Mukit Ahmed, CFO, SQ Group
People interpret finances as a simple and easy task that anyone from any background should be able to manage. However, this is not so easy game and if the financial matters are not taken care of efficiently and smartly, the company loses its control over business, incur financial loses also might bear the risk of business continuity. Recently a Textile Today team met with Mukit Ahmed, Chief Financial Officer of SQ Group and discussed financial related issues of RMG industry. He is a Fellow member of Institute of Chartered Accountants of Bangladesh (FCA).
Mukit Ahmed has served in different multinational organizations in various roles and possesses. He brings extensive business, financial and leadership experiences. He started his carrier with Grameenphone later moved to British American Tobacco Bangladesh in 2010. He served BATB in different finance roles of manufacturing, supply chain, and Treasury area. He decided to establish his career in the textile sector and joined SQ Group as Finance Controller in 2015. Now he is the Chief Financial Officer of SQ Group.
SQ Group was established in 1993. With the commencement of business, SQ Group paved the way and set standards for knitwear manufacturing in the industry. Securing pole position in knitwear, SQ Group later expanded to lingerie. Today SQ Group is one of the leading apparel manufactures of Bangladesh, operating under three business clusters: SQ Celsius Ltd. (knitwear), SQ Birichina Ltd. (lingerie), and SQ Hues Ltd. (backward linkage). According to the ratings of U.S. Green Building Council (USGBC), SQ Group operates 3 (three) of the Top 10 Most Environment-Friendly Factories in the World.
Textile Today: Why should an entrepreneur invest in Bangladesh RMG industry rather than other industry?
Mukit Ahmed: I see a huge opportunity in this sector for investment. Let’s analyze the investment environment, from market and growth opportunity, our RMG export was $ 30.61 billion for FY18 and set the target to $ 32.69 billion for FY19 with 6.78% growth projection. Still, Bangladesh is not serving too many markets. If we consider China and India, it is about 33% of the total world population, our export to these countries are very less.
World population is now 7.6 billion and around 4 billion is effective customer who wear banded cloths or what we are exporting. If we consider China and India, it’s about 50% of our effective customer which is untouched. There are some brands that have started sourcing from Bangladesh with big quantity, which could become a big opportunity for our RMG industry to grab more market share.
Though our infrastructures are still not satisfactory and still we are struggling for better support from this area but we can foresee government’s initiatives for infrastructural development. Till now we are using Chittagong port for export. Another three seaports Payra, Mongla, and Shonadia are under development. These will reduce pressure on Chittagong port. Government is taking more initiatives for improving infrastructure i.e. Dhaka- Chittagong highway converted into four-lane and there are 10 economic zones are under construction and 90 more in the plan. The energy crisis will also improve as LNG is adding up with the national grid line.
Socially RMG industry is a prestigious business nowadays. Our female workers are willing to join in this industry, as the factory-working environment is more compliant than the previous time. So, the huge workforce is coming to this sector.
Finally, if we think the legal aspect, it’s a legal business if maintain all government rules and regulations. The government also adopted many favorable policies for this industry, which are business friendly compared to other industries. The rate of return also moderate compared to other industry. There are so many other motivations behind this business that‘s why the entrepreneur should invest in Bangladesh’s RMG industry.
Government, financial institutions and investors-all have to be responsible for the growth of the RMG industry.
Textile Today: What are the major financial challenges for our garment industry and what types of the financial module should be followed?
Mukit Ahmed: Regarding the financial challenges, firstly I should mention the cost of fund. In our country’s cost of fund is the biggest challenge for the entrepreneurs. We recruit raw hand workforce and then train them for improving their efficiency. They might achieve optimum efficiency after 3rd month, our customer’s don’t pay us for the learning period. We have to bid price with optimum efficiency level but we have invested behind to achieve this. There are also different types of bank interest that have to be paid i.e. machinery loan, OD loan, packing credit etc. which are not competitive compared to our competitors.
The second financial challenge is working capital cycle management. Entrepreneurs are investing in working capital from their own source. Though Bangladesh Bank (BB) has an Export Development Fund (EDF) facility that is only for raw material and other working capital has to be managed by the business.
The third financial challenge is compliance cost. The apparel industry is investing in compliance and safety but sometimes our customers are not interested to share the cost.
Bank does not invest without any mortgage, which is another financial challenge. There are many capable and well-experienced entrepreneur in this business but the bank will not invest until they can offer some collateral to the bank. On the other hand, some non-experts are getting a huge amount of loan by managing some way and the loans are not properly used. There are a few examples that we came to know from the newspapers.
Lastly overdue loan, some entrepreneurs do not pay back to the bank in due time, sometimes loans are also not used for the purpose it was obtained for. As a result, banks lost the capability and interest to invest in new projects.
I will not refer to any financial module but it’s all about practice. It is important that from existing financial practice and system, management should be provided with the correct information regarding all financial issues i.e. if any inventory is in stock more than your inventory cycle, cost per minute compared to your selling cost and other related analysis of other overheads. ERP solution can be a useful tool for managing the day to day business operations. It is also important that we recruit the people with proper knowledge and experience in the finance department.
Textile Today: Will FDI has a positive impact on this industry and how much benefit we can retain from it?
Mukit Ahmed: Obviously FDI has a positive impact for this industry. When any FDI comes to the economy, it will increase money circulation, economic activities and employment generation etc. Though there are some critics i.e. FDI is not suitable for us, it is a threat for our local entrepreneurs. But it is not correct. Our entrepreneurs need to compete globally. If we do not welcome FDI, it will be invested in some other countries.
Another controversial point in employment generation from FDI, though we see employment generation in worker level, middle or higher label management capability is still not strong in our country. We are losing huge foreign exchange as management cost of foreign expatriates.
The government needs to monitor whether the money is invested properly in the country or not. If it drained outside from the economy, we will not get any benefit from it.
Textile Today: What policy could Bangladesh take to confront world economic meltdown?
Mukit Ahmed: It is difficult to craft an exact policy in advance for the world economic crisis. When we foresee it, we can prepare ourselves accordingly after analyzing related factors. The government can make two types of policy i.e. economic policy and financial policy. Under the economic policy, the government can amend the export policy, monetary policy etc. and in financial policy, the government can adjust tax rate, bank interest rate, loan payment delay, cash subsidy on export etc. The government can also generate an emergency fund like EDF.
Besides government, the entrepreneur should also foresee the crisis and take preparation in advance to confront it. They should also be ethical to take the benefit from government policies.
Textile Today: How can the government and financial institutions help to boom this industry?
Mukit Ahmed: Government, financial institutions and investors-all have to be responsible for the growth of the industry. Capital should be there for an investor to accelerate business operations, but if the investor does not pay back on time then this sector will lose a source of capital to grow. Therefore, all three parties should be involved to grow this industry.
The government has fixed the interest rate to 9% from 11-13%, all the investors should be benefited from it but they should use this fund correctly and payback at the right time. Entrepreneurs should operate the business ethically. They must need to pay tax, deduct tax from employee salary correctly and deposit to the government.
The government can raise a fund for this industry with a lower interest rate from the existing rate. The loan payment period should be longer. The main thing is to ensure the political stability in the country. When there will be no political unrest, many investors will invest, buyer will place more orders.
The government also need to increase investment on infrastructure development, power, and gas and in seaports. There is a huge demand for textile graduates in the industry. The government should establish more specialized textile universities, can open a textile department in all other public universities. Financial institutions also can make a fund for a long-term investment with less interest rate.
Textile Today: Why finance graduates are not willing to join in this industry?
Mukit Ahmed: This mentality is changing now, finance graduates from reputed institutions are willing to join this industry. SQ Group recruited graduates from reputed organizations and they are continuing with us. I know many other reputed garment factories are also recruiting finance graduates from countries renowned public and private universities. However, there is a concern regarding the working environment, more corporate cultures are yet to be adopted in this sector.
Another reason is the location of the factories/offices. Most factories are located outside Dhaka city. But there is no standard residential area, good educational institution, healthcare facilities etc. So our employees need to commute from Dhaka. Most of them are not willing to move outside due to lack of above facilities. The government should take initiatives to make the facilities available in areas where the majority of garment factories are located and then it will motivate them to move.
For this reason, our entrepreneur prefers to hire experts. They don’t have any urge to come back home since they are living mostly alone or even with family. But who are living in the city and office is outside, they have a headache for reaching home by through a huge traffic.
Textile Today: What are the major factors to increase the financial efficiency of a garment industry?
Mukit Ahmed: Financial efficiency depends on mainly two major areas. One is people who are dealing with finance and the second one is the management information system. Entrepreneurs should recruit graduates with relevant educational background and experiences. Then train them to increase their efficiency.
Financial information is also very much important. If there is not enough information, then a company cannot understand the gap. For this, a company needs to use good financial system solution like ERP or others. Since this requires a big investment, many entrepreneurs are not willing to spend money on this. But this is very important for an organization to improve financial efficiency.
Textile Today: How can an organization control financial dealings to prevent corruption or misuse?
Mukit Ahmed: It’s important to have an effective financial control system in every business organizations. All financial processes i.e. purchase, bank loan, asset procurement, accounting, account payable (AP), should have written policy and must have adequate financial control. Let’s discuss a basic process of three-way matching of purchase. It relates to PO (purchase order), GR (goods receipt) and IR (invoice receiver). All these 3 parties must be independent.
All financial activities should be designed with the adequate process for control and supervision. In most of the garment factories, we don’t find well-designed finance policy and efficient finance team. We need to invest more in the finance process and people.
I strongly believe proper policy, work environment, remuneration, and control system can reduce the cost of an organization.