Bangladesh seems to be caught in an unusual duality. You have money in banks; interest rates are finally starting to fall, and policymakers have been attempting to get banks to lend. Yet private-sector investment remains cautious. Companies are hardly clamoring to take out loans, build new factories, buy new equipment or start big new ventures.
Now the money you see is there, but where is the investment? Maybe the bigger problem isn’t having enough money? What is a lack of confidence. None of the business owners want to borrow money at all. It seeks to borrow money and create a return. It means financing is cheaper, but it cannot guarantee whether customers will buy more beer, energy will be affordable, the exchange rate will be stable, or government policies will remain predictable. When an investment seems riskier than its potential reward, businesses naturally become reluctant. So, telling banks to lend more might not be effective.
For example, let us say you are a manufacturer considering an expansion. They could take out loans, buy equipment, hire workers and boost production. But what if demand stays weak? What if electricity or gas shortages prevent them from operating the factory at full capacity? Now, what if imported machinery or raw materials suddenly get much more expensive? The loan is there, but suddenly the investment becomes much less enticing.
That is a crucial distinction for Bangladesh. The country needs more credit, but it doesn’t need additional funds piled on top of each other. It needs more productive credit. Companies invest when they can know the future with reasonable certainty. They need to be confident that an investment made today will generate enough income in the next day(s) to cover capital and operating costs and risks while delivering a reasonable return. When that calculation is unavailable or hard to make, waiting becomes a sound business strategy.
Weak demand is another reason why businesses may be on hold. If companies already have spare production capacity, it does not make much sense to keep expanding. No factory owner in his right mind would construct another production line for a company if the bank is only providing financing. Before that, the owner needs to be sure there will be enough paying customers to support the added capacity.
This creates a difficult cycle. Consumer caution persists, business caution persists, investment remains subdued and economic activity continues to struggle for genuine momentum. Financial liquidity alone is not enough to break that cycle. It demands a more confident view of demand down the road.
Then there’s energy, another component of the equation. Reliable supply of electricity and gas is not a luxury add-on for industries. They are basic requirements. Without that functioning factory, you cannot produce effectively. Delays: Costs escalate, exports are hampered, and relationships with customers are damaged.
If it’s uncertain whether that factory can operate at the necessary capacity, why would an entrepreneur be willing to put billions of taka into a new factory? Investors will accept risk, but they need to understand the risk. Uncertainty is different. When businesses cannot defend the environment in which they operate convincingly, they often choose to preserve Cash over long-term commitments.
Another complication in the case is that of the banking sector. Banks lend money to businesses and entrepreneurs to turn deposits into productive investment. However, if banks are sitting on thousands of stressed or non-performing loans and struggling to fend off collapse, their appetite for risk falls rapidly. They become more vigilant about borrowers, collateral, and repayment ability.
The opposite problem follows for businesses. They crave it but ultimately acquiring loans may prove more difficult – particularly for smaller firms with weaker collateral and existing banking relationships. This creates a paradox: funds exist within the economy but do not necessarily reach the firms that would use them most efficiently.
This is especially true regarding small and medium-sized companies. Larger firms may have better balance sheets, established relationships with banks, and greater access to alternative financing. Smaller businesses typically operate with a much smaller financial buffer. High collateral requirements, lengthy lending processes, and unpredictable cash flow make it hard to secure a formal loan.
So the question should not merely be whether banks have enough liquidity. It should be whether you are actually providing capital efficiently to viable businesses, using available capital in the financial system.
And there’s a wider question as to where the money is going. Dollars flow out of entrepreneurial investment when banks favor government securities or other relatively safe assets over private business lending. For a single bank, that may be tempered. Still, given the broader economic picture, it raises a key challenge: is finance being channeled to efforts that increase productive capacity and job creation and thus future economic output?
This does not mean government borrowing and private borrowing have to compete directly. Both have justifiable economic functions. The issue is balance. In an economy, too much capital can be produced and locked up in safe, low-risk financial activity, preventing productive, healthy businesses from obtaining financing on terms that benefit shareholders. But perhaps the deep-seated problem with investment in Bangladesh boils down to something much harder than interest rates: expectations.
Companies must believe the next five years will be predictable enough to risk capital today. They require certainty that energy supplies will be maintained, that inflation will soon become manageable, that the financial sector is stabilizing or improving in health, that regulations are clear and predictable, not arbitrary or subject to change from one day to another; they also need assurance that foreign currency on which they depend won’t suddenly become a bottleneck and finally gain some awkward balance between what consumers will buy domestically and what can be exported as a buffer against stagnation followed inevitably by contraction.
None of these will be an overnight fix. Together, they determine whether an entrepreneur sees a loan as an opportunity or a liability.
That is why the debate on investment must go beyond how much funds banks can make available for lending at all. What businesses will want to borrow the most is a more pertinent question. Investment responds when entrepreneurs believe demand will improve, infrastructure will function, and financing will be available in a predictable policy environment. However, if uncertainty stays high, even cheaper money may go unused.
Bangladesh boasts of entrepreneurs clustering around ideas, businesses with expansion plans and banks with finance. Confidence seems to be the common denominator, but not one that unifies all three. The objective should not be to boost borrowing to make credit-growth numbers look better. The aim should be to ensure that businesses are encouraged to take calculated risks voluntarily, as investment is sound economics. That implies creating an environment where capital can flow from banks to factories, technology, logistics, services, and new businesses with more certainty. Bangladesh is perhaps better off money-wise. And it might not have many reasons for companies to put that cash on the line.
The views expressed in this article are solely those of the author
The writer is a Public Relations Professional
