History of Banking ( From 2000 BC)
The history of banking began when empires required a means to pay for foreign products and services using something that could be transferred easily. Coins of varied sizes and metals ultimately replaced flimsy, transitory paper notes.
Coins, however, needed to be kept in a safe location, and ancient dwellings did not have steel safes. According to the World History Encyclopedia, affluent individuals in ancient Rome hid their money and jewelry in the basements of temples. The presence of priests or temple employees, who were assumed pious and honest, and armed guards enhanced a sense of protection.
Historical records from Greece, Rome, Egypt, and Ancient Babylon have revealed that temples gave money out in addition to keeping it secure. The fact that most temples also functioned as the financial hubs of their cities is a key reason why they were plundered during conflicts.
Coins could be kept more readily than other goods, such as 300-pound pigs for example, therefore a class of affluent merchants began lending coins, with interest, to individuals in need. Temples often handled major loans and loans to various sovereigns, and affluent merchant money lenders handled the remainder.
The First Bank
The Romans, who were great architects and administrators, extricated banking from the temples and organized it within different structures. During this period, moneylenders nevertheless benefited, as loan sharks do today, but most legal commerce—and practically all government spending—involved the use of an institutional bank.
According to World History Encyclopedia, Julius Caesar, in one of the edicts modifying Roman law following his conquest, presents the first example of permitting bankers to seize land in lieu of loan payments. This was a momentous change of power in the relationship between creditor and debtor, since landed noblemen were untouchable through most of history, passing debts off to generations until either the creditor or debtor’s dynasty died out.
The Roman Empire finally fell, but some of its banking institutions survived in the shape of the papal bankers that arose in the Holy Roman Empire and the Knights Templar during the Crusades. Small-time moneylenders that competed with the church were regularly accused for usury.
Banks of Venice, Genoa and Barcelona.
The earliest regular organization approaching what we term a Bank, was established at Venice, about seven hundred years ago.In its beginning it had nothing to do with the business of banking. It began in this way.
The Republic being involved in war, and becoming short of cash, had to resort to a forced loan. The contributors to that loan, were allowed an annual interest of four per cent on the sums they had been obliged to lend; certain branches of the public revenue were assigned for the payment of that interest; and a corporation, entitled the CHAMBER OF LOANS, was created for the express purpose of looking after this business, managing those branches of the revenue assigned to the lenders; and attending to, and securing the punctual payment of the interest, as it fell due.
So yet, there was no bank in our meaning of the word. But the Chamber, in the course of its business, often had cause to acquire and sell bills of exchange; and since the means of the corporation were indisputable, and its character exceedingly reputable, it was soon discovered that its name upon a bill, gave it considerable worth. The Chamber generally has some finances on hand. It was found an advantageous investment to employ those funds in the business of buying and selling exchange; and in process of time, the Chamber became a regular dealer in that branch of business; that is, it adopted the business of DISCOUNT, or lending money upon mercantile paper, one great branch of the business of a modern bank.
By degrees, the Venetian merchants came into the practice of placing their money with the Chamber, for safe storage; and so was introduced the business of DEPOSIT, a second branch of modern banking.
Eventually, the many kings that reigned throughout Europe acknowledged the merits of financial organizations. As banks functioned by the grace, and occasionally express charters and contracts, of the governing monarchy, the royal authorities began to borrow loans to make up for bad times at the royal treasury, frequently on the king’s conditions. This cheap funding pushed rulers into wasteful extravagances, costly wars, and weapons competitions with neighboring kingdoms that would often lead to crushing debt.
In 1557, Philip II of Spain managed to burden his country with so much debt (as the consequence of multiple useless wars) that he created the world’s first national bankruptcy—as well as the world’s second, third, and fourth, in fast succession. This occurred because 40 percent of the country’s gross national product (GNP) was going toward paying the debt.³ The tendency of turning a blind eye to the creditworthiness of major clients continues to haunt banks today.
The Bank of England
The bank of England, initially chartered in 1694, is the prototype and great example of all our contemporary banks; its history, therefore, will require the more specific study.
The founding capital of this bank was 1,200,000 sterling. This capital did not consist of money, but in government stock. The subscribers to the bank had given the government, the aforesaid sum of 1,200,000. at an interest of eight per cent, with an extra annuity of 4,000. and the privilege of working as a banking company for the time of twelve years. These onerous terms are a very obvious demonstration how poor was the credit of king William s government in the initial years of its formation.
The business which this new organization essentially planned to conduct by virtue of its charter, was the buying and sale of bills of exchange.But as its complete money was given to the government, how was it to undertake any business at all? This condition of affairs led to the introduction of banknotes. Instead of offering coin for the bills which it discounted, the Bank provided its own notes, which, as they were declared due at the Bank on demand, were received by the merchants, and circulated among them as money.
The conveniency of these notes rapidly diffused them across the kingdom; and as the capital and credit of the Bank rose, they continued to obtain an increasing circulation. Previous to the year 1796, that circulation was normally roughly equal in amount to the capital of the Bank. The Bank was obliged to keep on hand a large sum of coin to meet the payment of such of its notes as might be presented for that purpose; but as a large portion of these notes were constantly circulating from hand to hand, and not at all likely to be presented for payment, the sum of coin kept in the Bank was always much smaller than the amount of notes in circulation. The interest on the difference between these two sums was plainly so much net benefit to the Bank. The charter was extended from time to time, always on condition of some fresh debt to the government. But the credit of the government had so much improved that the Bank was compelled to acquire the renewal of its charter, not by loans at eight per cent, but at a very modest rate of interest; and occasionally without any interest at all, that is, by gifts to the government.
The last increase in the capital of the Bank took place during the renewing of the charter, in 1781. It was later raised to 11,642,400, or nearly fifty-six millions of dollars, at which figure it has ever since stayed. The whole of its capital is lent to the government, and so its capital ever has been since the Bank begun business. Of course, the whole of that activity is carried out by way of its notes. That business is of four sorts. First, the Bank administers the public debt, and pays the interest when it falls due, being supplied by the government with the required cash, and getting an annual allowance for its trouble. Second, it advances money to the government in anticipation of the taxes, which sums are paid off, with interest, when the taxes come in. Third, it distributes and discounts exchequer bills. These exchequer bills are treasury notes carrying interest, and due at the leisure of the government; the credit which the Bank lends to these bills, enables the government to raise money upon them, as its needs demand. Fourth, it discounts short bills of exchange, with three good names, and therefore accommodates and supports the merchants.
Modern Banking and Adam Smith
Banking was already well-established in the British Empire when Adam Smith published the “invisible hand” hypothesis in 1776. Empowered by his notions of a self-regulated economy, moneylenders and bankers succeeded to limit the state’s role in the banking industry and the economy as a whole.⁴ This free-market capitalism and competitive banking found fertile home in the New World, where the United States of America was about to emerge.
Initially, Smith’s ideas did not benefit the American banking business. The average life for an American bank was five years, after which most banknotes from the failed institutions were worthless. These state-chartered banks could, after all, only issue banknotes against the gold and silver coins they kept in deposit.
A bank robbery meant a lot more than it does now in the age of deposit protection and the Federal Deposit Insurance Corporation (FDIC) (FDIC). Compounding these problems was the cyclical financial shortage in America.
Alexander Hamilton, a former Secretary of the Treasury, formed a national bank that would accept member banknotes at par, thus floating banks through bad times. After a few stops, starts, cancellations, and resurrections, this national bank developed a unified national currency and set up a system through which national banks backed their notes by acquiring Treasury assets, thereby creating a liquid market. The national banks pushed out the competitors by the application of levies on the comparatively lawless state banks.
The harm had been done previously, however, since typical Americans had already learned to dislike banks and bankers in general. This attitude would inspire Texas’s state to abolish corporate banks—a legislation that stood until 1904.
Most of the economic functions that would have been handled by the national banking system, in addition to conventional banking operations like loans and corporate finance, slipped into the hands of huge merchant banks because the national banking system was intermittent. During this instability that lasted until the 1920s, these commercial banks parlayed their foreign ties into political and financial influence.
These banks included Goldman Sachs, Kuhn, Loeb & Co., and J.P. Morgan & Co. Originally, they relied mainly on fees from foreign bond sales from Europe, with a limited back-flow of American bonds trading in Europe. This allowed them to build capital.
At that time, a bank was under no legal duty to publish its capital reserves, an indicator of its capacity to absorb big, above-average loan losses. This unexplained approach meant that a bank’s reputation and history mattered more than anything. While upstart banks came and went, many family-held merchant banks had extensive histories of profitable operations. As big businesses arose and generated the demand for corporate finance, the sums of cash necessary could not be given by any single bank, and thus initial public offerings (IPOs) and bond issues to the public became the only method to obtain the requisite capital.
The people in the United States, and foreign investors in Europe, understood virtually little about investing since transparency was not legally enforced. For this reason, these risks were mainly neglected, according to the public’s image of the underwriting banks. Consequently, successful offers boosted a bank’s reputation and put it in a position to ask for more to underwrite an offer. By the late 1800s, several banks sought a place on the boards of the corporations seeking money, and if the management proved weak, they controlled the enterprises themselves.
J.P. Morgan & Co. rose at the head of the commercial banks throughout the late 1800s. It was connected directly to London, then the world’s financial hub, and had tremendous political weight in the United States. Morgan and Co. built U.S. Steel, AT&T, and International Harvester, as well as duopolies and near-monopolies in the railroad and shipping sectors, via the groundbreaking use of trusts and a disregard for the Sherman Antitrust Act.
Although the advent of the 1900s saw well-established commercial banks, it was difficult for the common American to secure loans. These banks didn’t advertise, and they rarely offered loans to the “ordinary” people. Racism was also common, and although bankers had to work together on huge issues, their clients were separated along distinct class and race lines. These banks left consumer loans to the weaker banks that were still collapsing at an alarming rate.
The Panic of 1907
The fall in shares of a copper trust sparked off a panic, a run on banks, and stock sell-offs, which caused shares to drop. Without the Federal Reserve Bank to take action to calm people down, the burden fell to J.P. Morgan to end the panic. Morgan utilized his great weight to collect all the big players on Wall Street to manage the credit and capital they controlled, exactly like the Fed would do today. ⁵
Ironically, this demonstration of unparalleled authority in saving the U.S. economy assured that no private banker would ever again hold that power. Because it had required J.P. Morgan, a banker who was loathed by many of America for being one of the robber barons along with Carnegie and Rockefeller, to preserve the economy, the government founded the Federal Reserve Bank (the Fed) in 1913. Although the merchant banks affected the establishment of the Fed, they were also pushed into the background by its founding.
Even with the formation of the Fed, financial dominance and residual political authority were centered on Wall Street. When World Conflict I broke out, America became a worldwide lender and displaced London as the hub of the financial world at the end of the war. Unfortunately, a Republican government imposed some unique restraints on the financial industry. The government stipulated that all debtor nations must pay back their war debts, which normally were forgiven, especially in the case of allies, before any American institution would grant them more credit.
This slowed down international commerce and prompted several countries to grow hostile toward American goods. When the stock market fell on Black Tuesday in 1929, the already slow international economy was knocked out. The Fed couldn’t limit the crisis and refused to end the slump; the fallout had direct ramifications for all banks.
A sharp boundary was formed between banks and investors. In 1933, banks were no longer permitted to speculate with deposits, and Federal Deposit Insurance Corporation (FDIC) rules were developed to assure the public it was safe to come back. No one was deceived and the depression lasted.
Recovery On WW-II
World War II may have rescued the financial industry from catastrophic ruin. WWII and the industriousness it fostered reversed the downward spiral ailing the United States and international economy.
For the banks and the Fed, the conflict needed financial operations utilizing billions of dollars. This vast financing operation generated corporations with huge credit demands that, in turn, encouraged banks into mergers to supply the demand. These big banks covered worldwide marketplaces.
More crucially, domestic banking in the United States had finally settled to the point where with the advent of deposit insurance and mortgages, a person would have fair access to credit.
Banking In India Before Independence
Merchants founded the Union Bank of Calcutta in 1829 during the British administration, initially as a private joint stock organization, later as a partnership. Union Bank was founded by the owners of the former Commercial Bank and the Calcutta Bank, who came together by mutual agreement to replace these two banks. It launched an agency in Singapore in 1840, and it closed the one in Mirzapore that it had founded the year before. The Bank also stated in 1840 that it had been the victim of a scam perpetrated by the bank’s accountant. Union Bank was founded in 1845 but collapsed in 1848 after being insolvent for some time and paying dividends with new money from depositors.
The Allahabad Bank, founded in 1865 and still in operation today, is India’s oldest joint stock bank, albeit it was not the first. The Bank of Upper India, founded in 1863 and surviving until 1913, when it collapsed and part of its assets and liabilities were transferred to the Alliance Bank of Simla, has this distinction.
In the 1860s, foreign banks began to develop, mainly in Calcutta. In 1864, Grindlays Bank established its first branch in Calcutta.  In 1860, the Comptoir d’Escompte de Paris opened a branch in Calcutta, and another in Bombay in 1862; Madras and Pondicherry, then a French territory, followed in 1863. HSBC first opened its doors in Bengal in 1869. Calcutta was India’s most busy trading port, owing to the British Empire’s commerce, and so became a financial center.
The Oudh Commercial Bank, founded in 1881 in Faizabad, was the first wholly Indian joint stock bank. It was a flop in 1958. The Punjab National Bank, which was founded in Lahore in 1894 and is today one of India’s major banks, was the second to be created.
The Indian economy was experiencing a period of relative stability at the start of the twentieth century. The social, industrial, and other infrastructure had developed in the five decades since the Indian uprising. Indians developed tiny banks, the majority of which catered to certain ethnic and religious groups.
In India, presidential banks dominated banking, but there were a few exchange banks and a few Indian joint stock banks. All of these banks were involved in various aspects of the economy. The exchange banks, which were largely controlled by Europeans, specialized in financing international commerce. The majority of Indian joint stock banks were undercapitalized and lacked the expertise and maturity needed to compete with presidential and exchange banks. Lord Curzon was able to observe, thanks to this segmentation “In terms of banking, we appear to be behind the times. We resemble an old-fashioned sailing ship, with thick wooden bulkheads dividing us into distinct and inconvenient sections.” [requires citation]
The formation of banks influenced by the Swadeshi movement occurred between 1906 and 1911. Local merchants and politicians were encouraged by the Swadeshi movement to establish banks for and by the Indian population. Catholic Syrian Bank, The South Indian Bank, Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank, and the Central Bank of India are among the banks that have survived to this day.
Many private banks were established as a result of the fervor of the Swadeshi movement in Dakshina Kannada and Udupi districts, which were previously combined and known as South Canara (South Kanara). This area saw the birth of four nationalized banks as well as a major private sector bank. As a result, the district of Dakshina Kannada is renowned as the “Cradle of Indian Banking.”
The first British governor, Sir Osborne Smith, took office on April 1, 1935, and the first Indian governor, C. D. Deshmukh, took office on August 11, 1943. On December 12, 2018, Shaktikanta Das, the Indian government’s finance secretary, took over as the new Governor of the Reserve Bank of India, succeeding Urjit R Patel.
Banking in Pakistan before Independence
The Reserve Bank of India was the central bank for the then-undivided subcontinent before independence on August 14, 1947, during the British colonial era. On December 30, 1948, a British government panel divided the Reserve Bank of India’s reserves between Pakistan and India, with Pakistan receiving 30% (750 million dollars in gold) and India receiving 70%.
The losses sustained during the transition to independence, as well as the tiny amount deducted from Pakistan’s share, are all factors to consider (a total of 230 million). In May 1948, Pakistan’s founder, Muhammad Ali Jinnah, took urgent steps to create the State Bank of Pakistan. The State Bank of Pakistan was established on July 1, 1948, after these were enacted in June 1948.
The State Bank of Pakistan was given the mandate to “control the issuing of bank notes and the holding of reserves with a view to maintaining monetary stability in Pakistan and generally to administer the country’s currency and credit system to its advantage” under the State Bank of Pakistan Order 1948.
Initially, industrial families who Quaid-e-Azam encouraged sponsored a substantial portion of the state bank. They would set aside a portion of their annual profit to support the bank’s operations. Since September 1947, when the Quaid lay the foundations of Pakistan’s first textile factory, Valika Textile Mills, the Valika Family would allot the greatest part among these families, who also had excellent relations with the Quaid.
The State Bank of Pakistan Act 1956 expanded a substantial portion of the state bank’s responsibilities. It requires the state bank to “control and nurture the evolution of Pakistan’s monetary and credit system in the greatest national interest, with a view to ensuring monetary stability and maximizing the use of the country’s productive resources.” During the financial sector reforms in February 1994, the State Bank was given complete authority.
The government increased this authority on January 21, 1997, when it adopted three Amendment Ordinances (which were approved by the Parliament in May 1997). The State Bank of Pakistan Act, 1956, the Banking Companies Ordinance, 1962, and the Banks Nationalization Act, 1974 were all included. These amendments granted the State Bank complete and sole jurisdiction to oversee the banking industry, conduct independent monetary policy, and imposed a cap on government borrowings from the State Bank of Pakistan. The Pakistan Banking Council (an institution established to oversee the affairs of NCBs) was abolished by amendments to the Banks Nationalization Act, which allowed the positions of the council to be filled by Chief Executives, Boards of Nationalized Commercial Banks (NCBs), and Development Finance Institutions (DFIs). Their appointment and dismissal were influenced by the State Bank. The reforms further expanded the authority and responsibility of CEOs, bank boards of directors, and DFI boards of directors.
To accomplish macroeconomic aims, the State Bank of Pakistan also serves both conventional and developmental duties. Traditional functions can be divided into two categories:
1) The key tasks are note issuance, financial system regulation and supervision, bankers’ bank, lender of last resort, banker to the government, and monetary policy conduct.
2) The secondary tasks include agency functions such as public debt management, foreign exchange management, and other functions such as policy advice to the government and close contacts with international financial institutions.
Development of a financial framework, institutionalization of savings and investment, provision of training facilities to bankers, and supply of loans to priority sectors are some of the non-traditional or promotional responsibilities conducted by the State Bank. The State Bank has also been actively involved in the financial system’s Islamization process.
The Bank is a key member of the Alliance for Financial Inclusion and actively promotes financial inclusion policies. It is also one of the initial 17 regulatory organizations to sign the Maya Declaration during the 2011 Global Policy Forum in Mexico, pledging particular national commitments to financial inclusion. The SBP published the National Payment Systems Strategy in 2019, which lays out a framework for Pakistan to develop a modern digital payments infrastructure.
Banking history in Bangladesh
The Bank of Hindustan, founded in Calcutta in 1770, was Bengal’s first modern bank. It was a branch of the trade business Messrs. Alexander and Co., and it functioned until 1832, when the trading company went bankrupt. Its notes were only circulated in Calcutta and its near surroundings.
A number of Calcutta-based banks followed, none of which lasted past the middle of the nineteenth century: General Bank of Bengal and Bihar (1733–75); Bengal Bank (1784–91) (no relation to the later Bank of Bengal); General Bank, later General Bank of India (1786–91); The Commercial Bank (1819); The Calcutta Bank (1824); The Union Bank (1828); The Government Savings Bank (1833); and The Bank of Mirzapore (1835).
The Bank of Calcutta, founded in 1806, is the oldest still in operation in any manner. In 1809, it was renamed the Bank of Bengal, and in 1921, it amalgamated with the Imperial Bank of India, becoming the State Bank of India in 1955.
Dacca Bank, the first modern bank based in Dhaka, was founded in 1846. It only handled a little amount of business and did not print banknotes. In 1862, the Bank of Bengal bought it. In 1873, the Bank of Bengal established branches in Sirajganj and Chittagong, then in Chandpur in 1900. When Bengal was partitioned in 1947, it had six branches in East Bengal: Dhaka, Chittagong, Chandpur, Mymensingh, Rangpur, and Narayanganj.
Following the partition, registered banks began to relocate their branches to India or to cease operations in East Bengal. As a result, just 69 branches remained in East Pakistan in 1951.
Eastern Mercantile Bank Limited was founded in 1959 and had 106 branches before independence. As a result, Eastern Banking Corporation was founded in 1965 and quickly grew to 60 employees right before the liberation struggle. These two banks were created at the initiative of several well-known Bengali businesspeople in order to provide credit to local entrepreneurs who had limited access to credit from other financial institutions in West Pakistan at the time.
The financial sector at independence consisted of two branch offices of the old State Bank of Pakistan and seventeen significant commercial banks, two of which were owned by Bangladeshi interests and three by foreigners other than West Pakistanis. There were fourteen minor commercial banks. Virtually all financial services were centered in metropolitan regions. The newly independent government promptly chose the Dhaka branch of the State Bank of Pakistan as the central bank and called it the Bangladesh Bank. The bank was responsible for regulating currency, overseeing credit and monetary policy, and administering exchange control and the government foreign exchange reserves. The Bangladesh government originally nationalized the entire domestic banking sector and proceeded to restructure and rebrand the numerous institutions. Foreign-owned banks were authorized to continue conducting business in Bangladesh. The insurance company was likewise nationalized and became a source of prospective investment cash. Cooperative credit systems and postal savings offices handled service to modest individual and rural accounts. The new banking system succeeded in developing relatively efficient methods for handling credit and foreign exchange. The major role of the credit system throughout the 1970s was to support commerce and the governmental sector, which together absorbed 75 percent of all advances.
The government’s promotion throughout the late 1970s and early 1980s of agricultural growth and private enterprise generated changes in financing techniques. Managed by the Bangladesh Krishi Bank, a specialized agricultural banking organization, lending to farmers and fishermen substantially grew. The number of rural bank branches increased between 1977 and 1985, reaching more than 3,330. Denationalization and private industrial expansion encouraged the Bangladesh Bank and the World Bank to focus their funding on the expanding private manufacturing sector. Scheduled bank loans to private agricultural, as a proportion of sectoral GDP, went from 2 percent in FY 1979 to 11 percent in FY 1987, while advances to private manufacturing rose from 13 percent to 53 percent.
The shift of financial priorities has brought with it issues in administration. No good project-appraisal mechanism was in place to identify potential borrowers and projects. Lending institutions did not have enough liberty to pick borrowers and projects and were often guided by the political authorities. In addition, the incentive system for the banks stressed disbursements rather than recoveries, and the accounting and debt collection procedures were unable to cope with the challenges of loan recovery. It became more usual for borrowers to fail on loans than to repay them; the lending system was merely disbursing grant aid to private persons who qualified for loans more for political than for economic reasons. The percentage of recovery on agricultural loans was only 27 percent in FY 1986, and the rate on industrial loans was considerably lower.
As a result of this poor performance, key donors put pressure to urge the government and banks to take harder measures to tighten internal bank management and lending control. As a consequence, recovery rates began to improve in 1987. The National Commission on Money, Credit, and Banking advocated substantial structural reforms in Bangladesh’s system of financial intermediation early in 1987, many of which were included into a three-year compensating financing arrangement negotiated by Bangladesh with the IMF in February 1987.
One important exception to the management challenges of Bangladeshi banks was the Grameen Bank, founded as a government project in 1976 and formed in 1983 as an independent bank. In the late 1980s, the bank continued to give financial resources to the needy on acceptable conditions and to develop productive self-employment without external aid. Its customers were landless individuals who obtained minor loans for many forms of economic pursuits, including houses. About 70 percent of the borrowers were women, who were otherwise not substantially represented in institutional finance.
Collective rural companies also may borrow from the Grameen Bank for investments in tube wells, rice and oil mills, and power looms and for leasing land for collective cultivation. The average loan by the Grameen Bank in the mid-1980s was roughly Tk2, 000 (US$65), while the maximum was just Tk18, 000 (for building of a tin-roof home) (for construction of a tin-roof house). Repayment terms were 4 percent for rural housing and 8.5 percent for standard lending operations.
The Grameen Bank offered collateral-free loans to 200,000 landless individuals in its first 10 years. Most of its consumers had never interacted with official loan organizations before. The most surprising success was the extraordinary recovery rate; among the usual trend of bad debts across the Bangladeshi banking sector, just 4 percent of Grameen Bank loans were late. The bank had from the beginning employed a particular system of stringent credit control that distinguished it different from others. Its success, albeit still on a very limited scale, generated hope that it may continue to expand and that it could be reproduced or adapted to other development-related concerns. The Grameen Bank was developing fast, expecting to establish 500 branches throughout the country by the late 1980s.
Beginning in late 1985, the government implemented a restrictive monetary policy aimed at restraining the rise of domestic private credit and government borrowing from the banking sector. The program was mostly successful in lowering the increase of the money supply and total domestic credit. Net credit to the government actually fell in FY 1986. The problem of credit recovery remained a danger to monetary stability, responsible for substantial resource misallocation and harsh disparities. Although the government had initiated successful initiatives to enhance financial discipline, the drastic limitation of credit availability held the possibility of inadvertently deterring new economic growth.
Foreign exchange reserves at the end of FY 1986 were US$476 million, equivalent to little more than 2 months worth of imports. This was a 20-percent rise of reserves over the previous year, mostly the consequence of higher remittances by Bangladeshi workers overseas. The government also cut imports by nearly 10 percent to US$2.4 billion. Because of Bangladesh’s status as a least developed nation receiving concessional loans, private creditors accounted for just approximately 6 percent of outstanding governmental debt. The foreign state debt was US$6.4 billion, and yearly debt service payments were US$467 million at the end of FY 1986.
The reform initiative was carried on in the following years. From 2000 to 2006, Bangladesh Bank managed the World Bank’s Financial Institutions Development Project, which enabled “significant progress toward sustainable financing of private sector efforts to drive industrial growth in the nation,” according to the Asian Development Bank.
Islamic banking in Bangladesh
Bangladesh has eight Islamic banks, but other non-Islamic banks offer Islamic-banking services alongside their usual business. As of 2017, Islamic banking, led by Islami Bank Bangladesh Ltd, controls 20 percent of deposits in Bangladesh. Bangladesh offers the world’s biggest Islamic microfinance system. According to Bangladeshi official polls, Islamic banking has an overall approval rating of 84 percent among the country’s people.
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