternate Budget 2020-21 elaborates on the pandemic’s impact on poverty. The lockdown has halted the smooth operation of Bangladesh’s Economic Machine, which has ultimately increased unemployment. The BEA attempted to compare the pre and post COVID class structure of Bangladesh population routing from the pandemic, and the findings are listed below.

Table-1 of the BEA Alternate Budget 2020-21 (page 41) describes the pre-COVID (Feb 2020) condition and post-COVID (31 May 2020) impact on the different classes of the Bangladesh social system structure. The class structure is divided into the following; total poor (10%) including the ultra-poor (5%), the middle class (70%) – subdivided into the lower middle (30%), the mid-middle (20%), and the high-middle(20%) class. The rich class (10%) including the super rich (5%). The poor (20%) share total household income in the pre-COVID period (Feb 2020), which has increased to 40% of households in post COVID. In the case of the Ultra Poor (10%), the percentage of households has increased to 25%. In the case of the lower middle class of pre-COVID, the number of households (30%) fell to 14% while the upper-middle class (20%) fell to 13% at the same time. Regarding the richer groups, there is no reduction percentage in terms of households, but it shows an increase in household income share from 38.09% to 46.09%. Most significantly, the Gini-Coefficient Ratio and Palma Ratio in the pre and post-COVID are 0.482 and 0.635, 2.92, and 7.53 respectively, which is a clear symptom of rising inequality in the Bangladeshi Social Class Structure. Policymakers in such a situation must carefully monitor to take necessary measures to overcome such a situation. The social class ladder transformation should be looked at in a very thorough manner. Depending on the length of continuation of COVID, the transformation of the social class ladder may increase more. If the COVID is sorted out quickly, then the damage may be reduced; however, the damage could also increase if not remedied soon.

Effectiveness of GOB Incentive Package and Role of Banks:

The Government’s initial response to the problem is encouraging through the declaration of the incentive package. GOB decided to flow the funds to the garments workers through banking channels and mobile financial services. The GOB monetary package to the industrial borrowers declared through the central bank, also deserves credit through the series of declaration to the banks. It also ensured that this is the beginning and not the end. However, with the grace of automation and reliable electricity and the grid system, we are hopeful of deriving the benefit of keeping the Economic Machine functioning. The challenge remains to Banks who are in the front line of implementing these packages. Both the Bank management and Board are required to monitor the effective implementation of these packages in the most diligent and reliable manner. If we can implement these programs efficiently, Bangladesh shall survive from the damages incurred thus far within the targeted time frame. The initiative has to be taken by banks taken for the affected startups, and another eligible under the series of GoB packages banks are to be in close contact with the District Chamber of Commerce and the FBCCI as well as other chamber bodies such as the Women Entrepreneur’s Association alongside of existing clients and new borrowers. All the GM offices, Area Offices, and Branch Managers have been instructed to support the new starts and existing ones within the GOB framework instructions. Supervision and monitoring from the highest to the lowest level must be ongoing. The whole nation is looking for positive results on the effective implementation of GoB Packages. 

Regarding National Budget 2020-21:

This year’s budget preparation has a different perspective because of COVID. The country is in a war-like situation because of the appearance of the pandemic in China since early January 2020 or late 2019. Bangladesh was not aware of the severity of COVID. Budget preparation in our country has been following a practice used since the times of the British East India Company and the Mughal Emperor Akbar. Because of the British rule of 190 years and the Pakistani rule of 23 years, Bangladeshis could not enjoy the budget preparation on their own terms. For the first time after the victory of 16th December 1971, Bangladeshis had the opportunity to prepare their own National Budget. Every year, we prepare the budget following the practices inherited from previous colonial rulers. 

If we compare the GOB budget with the corporate budget, we observe that the capital expenditure ratio of corporations is higher than the revenue expenditure in the Government budget. We observed that the proportion of operational expenditure is higher than the Development expenditure. Bangladesh is currently following a Revenue to Development expenditure in the manner of a 60:40 ratio. This should be reversed to a ratio of 40:60 in terms of Operational to Development expenditure to achieve decent economic development. There must be a paradigm shift in order to graduate Bangladesh to a developed country. 

Historically, we see that regardless of the budget size, we implement 90% to 100% of the revenue expenditure, but we do not execute more than 40% of the development projects proposed, including both GOB and development partner financed projects. In addition, these projects are proposed by their respective Ministries (Secretary as Principal Accounting Officer and Minister as the Administrative head). For the yearly budget, the Finance Ministry consolidates them after the approval of the ECNEC. On completion of the Fiscal year on the 30th of June, we see that the un-implemented projects are around 40%, but no one is taking responsibility for such continuous failure, and none is punished for such non-compliances in the last 50 years. In the case of the failure of the Revenue target, no one was made accountable for such failures and non-compliance. Last year, the budget assured that the Director of Development projects would be made accountable for any failure under the Rules of Business, which is a constitutional requirement. People do not see any evidence of such failure. 

The budget should emphasize the reduction in the income/wealth inequality gap between the rich and the poor, men and women, as well as developed and under-developed areas. The collection ratio of indirect taxes should be lower than direct taxes. But in Bangladesh, this rate is higher and disproportionate under the current budgeting system. Every one of the countries which have graduated from LDC to Developing and then Developed, have designed an effective financial system. We have not been able to structure a desired financial system for Bangladesh even after 50 years of our independence. This means our country must have a policy of how we could source our industrial, infrastructural, and other project financings. Existing models in academic literature indicate that a country can follow a Bank or Market-based method or even a combination of both. In the last 50 years of independence, we have yet to chalk out this crucial issue

This is the perfect time to frame the Financial System Architecture to determine what percentage of financing should be sourced from corporate bonds, banking systems (both COMM, DFI, House Building Finance and Infrastructure), Equity markets and FDI’s. The central bank should play a developmental role rather than a conservative one. In the case of the Japanese and German Central Banks, US FED, and other central banks of Europe, South Korea, Indonesia played their role after World War II and turned their economy to this height of development. We would have to change our perceptions from the colonial era to an Independent Spirit. We must shed our colonial mentality to embrace the spirit of independence required to own our destiny. To increase the flow of money generated from the Government, the treasury must be decentralized to maximize monetary transmission. The current treasury of GOB has been inherited from the creation of the Reserve Bank of India in the late 1937s from the Rule India Act of 1935. After the creation of Pakistan and India in 1947, India retained the same name for its central bank as the “Reserve Bank of India” while Pakistan named its one as the “State Bank of Pakistan.” After Bangladesh’s Liberation, the central bank was renamed “Bangladesh Bank,” only replacing the name with no major changes inside Bank Order, which we inherited from the two colonial rulers, i.e. Pakistan and British. 

We should have a fresh look to reform the regulatory framework required to work as an Engine of Bangladesh’s Development. The same comments apply to the Revenue Collection System. NBR is an organization run by NBR cadre at all operational levels, yet we appoint the Chairman (Leader) from a non-NBA cadre, so there is a huge gap of knowledge between the CEO and operational levels. We have not seen any person become the Chairman of NBR from their own cadre. We should think about this important issue. Someone coming from other professional cadres could make a big contribution from the generic NBR cadre. How does the NBR chief post to this position from other cadre can contribute when his term is only for a maximum of three years. This journey has continued as routine work since the era of Pakistani rule, and independent Bangladesh is following that even after 50 years. This paradigm should be shifted. Moreover, the NBR should extend its network to all Upazila levels to increase visibility. At the district level, the NBR should be located at the DC office. With the separation of the Judiciary from Administration, they have GoB constructed building and judiciary vacated DC Office premises. Now, the people of NBR should enjoy the recognition that they are part of the GOB. In order to change the public perception about itself, they should consider this as a marketing approach. Once the NBR is recognized at District and Upazila levels, things will change in Revenue Collection while keeping with the highest priority of Automation within NBR. As of today, the all districts NBR office is located at private houses which cast image problem at the district level. Once all these action plans are implemented, we can assure Bangladesh can present a 15 Lac Crore Budget within the next 3 years (2025).

Julien Allard and Rodolphe (2011) in their study on private sector financing (2002-2007) “Liabilities to the Market: Securities other shares” has shown that the seven countries of Australia, Canada, Denmark, Finland, France, the UK, and the USA have been classified as market-based economies, having financing of >= 51% from Market-based sources. Out of the 17 countries, Austria, Belgium, Germany, Italy, Japan, Netherlands, Norway, Portugal, Spain, and Sweden are Bank-based economies having a source of finance from the banking system of >= 51%. 

Four countries are identified strongly as market-based (Australia, Canada, USA, and the UK), and four countries are classified as strongly bank-based (Belgium, Portugal, Spain, and Austria). Michael Thiel’s (2001) study on the “Composition of financing from non-financial corporations” (Please insert the correct name of the paper in inverted commas) reported that for the Euro area in 1999, financing was shared in the following manner: long term banks 19%, medium-term bank loans 16%, short term bank loans 12%, loans from other FI’s 3%, Debt securities 10%, Quoted Shares 24%, Un-quoted shares 13%, and venture capital at 3%. The time has come for Bangladesh to decide on the design of the structure of sourcing finance non-financial operations of the country. 

Challenges to Bankers:

In the COVID pandemic, Bank employees are working for distressed people through branches across the country in a manner similar to the Health Department, physicians, Army, BGB, Police Administrative personnel, and Journalists. Risking their lives, our managers and officers at the branch level are engaged in providing banking services with the utmost dedication. To boost morale and confidence, we have held Zoom meetings with branch managers, senior-level managers, CEO, and DMDs and thus increased the communication among the officers at different levels. We discuss our day-to-day work, including short, medium, and long-term strategic planning. Discussions are done on value addition and non-value addition jobs as well as techniques on how to reduce duplication of work through the application of ICT. Plans have been made to increase the number of the banked population from its current level of 40% to 50%, 60%, and even possibly 70%. This increase would reduce corruption by the same proportion. This means that the Bangladesh National Payment System under an automated or digital banking financial system can reduce the cost of doing business by reducing corruption. SME’s and CSME’s are the priority of the current government and these bankers can contribute to the rural economy. We suggest that the employees of the branches calculate the loan deposit ratio and then calculate the cost of funds daily. Regarding the implementation of core banking, the managers can make bank transfers of money when the velocity of money significantly, which would number of transactions ultimately increase country’s GDP. Bank managers working at the branch level can contribute to GDP by making digital financial transactions.

The Mastermind: Yasmine Sherif

Yasmine Sherif
Education Cannot Wait (ECW) Global Fund
New York, USA

Here is the full part of the glittering conversation with Ms. Yasmine Sherif. The InCAP appellations her The Mastermind, what she precisely deserves.

The InCAP: Yasmine Sherif and Education Cannot Wait (ECW), we all know these two entities are entirely inseparable. What inspired you to engage with this kind of unconventional work?

Yasmine Sherif: We are all inseparable from Education Cannot Wait. Education Cannot Wait is an UN-hosted entity and a movement for Sustainable Development Goal 4: quality education for the 75 million children and youth left furthest behind in brutal conflicts, climate-induced natural disasters, and forced displacement. As an UN-hosted fund and a movement, it is both conventional and unconventional. One does not exclude the other. On the contrary, to make a difference in this world, we need a combination of both. 

Most importantly, these 75 million children and youth, of whom 39 million are girls, are part of humanity. Investing in their learning, growth, and development means investing in our shared humanity. We are all interdependent and, therefore, also responsible for one another. As one humanity, we are all inseparable.

I have dedicated most of my life to international service for those left furthest behind in crisis-affected countries, so this is one strong incentive. I do what I love. As a human rights lawyer, I derive inspiration from advocating and empowering children and young people to exercise their rights in crisis. Quality education is a human right that is a critical foundation for all other human rights. If the young generation is kept illiterate, especially girls and adolescent girls, how can we end discrimination against women? How can we ensure the rule of law, good governance and the whole spectrum of social, economic and cultural rights, if we do not allow the young generation to learn to read and write, address the traumas of their experiences, develop their social and emotional skills and receive a diploma? The lack of education is the biggest barrier to realizing their inherent human rights. 

Education Cannot Wait was established at the World Humanitarian Summit in 2016 after many years of very powerful, collective global advocacy by civil society, UN agencies, and governments. Gordon Brown, the former Prime Minister of the UK, who is now the UN Secretary-General’s Special Envoy for Global Education and the Chair of Education Cannot Waits High-Level Steering Group, played an instrumental leadership role in the creation of Education Cannot Wait. Working with him is very inspiring. He has a brilliant mind and enormous moral courage. His passion for Education is unprecedented. Clearly, he and the whole education community inspire me, as do the millions we serve. 

When I meet parents, teachers, children, and adolescents, not the least the adolescent girls, in countries like Afghanistan, Chad, or Colombia, I see in their eyes a glimmer of hope. When I watch them speak up for their right to inclusive quality education, and when I hear their stories and learn of how they invest in their own Education with ECW’s support, I am profoundly inspired by them. I see in them so many future leaders and great professionals, who can make this world a better place. 

We must not forget that those who suffer brutal conflicts and forced displacement tend to develop unique capacities of resilience. As a result of their suffering and their will to survive in the harshest of realities, they are often endowed with extraordinary potential. However, this potential requires a good education to fully blossom. We cannot afford to lose their incredible force of life. They are an asset to their communities, their countries, and to the world – provided that they have a chance to nurture and transform their resilience in a safe learning environment and through good Education. 

What are the core functions of ECW?

As the first global fund dedicated to education in emergencies and protracted crisis, ECW pursues five strategic objectives in a mutually reinforcing fashion: 

First, to inspire political commitment and support. Education in humanitarian settings has been of a lesser priority with a figure that is fluctuating between 2.4 percent and 3.4 percent allocated to Education in the humanitarian response. A political commitment means getting the priorities right in situations of conflict, disasters, and forced displacement. If 3 percent is all we are willing to invest in a child or young person’s education, we need to ask ourselves if this is how we prioritize our own children’s future. Of course not. We know that Education is essential.

In the world of international aid and investments, it has to be just as essential for the 75 million children and youth who suffer the brunt of these crises. The European Union, through the European Commission, made a political commitment to allocate a minimum of 10% to Education in humanitarian settings, and the UK and Canada, among others, have made girls’ education a top priority. It all starts with a political commitment, and it is happening. 

Second, to catalyze financial resources.  The result of a political commitment is that financial resources follow suit. According to the report by the High-Level Panel on Humanitarian Financing presented at the World Humanitarian Summit in 2016, there was some US$77 trillion in total GDP in the world, and the figure today is about $80 trillion, according to the World Economic Forum. Imagine what we could do with $8 billion allocated to Education for children and youth, especially for girls, in countries affected by the crisis, which is 0.00009 percent. There are a lot of financial resources in circulation around the globe. The challenge is to share it humanely and wisely. Education Cannot Wait’s purpose is to unlock those resources, attract more funding to education in emergencies and protracted crises. So far, Education Cannot Wait has catalyzed over half a billion US$. Still, it is not enough. We need at least to unlock US$1.8 billion by 2021 in order to ensure quality education for nearly 9 million children and youth, of whom 60 percent are girls and adolescent girls. Quality education costs money and even more so in a country affected by the crisis. Yet, there is no other choice. It is a priceless investment. 

Third, to facilitate cooperation, collaboration, and coordination through joint programming. In the field of service, we can no longer afford to compete and work in silos. We have to rise above all that. In the same spirit, humanitarian assistance, alone, cannot create sustainable solutions. We need to look ahead long-term as well. Education Cannot Wait brings together both humanitarian and development actors through joint programming, whereby all work together within the same program for quality education, each with their own comparative advantage and yet interdependent. There are needs that are urgent (humanitarian) and needs that require systems-strengthening (development). By designing a joint program that caters to the immediate needs, while also laying the building blocks for long-term solutions, Education Cannot Wait transcends silos and put in place a coordinated framework that addresses both sets of needs in parallel. 

We can no longer work in silos. We need to work together and seamlessly link humanitarian and development efforts. It stands greater chances of sustainable impact. It draws on collective outcomes, and it moves faster with more speed. Education Cannot Wait’s Multi-Year Resilience Programmes (MYRPs) do just that. About ten such joint programs are currently up and running in Chad, Ethiopia, Palestine, and Uganda, and we aim at having 25 MYRPs in place by 2021. 

We believe that this model, which has been tested before, may be conducive to all SDGs. It supports the UN Secretary-General’s Reform, which calls for a New Way of Working. It is designed to bring everyone together and address a multitude of needs, it is implemented with speed, and it leaves none behind. 

Fourth, we seek to strengthen the capacity to respond.  This requires national and local ownership. In all Education Cannot Wait’s investments, we work closely with the host-government, who leads strategically on all our investments. The Ministry of Education is a critically important partner, as are the Prime Minister and the Ministry of Finance, who play essential roles in determining the future of the next generation in their country. In all our multi-year investments, Education Cannot Wait works directly through the in-country coordination mechanisms to allocates resources to the government to prevent and mitigate the impact of a crisis while also responding to, and manage, the delivery of Education to for instance refugees and host communities. It is very motivating to work with governments who care so strongly for the Education of their children and youth, and even more so when they are genuinely concerned for the Education of refugees seeking protection in their country. 

Local ownership and capacity also entail civil society and communities. Education Cannot Wait’s investments are also geared at empowering local civil society, teachers’ associations, and community-based schools. Civil society plays a critical role in situations of conflict and crisis. In a country like the Democratic Republic of the Congo, where the crisis has lasted for decades, we are grateful to the civil society for delivering on SDG 4 in the most difficult of circumstances. They need our support, not the least financial support, to keep carrying out their noble work. All in all, Education Cannot Works has already reached the target of 25 percent of the Grand Bargain, which is the target for the localization agenda, and we continue. 

National and local actors know their country more than anyone else. They are also the ones that will remain when all of us leave. Investing in them is the safest option to ensure that our investments are crisis-sensitive and sustainable. It is also the right thing to do. Why would we run it for them or above them? In the context of international aid, they are our teachers. 

Fifth, improve data and accountability. Education Cannot Wait focusses on quality education, not just any education. In order to plan and execute our investments, we need solid and scientifically collected data in order to measure impact and learning outcomes. It is not sufficient for a child to attend school in the midst of a crisis. It may be a severely dysfunctional school with no learning materials, with no trained teachers. Then what? They leave school and can’t read or write. It is all about intellectual honesty. Quality education requires quality data as part of the planning to get the right baseline and design. Then, data is a very powerful tool in how we invest funding and measure impact. 

Education Cannot Wait, therefore, invests in data collection and analysis. We work with partners who have the capacity to collect and produce accurate data. We also have our own data and monitoring & evaluation team that is extraordinarily skilled and knows how to use data to achieve the best value for money. 

Lessons learned are equally important. One cannot keep doing the same mistakes over and over again. The learning process of what works and what doesn’t is imperative. The Education Cannot Wait’s multi-year resilience programs (MYRPs) build on tested models in other development sectors. It is a model we used in the Bureau for Crisis Prevention and Recovery in the United Nations Development Programme, which we now have expanded and further refined in Education Cannot Wait. 

Education Cannot Wait also aims at less bureaucracy and more accountability. By shedding the garments of redundant bureaucracy, we can focus on what really matters: speed without compromising quality. In a crisis, one has to move fast. At the same time, we need quality to ensure sustainability. We are accountable to the strategic donor partners who generously fund Education Cannot Wait. We are also accountable to the children and youth we serve. By remembering why we are here, we keep the focus on results and overcome bureaucratic hurdles. 

How many employees and volunteers do you have? How do you keep your team members keen and motivated?

Education Cannot Wait is a very lean and cost-effective global fund. This is one of our unique, added values. As a result, all funding goes to the quality education of the children and youth. We have 25 approved staffing positions and just half a dozen of secondments and interns. It is not a heavy bureaucracy at headquarters requiring huge amounts for salaries. On the contrary, as a small team with staff in New York, Geneva and Amman, we are a catalyst and use the funding to leverage the expertise and in-country presence of our partners who do the actual work. 

By working with UN agencies, like UNICEF, UNHRC, UNESCO, WFP, and civil society, like Global Citizen, Save the Children, PLAN, NRC, Jesuit Refugee Service, BRAC, War Child, and many local civil society organizations, we work as one team. They are the ones doing the real job on the ground. So, Education Cannot Wait is a very cost-effective global fund. We have no ambitions to do what in-country partners are doing already. Our ambition is to achieve our five core-objectives for the sake of the 75 million children and youth. In doing so, we raise resources for our partners who are out there, and we work as one team with all. We are, as I said earlier, one humanity. 

At present, ECW is becoming a global movement, but Ms. Sherif, do you think ECW is able to create enough impression on the global emergency?

We are a global movement, and this global movement is making an impact. Over 2 million children and youth, of whom half are girls, are now accessing quality education in situations of severe crisis. This is a collective effort materialized. It is happening. But it is not enough. 

There are millions more left behind, and we cannot stop until we reach them. Financing is essential. Without funding, it is simply impossible to deliver quality education. In a country like Sweden, where I come from, it costs about US$11,000 annually to provide quality education to a young person. We are not even asking for such amounts for each of the 75 million that we serve. But we do need the minimum, which is $1.8 billion by 2021, to deliver decent quality education to nearly 9 million children and youth. We urge governments and the private sector to help us help them. It is the most cost-effective priority we can make in addressing contemporary political and human challenges with which our world is confronted. 

Where and how do you want to see Education Cannot Wait (ECW) in the next five years?

A continued growth towards the goal of reaching 75 million children and youth. A minimum of at least 60% girls and adolescent girls included in all our investments, a minimum of 10% towards early childhood development, a significant inclusion of children with disabilities, and real learning outcomes for all benefiting from Education Cannot Wait’s investments. In terms of resources, we need is $3 billion at least by then. It seems like a lot at first, but if you compare it to the current annual global GDP of $88 trillion, it is an incredibly minuscule .00003%. Unlocking that tiny amount would have an amazing impact on education in emergencies and protracted crises. I also hope that all SDGs will benefit from Education Cannot Wait’s model. Our investments in SDG 4 warrant a similar change across the board. Educated children and youth will need the tools and opportunities to pursue socio-economic goals for their societies. They will need livelihoods, will want justice and peace, and will demand gender-equality. 

You’re the author of “The Case for Humanity: An Extraordinary Session”, what is the theorem of this book.

When I grew up, I was taught about great role models, values, and possibilities to serve humanity. My mother, a very wise and intelligent woman, played an essential role in shaping my choices in life. At home, our shelves were filled with books about all the world religions, about great leaders like Martin Luther King Jr or Nelson Mandela, historical personalities who did something for humanity, whether in art, science, or the humanities. These were issues we always discussed at home. Before my law-studies, I studied philosophy. I have always been attracted to those who try to resolve the challenges of human existence and make the world a better place. 

As a fresh law-graduate, I joined the United Nations in 1988. I had the privilege of working with some great minds and personalities committed to this global multilateral organization, whose Charter and Universal Declaration for Human Rights are inspiring testimonies to the potential of the United Nations. Both were crafted in the aftermath of a brutal World War II and promised a better world. 

But as so often happens, the bigger the organization, the greater the traps for losing the vision. There were times when I felt we needed to revive the original purpose, and there was a need to reignite the flame of 1945 when the UN was created. So, I created a semi-fictional story. I imagined all the great humanists, artists, scientists, and political leaders in our history and present time gathering in the UN Security Council to adopt an Agenda for Humanity. I researched them and let them speak to our contemporary challenges and fears, and our hopes and possibilities, in the era of the 21st Century. 

Using their own words, as these were once spoken or written, I created an authentic account of their wisdom to weave together an agenda for humanity. As a lawyer, I titled it The Case for Humanity. I was just a fly on the wall. They spoke through the book. They made the case, and interestingly they all were aligned as great minds do indeed think alike. 

I am a practical idealist. It is the action that matters. But we need an authentic and universal value system to guide that action. This requires vision and empathy. The Case for Humanity is about the vision shared by so many great and empathetic minds. I am convinced it is possible to translate it into action, which spurred me to write the book. 

Ms. Sherif, you’re a veteran of the United Nations, already passed over 30 years hither. What especial working experience do you want to write in your biography?

If I ever were to write a biography, it would be about the most inspiring and enlightened human beings I have met in my life, the ones who taught me about humanity. The children of Afghanistan, Cambodia, Darfur, Gaza, and the Sahel. The ones who suffered a pain that few of us can imagine. The ones who struggled in the darkest corners of the world and still found hope and a will to live. The ones who made me forget about myself and taught me about human resilience, compassion, and the meaning of life. They are my heroes and my teachers. 

You’ve seen the world with your extremely talented eyes. You’re an idol to many people. People follow you as an icon of leadership. Say something to them.

All that we see at the macro-level is a reflection of who we are as individuals. When we start changing ourselves, we also begin changing the world. Be value-driven, rather than success driven. Work hard, be kind, and have faith. Then everything is possible.

About Yasmine Sherif (LLM)

Yasmine Sherif is the Director of Education Cannot Wait (ECW) – a global fund for education in emergencies and protracted crisis established by the World Humanitarian Summit. A lawyer specialized in International Humanitarian Law and Human Rights Law (LL.M), she has 30 years of experience with the United Nations (UNHCR, UNDP, OCHA) and international NGOs, starting her international career in 1988.

Ms. Sherif has served in some of the most crisis-affected countries and regions on the globe, including Afghanistan, Bosnia & Herzegovina, Montenegro, Cambodia, the Democratic Republic of the Congo, Sudan, and across the Middle East, including Jordan (the Syria-crisis) and the occupied Palestinian territory, as well as in New York and Geneva. Her expertise spans across the humanitarian, development, human rights, gender, and peacekeeping spectrum.

Ms. Sherif has also worked as an Adjunct Professor responsible for the Masters Programme on the United Nations, humanitarian assistance, and human rights at Long Island University (LIU), and has published on international humanitarian and development issues, as well as international law. She is the author of the book, The Case for Humanity: An Extraordinary Session, which was launched at the United Nations in New York in 2015, and a Champion for ‘No Lost Generation.’ In 2017, she received the annual award “Sweden’s UN Friend of the Year.”

Great Depression On The Fourth Industrial Revolution

The fourth and final industrial revolution along with the biggest advent after COVID-19 is completely diminished. The fourth industrial revolution is all about DATA and how we use it. DATA is everywhere and in every system, arranged in biological systems in such a way to give functionalities in proper order and of a good consequence.

If a set or collection of data can describe biology, then it can be anything else. From oil refining to genetic engineering to the advent of gene therapy to cure diseases, DATA and its collection play a major part in providing us with the information required for sustained living and productive growth. The amount of digital data in circulation worldwide was 4.4 zettabytes, and this figure has now loomed to close to 44 zettabytes in 2020.

Our lives are DATA driven to almost a degree of our consciousness, acknowledging it. We are now connected, as far as I can tell, being involved with technology gives rise to minuscule of DATA, but from the mass point of view, the DATA gathered through indexes, patterns in pandemics, patterns in recessions, patterns in traffic jams in over large areas, DATA Science and Analysis is the way to move forward. Also, purpose-built storage centers may struggle to keep up with the change, and digital advancements invariably increase in trends of production increments, and this has become the flag bearer of the fourth industrial revolution. So the biggest thing to come up with the advent of the fourth industrial revolution is the DATA science and the counterparts of deep or machine learning paving the way for the creation of artificial intelligence which will aide us in combatting various scenarios of debacles founded based on causing harm to the human civilization and its utmost need to find the solution to the problems. The fourth industrial revolution has not ended; it is going on every hour, every minute, and every second and all the other events occurring in the world are tangled with the cumulative effects of the fourth industrial revolution.

In this time of the technological revolution, the existing technology is replaced by better and more adjustable technology in a short amount of time. The technological progress is characterized in such a manner that new innovations have a ripple effect in society at large. The conceptualization of distinguishing between a technological revolution and a normal mass production is mainly dependent on the interconnectedness and interdependency of the various scientific field in relation to each other and the evolution of the capacity to such a system to uplift the world economy.

The way to the future:

The things that came up after several pandemics and recession are the Development of new technology, and similarly, the same can be said about the Coronavirus. Before going back to The case of COVID-19, let’s put the analysis to the test. Before the great depression of the 1930s, there weren’t innovations in the market economy or in the stock market, and required financial mathematics wasn’t there to predict accurate depictions of what could happen. Similarly, with each pandemic or plague, new medicine basing on the tools of biology were put to use to curd the ever-increasing attack of virology to the human race. So these two things dominate the world forum till date: The invention or discovery of materialistic science to profoundly figure out the root causes of problems, where the problems can be health-related such as plagues and pandemics and the order of stability in the financial world.

The biggest thing to come up after the COVID-19 is done and dusted will be the cohesion that will form between the theories of deep learning and biological science. As now it’s the era of COVID-19, scientists across the world are putting their bets on AI to come up with the vaccine or cure, and even if it fails, a better understanding of the structure of Coronavirus will help us gain precedence against it. The AI company Black Swan Data is rigorously working to find the protein structure, namely the DNA or RNA structures, to have a better insight into the way a coronavirus functions. Another artificial intelligence, named, ironically, the white swan, is using AI to analyze public social data to gain insight into the diagnosis, prognosis, treatment, and effectiveness of PPE (Personal Protective Equipment). This is also done by using AI to generate methods of searching for papers on COVID19 and provide instant answers to various biological questions regarding the virus as a whole.

For the sake of statistics, the White Swan is developing an NLP (Natural Language Processing) to extract 44000 papers on this subject to gain inclusive insight into the possibilities of solving and curing this problem. There is a long-term trend here, and AI can’t do everything 100 percent by itself. The infusion of the field of genetic engineering, biology, biochemistry, virology, and medicine, the way to tackle Coronavirus, still remains one of the most debated topics in recent history. Lockdowns, curfews will stop the human race from doing a lot of things, but it will never elevate the psychological and philosophical norms which guided our past and which will guide us towards a future where through the endeavor of technology and science, as was with the past, be a meaningful answer that human beings have come up and gave it.

However, the main reason remains in our own blemishes, our own faults, and lack of foresighted vision into the future, which has caused this pandemic of COVID-19 to be considered a dire situation. Currently, millions of people in the world are affected, hundreds of thousands are dead, and many more are receptive to this deadly disease, but as far as human caliber goes, it is left up to the AI and Medicare industry to find out the cure and causes and develop the institutions of science which will be able to detect the next plague, the next Coronavirus and eliminate before it takes any effect.


Engr. Samin Shadman Zahir

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