The recent recommendation of a government committee to waive up to 50 percent interest on margin loans taken by investors who suffered loss in the stock market came as a surprise for many reasons. It raises the questions of enforceability and rationality.
Most of the loans came from private banks. So how a decision like this could be imposed on the banks? Are the banks willing to share the loss? The amount is not small also it should be around Tk 250 crore. Moreover, it would distort the market mechanism and would remain as bad precedence.
Offsetting the loss of the investors could be supported if the government had undertaken a thorough investigation of the share scam and identified the people who manipulated the market to gain. These manipulators then could be fined to mobilize funds to pay the investors. This would have ensured redistributive justice. The rough estimate of the government says about Tk 22,000 crore has been lost on the market. Somebody must have gained this amount. Who are they and how did they make the money?
But the more pertinent question is whether such a measure will restore confidence in the market? In our view, it will not. There are some basic things that remain undone. The demutualization of the bourses is yet to be done. The Securities and Exchange Commission was supposed to get its surveillance software by April this year. But that is not happening. Transparency of the BO accounts was expected to be established to prevent further manipulation of the market. That has not been done. And ensuring quality audit of the companies still remains a far cry. The Financial Reporting Act is nowhere in sight.
The Centre for Policy Dialogue had shown in its last Independent Review of Bangladesh's Development report that only about 20 percent companies get their audits done by auditors of international standards. This leaves a huge scope for diversion of funds.
So unless scopes of manipulation are plugged, dole-outs would rather create bad examples.