Banking fragility, consumer rights failures, the quest for inclusive modernization

Bangladesh is facing a paradox of technological modernization amidst severe macro-economic instability. Mechanization, computerization and robotization are transforming industries from urban manufacturing to rural agriculture, but structural financial weaknesses risk exacerbating socio-economic disparities rather than narrowing them.

The main barrier to technological transition management is the crisis of the banking system. Default loans reached BDT 6.07 lakh crore or 32.78 per cent of the total outstanding loans by October 2026, of which 72 per cent of the defaults were from the 10 largest commercial banks. Large loan-loss provisions on nearly one-third of loan portfolios severely restrict lending to productive enterprises.

Higher risk premiums increase the real cost of capital and rob firms of the cushion that would allow smooth technological transitions. Companies are forced to choose between abandoning modernization and losing global competitiveness or aggressively cutting costs and displacing workers without adequate support.

Working under the Ministry of Commerce, the Directorate of National Consumers Right Protection (DNCRP), known as Bhokta Adhikar Daptor in Bangladesh, is facing a lot of criticism from the public for being ineffective. Experts say the lack of regulation is not for lack of action, but because of institutional, structural and legal constraints that run deep.

A lot of people are upset that the market is still being manipulated, and prices are still rising without much regulation. It frequently complained that the DNCRP does not accept complaints by registered letter or even e-mail and when people check at different times, they get no response. The directorate pretends to be responsive on its online channel but in practice that channel rarely works as advertised.

Real estate developers who overpromise the number of parking spots a building can hold or who otherwise fail to deliver on their parking promises are a huge cause of public anger in Bangladesh — especially in crowded urban hubs like Dhaka.

Apartment buyers often pay Crores of Bangladesh Taka for a dedicated parking slot, but later discovered the developer allotted more parking spaces than the building’s layout permits, or common parking areas promised to residents were turned into commercial shops.

The problem is in three practices. First, developers dream up and oversell parking spaces; documentation promises spots that the finished building doesn't have, a practice sometimes called "paper parking." Secondly, common areas are illegally converted to commercial use, with shared parking zones being used as shops or otherwise exploited for revenue.

Thirdly, sometimes the same slot is sold to several purchasers, each of whom believes to have exclusive rights to it. The overseeing body is the Rajdhani Unnayan Kartripakkha (RAJUK) under the Ministry of Housing and Public Works. Complaints have been made on many occasions, but no meaningful result has been achieved.

Stressed banking assets and chronically high NPL ratios “continue to cripple credit intermediation,” the World Bank’s Bangladesh Development Update notes, highlighting “deep-seated structural problems.” Risk-averse lending profiles have increased interest rate spreads, particularly hurting SMEs that create most domestic jobs and need affordable financing to upgrade and become more productive and worker-friendly.

A second transmission channel is caused by persistent foreign currency shortages, aggravated by long open-account credit terms, disputes between buyers, global dollar shortages and trade mis invoicing. Export proceeds often remain abroad well beyond 120 days, depriving exporters of immediate liquidity for operating costs and orderly personnel adjustments.

These delays also cause firms to be unable to import components, spare parts and software that are required to run existing mechanized systems resulting in operational inefficiencies. Politically motivated bailouts, in contrast, support uncompetitive "zombie" companies instead of directing scarce capital toward labor-enhancing modernization, depriving sectors of innovation of the credit needed to generate high-skill jobs.

Studies of mechanization in the traditional labor market are focused on developed economies, with high wages and demographic plateaus justifying capital for substitution of labor. But the early embrace in labor-abundant developing markets results in structural imbalances that existing frameworks do not sufficiently address.

The displacement view (Frey and Osborne, 2017; Brynjolfsson and McAfee, 2014) assumes that advanced capital directly replaces human labor in routine tasks. But in a labor-surplus economy like Bangladesh, the rapid integration of mechanized workflows to meet global quality standards immediately displaces low-skilled workers, and labor market rigidities prevent rapid reemployment, resulting in structural underemployment.

Neoclassical theory (Autor, Levy, and Murnane, 2003; Acemoglu and Restrepo, 2019) suggests that technology corrects itself: mechanization increases total factor productivity, lowers unit costs, increases output and creates new job categories, hardware maintenance, system operations, digital logistics, which require a lot of human effort.

But in Bangladesh it has not reached equilibrium. Global competitive pressure leads to fast displacement. Reinstatement is slow for three reasons. First, retraining bottlenecks: displaced workers lack basic skills and institutional support for state programs. Second, capital is scarce: with 32.78 percent of loans in default, affordable credit is not available for firms that want to hire displaced workers. Third, a mismatch in the labor market: new technical jobs demand skills that routine manual workers can’t pick up quickly.

RMG sector is the backbone of export-leading growth and highly sensitive to mechanization. A recent study shows that 30.58 per cent of production workers have already been sidelined by mechanization, with helper positions being the worst hit. Automated sewing, CNC knitting and computerized fabric cutting are replacing low-wage manual labor: cutting sections fell 48.34 percent, sewing operations 26.57 percent and sweater factories 37.03 percent per production line.

macro-financial pressures speed up these changes. Banking problems and delays in repatriating export proceeds have sharply reduced working capital for garment makers. Operational upgrades become a source of social vulnerability because of liquidity constraints that prevent factories from funding redundancy packages, transition support or up-skilling.

Ironically, banking is highly mechanized, but also highly macro-financial stress inducing. Banks use algorithmic credit scoring, automated risk assessment and digital onboarding to reduce expense ratios under pressure from NPL losses.

“Credit-invisible” customers require artificial intelligence and non-traditional data—social media metrics, utility payments, mobile financial histories—to be scored by Bangladesh Bank. It provides micro-lending to the smallholder and women entrepreneurs but replaces traditional underwriters, squeezing junior administrative, clerical and back-office jobs.

But a key job pipeline for educated urban youth disappears, leading to worse white-collar under-employment. Long-run efficiency is better, but not at first.

Surface Mount Technology and pick-and-place equipment are transforming industrial electronics and assembly from a variable labor cost to a fixed capital cost. Growing dependence on imported machinery and components has exposed the sector heavily to the risk of foreign exchange shortages.

Balance of payments pressures have stalled mechanized production lines as letters of credit for industrial inputs have dried up. Import curbs remained in place, even as gross foreign exchange reserves stood at US$36.39 billion in October 2026.

Generative AI and natural language processing pose a serious threat to BPO and IT-enabled services. Automated systems are increasingly replacing first-level voice operators and data checkers. Moving to higher value services (software development, advanced analytics) requires heavy investment in cloud infrastructure and regional data centers. Tight credit markets constrain capital mobilization. The sector is still vulnerable to displacement and there is no capacity building.

Precision agriculture, automated grading and mechanized packaging are spreading slowly and unevenly. The economic exposure and lack of collateral make it rare for commercial banks to lend to smallholders. Agro-processing compliance to export quality standards has improved with mechanized packaging but traditional labor markets that support landless rural workers have been decimated accelerating rural-urban migration.

These changes come amid broader macroeconomic strain. General inflation stood at 8.34 percent and food inflation at 7.22 percent in September 2026. The World Bank expects GDP growth to ease to 3.4 percent in FY27, on account of weaker investment, waning export momentum and weakened household purchasing power. The economy is running well below potential and there is little fiscal space to finance reskilling and social protection.

Reforms have targeted commercial bank boards and asset recovery to deal with the NPL crisis of BDT 6.07 lakh crore. Regulators dismantled and recreated boards at over a dozen struggling private banks, aiming at insider lending and mismanagement.

Special audits showed shadow assets and capital siphoned off. More stringent capital requirements were introduced and specialized asset disposal units now auction off the collateral of chronic defaulters, circumventing protracted litigation. Banks should fast-track capital conservation buffers to meet IMF benchmarks, with dividend restrictions and provisioning given priority over executive pay.

Formal banks have limited lending capacity, so Mobile Financial Services – bKash, Nagad, Rocket – have become critical infrastructure to keep cash flowing in rural areas. These networks link peripheral economies to metropolitan factory workers displaced by mechanization. Workers who are displaced or underemployed can send money home instantly, without branch banking, through cheap peer-to-peer remittances. MFS providers are offering nano-loans to smallholders and peripheral workers via AI-powered alternative credit scoring based on utility payments, cash-in/cash-out histories, and transaction velocities. Digital underwriting helps to overcome conventional bank credit rationing by bridging credit gaps for those without formal collateral.

MFS agent networks are wide and offer deep liquidity penetration in marginalized agricultural markets. This digital cash ecosystem reduces transaction friction, supports small-scale local trade and prevents rural consumption collapse in high inflation and contraction, creating more inclusive financial ecosystems and sustaining local economic activity even in adverse external conditions.

We distinguish between short-run transitory volatility and long-run equilibrium. Mechanization is an existential, short-term response of export-oriented firms seeking price and quality competitiveness in volatile global markets. The speed of adoption means instant job losses and liquidity constraints in the formal financial sector where almost a third of bank credit is locked up in defaults and not available for new ventures that could absorb displaced workers.

Displaced manufacturing workers are forced into low-productivity informal sector employment or into long-term underemployment. This structural friction is a drag on consumer spending and makes it difficult to achieve the FY2026-27 inflation target of 7.5 percent. The structural benefits of a higher level of capital intensity over the long term are beyond dispute.

The GDP growth target of 6.5 percent assumes a continuing expansion of technology, increasing total factor productivity, lower unit costs and improved export competitiveness. But stable long-run equilibrium requires structural and institutional reforms recommended by international financial institutions .

Bangladesh’s experience suggests that the relationship between technological modernization and macroeconomic fragility is complex. Fast mechanization and computerization, although necessary for global competitiveness, create immediate displacement effects that are faster than the gradual reinstatement mechanisms predicted by neoclassical theory. The banking sector is in distress with a scary 32.78 percent NPL ratio and is not allowing for credit allocation for worker retraining, SME modernization and job creation.

Transparent capital regulations and stability of foreign exchange liquidity Efficient fund allocation can be restored by resolving the BDT 6.07 lakh crore NPL burden Hence, a sound financial system can finance the human capital and infrastructure investments necessary to produce the reinstatement effect, ensuring that technological progress leads to inclusive growth.

Mobile financial services are a critical interim infrastructure, plugging liquidity gaps for displaced workers and stabilizing rural economies during this disruptive transition. But MFS cannot substitute for full reform of the financial sector and strategic investment in education, infrastructure and social protection.

The way forward is to find a balance between technological development and human capital development so that the benefits of mechanization and computerization are not only reflected in productivity statistics but also in real improvement in living standards in Bangladeshi society. Without this balance, the country risks technological modernization at the expense of social cohesion and equitable development.

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About the author: Professor Dr. Muhammad Mahboob Ali is Entrepreneurial management and Economist and IT expert.

Email: [email protected]