Financial inclusion for sustainable socio-economic growth

Dr. Atiur Rahman
Governor, Bangladesh Bank :
Here, I Shall discuss on financial inclusion, a key requisite for sustainable, inclusive socio-economic growth. It is a theme that I personally am passionate about; and my country Bangladesh pioneered inclusive financing in the nineteen seventies with self employment microcredit for the poor from microfinance NGOs now licensed as Micro Finance Institutions (MFIs). In the formal financial sector the thrust for inclusive financing is around a decade old now, with a Bangladesh Bank (BB) led campaign package of motivation and necessary enablement support. Let me take a few minutes trying to outline to you the inclusive financing promotion approach we adopted in Bangladesh, as a backdrop for the presentations from other contexts to follow.
The Concept Note for this regional meeting on Sustainable Development Financing points out a lack of strong financial intermediation mechanisms to channel resources into productivity-enhancing and sustainable investments. We at BB are trying to redress this shortcoming with a deliberate directional bias in monetary and financial policies towards financing of productivity enhancing, sustainability enhancing output initiatives; and a sustained motivational thrust for mainstreaming socially responsible inclusive and sustainable financing in the institutional ethos of our financial sector.
The motivational thrust of ingraining a socially responsible financing ethos continuing since 2008 has sensitized and activated our financial sector in reaching out to the underserved and excluded poorer population segments with the financial services they need.
BB-led events like the financial inclusion road shows and have drawn banks and financial institutions into closer contact with their existing and potential new client bases in the poorer communities.
They conduct through own branch outreaches and associate MFIs, their own assessments of specific financial service needs of farmers and SMEs in diverse output activities in their chosen rural and urban regions and economic sectors. Using these needs assessments they design their own financing service packages specifically targeting their chosen segments of farm and non-farm output activities. In MSME financing and in financing farming of new higher value crops, they are using an area-based cluster approach to focus financing services on specific occupational groups or specific crops in specific areas of concentration of such activities, to obtain the best possible results in combination with needed other non-financial support services offered by other initiatives.
Many area based MSME and farming clusters in sectors like light engineering, weaving and textiles, handicrafts, spices, oilseeds etc. are already thriving countrywide, aided by financial and non-financial service support available in the clusters. Flourishing clusters grow further by attracting new enterprises in the same and other value chain linked forward and backward linkage activities.
There is much deeper awareness now in our financial sector that virtually all inclusive financing initiatives are sound business cases for the near future if not immediately so and hence well worth investing in, even where the available low cost refinance lines (for SME and green financing) and interest subsidies from the government (on financing farming of spices and some other specified high value crops) do not fully cover the higher near term costs.
They are also aware that the diversification of their deposit and asset bases brought in by the new inclusion clients bring in sounder stability by reducing risks of large exposures to a few big clients.
The financial sector is thus increasingly more spontaneous and enthusiastic in inclusive financing engagements, BB keeps oversight on choices of their focus areas to locate and address any major omission of any promising sector or population segment.
One example is the BB funded scheme channeling farming credit to landless sharecroppers through a reputed large MFI against bank guarantee. In a recent Gates Foundation supported initiative a web based online information database has been set up on geographical concentrations of financial service providers to farm and non-farm MSMEs countrywide, the facility is expected to reduce search costs substantially for banks and financial institutions in adopting optimal expansion strategies avoiding excessive concentration.
BB has remained proactive in providing the financial sector a permissive, enabling environment for its inclusive financing initiatives. A massive BB-led upgrading of the country’s financial sector IT infrastructure and the payments system has enabled advent and rapid expansion of online e-banking, e-commerce and cost efficient mobile phone/smart card based off branch financial service delivery.
Besides supporting promotion of off branch financial service delivery through MFIs and other area agents of banks, BB is also nudging banks towards expanding their rural branch presence, making license for new urban branch conditional on opening of new rural branches in specified ratios.
BB has put in place permissive soft-touch regulatory frameworks for bank-led mobile phone based banking and for other inclusive financing initiatives in partnerships of banks with technology partners like mobile telecom operators and with MFIs and other local service delivery agents.
BB encourages settlement of fairness in revenue sharing and other level playing field disputes between inclusion initiative partners through consultations between partner stakeholders; with itself and other sector regulators in neutral arbiters’ role to the extent feasible. BB regulations for mobile phone banking and other inclusive financing initiatives duly address consumer protection and AML-CFT concerns.