Liquidity is the blood of the economy

Liquidity is the blood of the economy

Mishal Kanoo on why it shouldn't be difficult for banks to turn themselves from villains into heroes.

Neither case is true, nor is either view helpful in what we should perceive as the way forward, economically speaking, for the region. What happened is not something new to the region, what is new though is the magnitude at which it occurred; it took us all by surprise. Even those amongst us who predicted a correction of some sort never imagined the tremendous speed at which a correction would come or the impact it would have on the state of the region's economy.

The question that needs to be addressed is how did this happen? Instead of delving into the econometrics of the scenario, allow me to instead to present both the villain and the potential saviour. Allow me to also qualify my article by stating that not all of the villains were criminal and not all of them played a sordid role in the nasty situation that we now face. Some were quite prudent and decided not to participate to the same degree that others did. Others were unfortunately the driving force that allowed this situation to exacerbate, plunging us all in the dire straits that we find ourselves in today. These villains are, of course, the banks. As I mentioned, some banks were quite cautious in their lending, others gave money away like ice cream to children on a hot summer's day.

Now the situation dictates that the market is thirsty for that most precious liquid, cash. Unfortunately, most banks have decided to withhold this urgent factor to the growth of the economy. But I have to ask the question; how are banks supposed to pay their staff, customers and shareholders when they don't allow their customers to borrow money? It is this money, that is used to create businesses and add jobs, which feeds them with even more cash, allowing the circle to complete.

For those who might not understand what I mean, let me describe the circle to you. Banks lend money to businesses based on sound shareholders and good business plans. These businesses then go out and import or manufacture merchandise, which is then sold to the market. For a business to sucessfully import or manufacture anything, it needs a location so an office or warehouse is leased. The owner of the leased space then pays his staff who go out and buy food, clothes, pay bills and create new business opportunities that add to the economy. Back to the original company. They too must hire people and buy equipment. This creates more jobs. The company sells items and makes money and then pays back the bank.

Now if the banks don't make loans available to these businesses, then no business or jobs are created. No one is able to lease apartments, buy cars or food or clothes and so it continues. The gist of this is that there is no growth and the circle starts to create a stranglehold on the neck of the economy.

Banks have a duty to their staff, stakeholders and shareholders. They also have a duty to the economy as a whole. If they failed in the past and helped fuel the unnatural growth that we witnessed to become the villain of the story, they can now release some of that cash into the economy to become the hero.

We can all appreciate what a burden it must be for the senior managers to decide who to lend and who not to lend to. I believe that they are intelligent enough to know a good story from a bad one. I believe that the senior managers bank not on the present but on the future and yes indeed, the future of the region is bright.

It is easy to attack those who we perceive have the power of life over us. But let us consider for a moment that they are scared of making decisions that can come back to haunt them. It is our job as business leaders to persuade them that they can bank on us. But it is also up to them to take a chance with us as customers if they believe in us and what we are selling.

There is an old English saying that banks are happy to offer you an umbrella when it is sunny but are quick to take it away the moment it rains. I hope that our bankers will turn this saying on its head and become the trusted partner that all businesses can rely on.

Mishal Kanoo is the deputy chairman of the Kanoo Group.

Original Article on Arabian Business