The state of financial inclusion in Bangladesh

Since the early 2000s, the term "financial inclusion" has gained importance as a result of findings about financial exclusion and its direct correlation to poverty. Micro credit as a concept and system has been an asymmetric evolution ahead of financial inclusion. Financial inclusion is often closely connected to the aggressive micro credit policies that were introduced without appropriate regulations or consumer education policies. The result was consumers becoming quickly over-indebted to the point of committing suicide in countries like India. Lending institutions saw repayment rates collapse after politicians in one of India's largest states called on borrowers to stop paying back their loans, threatening the existence of the entire 4 billion a year Indian microcredit industry. This crisis has often been compared to the mortgage lending crisis in the US.

In theory, 'financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable'. Study shows, a large portion of working-age adults globally still has no access to the types of formal financial services delivered by regulated financial institutions. In Asian region alone, only 30 per cent of adults have a bank account even though formal financial sector of the region has grown in recent years.

The United Nations defines the goals of financial inclusion as follows:

• access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance;

• sound and safe institutions governed by clear regulation and industry performance standards;

• financial and institutional sustainability, to ensure continuity and certainty of investment; and

• lcompetition to ensure choice and affordability for clients.

"The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance", observed former United Nations Secretary-General Kofi Annan. On December 29,  2003,  he said, "the great challenge before us is to address the constraints that exclude people from full participation in the financial sector. Together, we can and must build inclusive financial sectors that help people improve their lives." Alfred Hannig,  Executive Director of Alliance for Financial Inclusion (AFI) highlighted "Financial inclusion is no longer a fringe subject. It is now recognized as an important part of the mainstream thinking on economic development based on country leadership."

The term 'financial inclusion' was used for the first time in Indian context by Y V Reddy, the then Governor, Reserve Bank of India (RBI) in his  Annual Policy Statement presented in April 2005.  Later on, this concept gained ground and came to be widely used in India and abroad. While recognising the concerns in regard to the banking practices that tend to exclude rather than attract vast sections of population, banks were urged to review their existing practices to align them with the objective of financial inclusion. In India, RBI has initiated several measures to achieve greater financial inclusion, such as (1) opening of no-frills accounts, (2) relaxation on know-your-customer (KYC) norms, (3) engaging business correspondents (BCs), (4) use of technology, (5) adoption of Electronic Bank Transfer (EBT) to reduce the cost and time for fund transfer,  (6) introduction of General purpose Credit Card (GCC) facility to help the poor and the disadvantaged with access to easy credit, (7) simplified branch authorization, (8) opening of branches in unbanked rural centres.

Bangladesh Bank  in its policy statement  defined  financial inclusion as 'a key element of social inclusion, necessary to foster inclusive growth, combat poverty by opening up blocked opportunities and inclusive financing of farm/non-farm output initiatives, generate new employment on the demand side while matching new domestic output on the supply side.' The central bank of Bangladesh  underscores  that conventional monetary and financial policies do not address inclusivity concerns, liquidity flows into profit seeking from speculative pursuits. Bangladesh Bank, therefore, stepped in with financial policies steering initiatives towards socially responsible productive pursuits.

Inclusive financing thrusts of Bangladesh Bank are on output initiatives in agriculture supporting food security and food price stability, SME financing, promoting output, employment and income generation and green financing supporting environmental sustainability. Policy initiatives of ensuring adequate financing for agriculture include: (1) mandatory minimum 25 per cent agricultural lending target for all banks, (2) government interest subsidy on loans for specified high value exotic crops and spices, (3) banks with inadequate rural branch presence can lend through local MFIs, (4) credit needs of tenant farmers supported by lending through a large reputed MFI, (5) bank accounts for farmers available at nominal deposits-- 10 million accounts opened so far. For the SME enterprises which accounts for 22.5 per cent of GDP and 40 per cent of employment, financing is supported by refinance lines funded partly by development partners (IDA, ADB and JICA) and partly by Bangladesh Bank. BB disbursed Taka 3.45 billion from refinance window and 21.9 per cent of the SME credit is distributed to women entrepreneurs. For the purpose of helping SMEs, 'New Entrepreneurs Fund' and 'Jute Sector Fund' have been launched in 2014.

The Bangladesh Bank recently has recommended that the central banks of the SAARC region can initiate policies targeting low income populations by introducing agriculture and rural programmes under a comprehensive monitoring strategy. In this connection, loans to sharecroppers and small enterprises introduced by the Bangladesh Bank has been contributing not only to achieving wider coverage of financial inclusion in Bangladesh but also to reducing the high dependence of small and marginal farmers on non-institutional sources.

However, there are some issues which are being taken into consideration for effectively addressing the challenges for ensuring sustainable inclusive banking. These are:

 i) Inclusive banking measures are bank-led and regulatory driven. These are not really spontaneous initiatives on the part of banks and financial institutions, without which sustainability of inclusive banking cannot be established.

 ii) The measures so far taken are still not fully able to address the demand side problems of the financially excluded sections of the population. Financial exclusion is not only a supply-side problem.

iii) Banking approaches to the financially excluded people are to be changed. Here, banks should go to the public, rather than customers coming to them.

 iv) Focus on women must be maintained.

 v) Initiatives with regard to financial literacy and establishment of credit counseling centers are necessary, but these are absent in many countries. This subject (financial inclusion) should be incorporated as a key segment of the initial training received by frontline branch and other customer contact staff.

 vi) Like mandatory agriculture/rural finance programmes, all banks operating in Bangladesh may be asked to participate in financial inclusion programme for which responsibility of different unbaked/underbanked districts/areas should be allocated among the banks on the basis of some rational criteria.

 vii) Finally instead of giving piecemeal directives, the central bank should provide detailed guidelines of inclusive banking to all formal banks and financial institutions

 While financial inclusion is an important issue, it may also be interesting to assess whether such inclusion as earmarked in policies are actually reaching the common beneficiaries. Since the 1990s, there have been serious efforts both in the government agencies and in the civil society to monitor the fund flow process and to track the outcome of public expenditure through budget tracking. Organisations like International Budget Partnership (IBP) are undertaking global surveys in more than 100 countries to study transparency in budget making process. There are various tools used by different civil society groups to track public expenditure. Such tools may include performance monitoring of public services, social audit and public accountability surveys. In India, the institutionalisation of Right to Information (RTI) has been a supporting tool for activists and citizen groups for budget tracking and advocacy for social inclusion. In Bangladesh, citizen groups like Sushashon o Unnayanner jonnya Prochar Obhijan ( SUPRO), Action Aid, Unnayan Anneshon  are  also advocating for decentralisation of budget making process  and making people's voice heard while formulating budget for them .

There is no one to deny the fact that inclusive and environmentally responsible financing is of high urgency for low income, climate-change threatened economies like Bangladesh.

Dr Muhammad  Abdul Mazid, retired  Secretary and former Chairman NBR.