Financial institutes do wrong sometimes
Insurance company malpractices and Revenue collection performances in Bangladesh.
By Karim Md Rezaul | February 10th, 2012
There are various sorts of malpractices that insurance companies are being alleged to have been doing in Bangladesh. The insurance companies in Bangladesh have stretched their activities beyond their jurisdiction that are supposed to be instructed by Banking and financial Acts and laws. The insurance companies have been investing in Stock market, distributed dividends before settling down liabilities and assets properly. The shareholders’ interests have been overlooked, and stakeholders being deprived of their equity shares. Such a practice could even be traced to have been practiced for five years, for instance in some companies. The insurance companies are guided by the 1938 Insurance Act’s (Article-13 and 48), and 2010 amended Act’s (Article-30), which says financial institutions must settle their liabilities and properties and assets before being distributing dividends. As per law, Policyholders are supposed to have its 90% dividends on net profit as a bonus. The rest shareholders should have 10% on the balance amount maximum.
Let’s take a case of Prime Islami Life Insurance Company, who has 1.57,95000 shares of which 60% have been distributed to public investors, and the number of policyholders is 150,000. The directors usually look down upon the interests of policyholders in comparison with shareholders’ interests. Reason is simple, and classic. The company appointed consultant who advised and recommended to distribute dividend at a rate of 20% in 2007 which is contradictory to the Act and that had been practiced since then. A big financial anomaly happened in 2008, when it declared bonus shares for the next successive year 2009. This declaration came out before being audited reports published. The last dividend the company issued is in the year 2009 at a rate of 40%, due to this financial irregularities dividend declaration for the period of 2010 now being withheld. In ensuring the policyholders’ interests the companies need to invest in different portfolios in order to maximizing the benefits, which the companies are not pursuing. There are mandatory rules, which say the insurance companies must invest 30% of its funds in government securities in order to safeguard the policyholder’s interests, which also act as a security guarantee for the policyholders. For many of the insurance companies are far below that requirement.
Another phenomenon in the stock market investment is banks have invested heavily endangering the liquidity limit and reserve limit. At the fall of stock market the whole banking sector is now at a tattered state, if the stock market fails to rebound the whole financial sector would be collapsed, carrying a devastation in the total macro economic discipline, for which experts believe, Finance Ministry, Bangladesh Bank and other Banking regulatory bodies cannot avoid their responsibilities.
First phase of 2011-12 fiscal year, the revenue collection through National Board of Revenue have got a rise than previous year though the rate of pace is not good, rather slower. In this first quarter the collection stood as 18thousand 76 crore Taka. In the tax, VAT, levies, duties the growth rate is 13.53% against last year’s 32.16%. In the foreign trading tax income the collection for taxes and duties has been improved to 11.45% against last year’s 19.12%. The Revenue collection was relatively better in income tax sector which is 24.89% against last year’s 15.17%. This means, common public has been paying the most of the price, their earnings are declining in two ways- by adjusting or reducing the value of Taka against dollar and forcing them to pay various direct and indirect taxes like income tax, property tax, taxes on commodities and local taxes. The intention of the government has become contradictory. We really don’t get it, which should be the priority for a government people, corporates or government itself? When government runs like a corporate machine, it’s a pity for the people!
This is just a minor example, how financial institutions and government are malpracticing in making profits in Bangladesh, if investigated more anomalies could be traced.
