Financial literacy facilitates financial inclusion

The proper design of financial products, along with their respective delivery methodologies, is fundamental to an institution's effective and sustainable delivery of financial services. Inclusive products are designed from three perspectives: clients, service providers, and regulators.  Inclusive design of the products should be based on certain principles, and certain issues must be considered before designing an inclusive financing product.  
To be effectively included in financial markets, consumers need not only to have access to safe and regulated financial products, but also to be aware of their existence, understand their terms and conditions, and be able to compare products so as to choose the most appropriate to their needs. Financial literacy can help reducing the demand-side barriers to financial inclusion. Improved financial literacy can increase awareness about products and services, as well as confidence and ability in using them. In turn, this can help to promote the demand for formal financial products and services. It can also empower consumers to better manage their personal and household resources, both on a day to-day basis and over a long-term horizon. Furthermore, improved financial literacy can potentially strengthen the efficiency of financial markets. In several instances, financial literacy influences the allocation of resources in the real economy and therefore the longer-term potential growth rate of the economy. 
In the last decade, developing countries around the world have tried to address the issues of financial exclusion through various innovative models with varying degree of success. Some developing countries have noteworthy experiences in designing and implementing inclusive products that offers invaluable lessons and information. For example, M-PESA and M KESHO are cited as two successful financial inclusion products originated from Kenya that use mobile phone technology to enable financial transactions. Kenya has successfully used the technology platform that has lowest cost, but highest coverage.  In the area of mobile banking, South Africa is among the pioneering countries in introducing innovative financial inclusion models by using mobile technology and Mzansi and Wizzit are their two representative products. They aimed at reducing high financial service cost by introducing 'no-frill' bank accounts. A successful example of a mobile operator-driven model can be found in Philippines named G-cash. Various financial services like mobile wallets, non-bank accounts, cash transfers, etc. are offered. In India, development of lead bank system and mobile banking are noticeable. Since 2000, many emerging agri-economies, such as Brazil, Indonesia and Ukraine have adopted a warehouse receipts system successfully. South Africa launched a silo receipt system, which has become the most successful WR programme in Africa and underpins trading on its commodity exchange. In China, Uniopay introduced card services in rural areas as a part of the Chinese drive to promote inclusive finance. By partnering with grocery stores they are providing one stop for bill payment, mobile top-up, limited withdrawal and remittance receipt. P2P (Pear-to-pear) Lending is also very popular where people can lend money bypassing financial intermediaries. Some Latin American countries like Brazil, Mexico, Columbia, Peru have experimented agent banking models in the form of banking correspondents to address the challenge of financial exclusion.  
There is no doubt that policy makers and market players in Bangladesh are working to handle financial exclusion challenge in the country. In some areas even the success stories of Bangladesh are replicable. Several targeted savings products are offering benefits to the targeted groups. Mobile payment services received extensive boost. However, we need to work hard on the credit and insurance fronts to obtain true benefits. 
In connection with handling the challenge of designing agricultural credit products, micro insurance or risk fund may help handling credit risk and products could be made attractive amongst the farmers. In the process of agricultural credit by the government-controlled banks, collateral/land valuation method must be rectified, and processing time needs to be reduced. To ensure sustainable financial inclusion and adequate financing flows to the agriculture sector, introducing warehouse receipt system is only the initial step. There should be initiative and advocacy for setting up of regulatory authority for Warehouse Receipt Systems and a Commodity Exchange for agricultural marketing in the country. There are already some scattered and piecemeal initiatives to support agricultural commodity markets in Bangladesh. For example, Department of Marketing of the Ministry of Commerce has a website that gathers much needed price information on agricultural commodities; telecentre operators are working to create local hubs/infrastructure to disseminate information required by the rural people using information and communications technology (ICT); there were some pilot projects on loan against warehouse receipts. Now it requires establishing a national-level agricultural commodity exchange; setting up of government warehouses or licensing of private warehouses; local-level service points with the existing telecentre networks; and designing an effective warehouse receipt system. An integrated approach of all these initiatives may bring up a sophisticated commodity market in the country.  
In connection with the intervention in the area of environmental banking in Bangladesh, most of the clients of green financing are from rural areas. It is particularly noteworthy when very insignificant number of rural clients gets access to banks' credit as a whole. It indicates that this could be one of the crucial ways by which several goals of sustainable and green growth of the country can be attained by offering access to finance and other basic services through improving rural economy and the livelihood of the marginalised people. In some instances like solar irrigation, there are evidences of under-performance of renewable energy equipment, inadequate maintenance services, undue prices of equipment, etc. In some instances local-level bank management is not found adequately motivated to handle such financing. Monitoring and motivational training and workshops could help solving such difficulties. Solar irrigation projects could be a very good example for cluster and green financing that may be replicated widely.  
The government-initiated 'one house one farm project' has brought tremendous success in many instances in Bangladesh. Currently, the programme has been running under the supervision of upazilla coordinator supported by one field supervisor, one computer operator, one field assistant and one night guard. Banks support the project activities by setting up booths.  The project office and the bank booths are maintaining two separate digital databases to store the financial and other information. As per the current arrangement, a supervisor is responsible for withdrawing necessary cash from the bank and allocate to the members. Recently, some instances of fraudulent activities drew attention. There should be arrangement of direct transaction of members to draw and deposit money with the bank booths by the members (not through supervisor). An efficient and relevant external team is needed to monitor and evaluate the programme periodically.   
Several financially included people of the country are having only some information or very basic level of financial literacy. This group needs continuous nursing for upgradation in terms of financial literacy. For attaining better outcome, effective coordination is crucial. In a world where households do not have full information about saving issues, and/or are unable to process the information in a fully rational manner, and have difficulties implementing and carrying out plans, there must be synchronisation of policies with strategies. Improved financial literacy would help pulling rural population from access to payment to the access to a range of financial services. Extensive digital drives for awareness development might work for the excluded population and clients of mobile banking services. This would be essential to successfully explore the potential of agent banking which is at the very early stage of development in the country.  
It is time to focus on agricultural credit, micro insurance, and agent banking. In regard to product delivery in rural Bangladesh, using the services of local-level agents could offer remarkable success. In many rural areas, there aren't many banks or institutions that provide financial services. Partnering with local organisations/MFIs (micro financial institutions)   to expand their service to the rural areas could be a very effective option. Using different partners to reach the rural people includes the service charge in price, and at the end, the end users are required to bear the cost. However, it is also true that direct bank lending to the end users does not seem feasible in several instances. 

Dr. Shah Md Ahsan Habib is Professor and Director (Training), Bangladesh Institute of Bank Management (BIBM).
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