Inclusive Finance in Bangladesh: Included those who are excluded [Some Random Thoughts]

Inclusive finance is the range of financial services that made available for the unbanked people. These people are usually locked out of the conventional banking system due to their low income and low social status. Inclusive finance helps them to finance their activities, save money, support their families and hedge against the risks of everyday life. Financial Inclusion is also linked with the process of social inclusion.

A variety of players work to develop inclusive financial services, such as microloans, micro insurance, money transfer and savings products. They are marketed by a variety of financial institutions, such as microfinance institutions, cooperatives, insurance companies, banks and non-bank financial institutions. These distributors must fulfill their duties in a responsible and social way if they are to achieve the main objective of inclusive finance: fighting against poverty and inequality.

Microloans, small loans for the creation of an income-generating activity, are the product that made inclusive finance known among the public at large. The microenterprises that sprout thanks to them help poor people to improve their living conditions.

In my understanding, Inclusive finance need to recognize a continuum of financial services that have been offered by the financial providers within their comparative advantages to serve those who are excluded, but desire to join with any suitable financial service providers. The provision of diverse financial services may include credit, savings, insurance, remittances, money transfers and leasing.

The need for financial services is also context-specific. Basic features of inclusive finance:

a) Usage - who can use?

b) Accessible - who can access? Use of Technology? Digital Inclusion?

c) Affordable - who can afford?

d) Appropriate - is the amount adequate?

e) Sustainable - does it cover the operating cost?

f) Monitor - does it convenient to monitor?   

g) Delivery mechanism - finance instrument from both formal and semi-formal sources, commercial bank, non-banking financial institutes, agent banking, mobile banking.

Broadening the scope for accessing the financial instruments does not automatically ensure the access to that financial product. In that case, the basic question, that was asked in the book Building Inclusive Financial Sector for Development published in 2006, I would like to re-quote here. “Why are so many bankable people unbanked?” And we need to identify measures to overcome those barriers.

Who are the people who are excluded from full participation in the financial sector — those who should be but are not using formal financial services? Here, as I think, the word full participation demands further discussion.

What I am trying to say, financial inclusion for all eligible people may not be achieved significantly without addressing underlying causes of social exclusion.  

However, Bangladesh is one of the leading countries in South Asia in ensuring higher intensity of access of households to financial services. According to survey of 2014, financial inclusion in Bangladesh has increased over years. Access to any financial services (which includes insurance) in any market is over 79 percent compared to 77 percent in 2010 survey. However, combining data of these two surveys shows that aggregate access to any financial service in 8 years is around 89 percent (InM 2015). It is to be noted that formal market mainly consisted of bank services such as savings and credit, and insurance. However, with the emergence of agent banking and mobile banking, formal market also includes households that have mobile banking account in a bank, thus broadening the definition of this market.

PKSF has taken a number of pragmatic programmes and projects to ensure  financial inclusion, particularly for the disadvantaged groups.  As of June 30, 2019, the total number of members is 13.90 million and total number of borrowers is 10.78 million. Among the borrowers, the number of women borrower is quite significant (92%) i.e. 9.93 million. The cumulative loan disbursement is BDT 3572.66 billion and outstanding is BDT 298.18 billion at the PO-Borrower level. The outstanding amount of member’s savings is BDT 113.44 billion. The cumulative loan disbursement is BDT 347.47 billion and outstanding loan is BDT 53.52 billion at the PKSF-PO level. PKSF is significantly contributing towards women’s empowerment and their access of assets. PKSF works to expand the horizon of access to finance for the excluded, for creating opportunities and also promoting other non-financial services for the marginal people. PKSF also attempts to protect the poor from any loss of assets and empower them so that they can participate in decision making processes.

PKSF also prepared a strategy paper considering the needs of excluded people. For example, marginalised occupational groups (day labourer, domestic help, beggar, sex worker, tea labourer etc), demographically marginalised groups (elderly person, street children etc), disabled group (physically disable, emotionally disable etc), poor female headed households, geographically isolated groups (people living in char, haor, hilly and coastal areas) and other minority groups are being considered in this strategy.

The World Bank’s proposed “Low Income Community  Housing  Support  Project” and “Sanitation Project”, DFID’s Pathways to Prosperity for the Extreme Poor and few more projects funded by other development partners are being negotiated and. PKSF seeks all out support, such as additional financial resources and effective cooperation, from the Government and other stakeholders.

Bangladesh Bank, as a central bank of the country, has been pursuing financial inclusion strategy since 2010 for inclusive growth and sustainable development. BB has adopted a multipronged strategy by ushering ideas and policies which are critical for accelerating financial inclusion:

To expand credit flow to agricultural, and Cottage, Micro, Small and Medium Enterprises (CMSMEs);

- To bring a large number of un-banked/under-banked, socially disadvantaged people into the ambit of financial services;

- To adopt mobile financial services by taping mobile and telephone density;

- To expand banking services to remote areas through agent banking; and

- To adopt information and communication technology (ICT) in delivering financial products at an affordable cost.

Strengths of Financial Inclusion Process in Bangladesh

- Increasing trend of Bank’s branch expansion both in rural and urban area;

- Adopting agent banking and mobile banking as alternative channels for banking service, particularly in rural areas;

- Playing an pivotal role by the MFIs in expanding financial services to disadvantaged people

- Creating a digital platform by enabling Mobile Financial Service (MFS)

- Pursuing a pragmatic agricultural and CMSE financial policies for marginal farmers, share cropper and financial excluded entrepreneurs to access financial services is the major strength of financial inclusion

- Bringing a vast segment of financial excluded population through innovative account is another praiseworthy strength of financial inclusion

Weakness of Financial Inclusion Process in Bangladesh

- A large number of micro and small firms have difficulties in accessing bank financing because of collateral and lack of proper accounts (documentations). These segments of Micro, Small and Medium Enterprises (MSMEs) are identified as 'the missing middle' and that firms are also too big to qualifying for loans from MFIs (WB, 2019). This is one of the major weaknesses for broadening financial inclusion.

- Banks and Non-Bank Financial Institutions (NBFIs) are charging higher interest rate for CSMES loan compare to large and medium industry. Prevailing the high interest rate for CMSEs loan is another weakness of financial inclusion.

- Microcredit borrowers are facing challenges to mitigate different types of risks due to absence of micro insurance services. The very low insurance penetration (0.60 percent of GDP) compared to India (3.69 percent of GDP) reflecting insurance sector is in nascent stage which is another weakness for financial inclusion during last ten years.

- Access to financial services has been expanded but usage of financial services is not up to market. Many household depend on family and friend sources for borrowing (WB, 2017 and BBS, 2014). Many accounts are lying in dormant. Lack of proper measurement for safe and secure financial transaction.

- Lack of proper measurement for safe and secure financial transaction is also hindrance for financial inclusion. To ensure safe and secure financial trisection, a better coordination among mobile network operator (MNO), financial service provider, and regulators is necessary.

Conclusion

Although financial inclusion has been pursuing since 2009, National Financial Inclusion Strategy (NFIS) has yet to lunch in Bangladesh. To broaden financial inclusion in future, adopting NFIS is necessary. However, Bangladesh is one of the leading countries in South Asia in ensuring higher intensity of access of households to financial services. According to a survey of 2014 by InM, financial inclusion in Bangladesh has increased over years. Access to any financial services (which includes insurance) in any market is over 79 percent compared to 77 percent in 2010 survey. However, combining data of these two surveys shows that aggregate access to any financial service in 8 years is around 89 percent, according to InM study on access to finance in 2015. It is to be noted that formal market mainly consisted of bank services such as savings and credit, and insurance. However, with the emergence of mobile banking, formal market also includes households that have mobile banking account in a bank, thus broadening the definition of this market.  

Financial inclusion has been scaled up and diversified significantly since 2010 because BB has ushered in policies and ideas for expanding financial inclusion and adopted pragmatic prudential guidelines and approaches.

Some strengths which are mentioned above are really fruitful to appear mentionable achievement in financial inclusion reflected in accessing financial services by the marginal farmers, sharecroppers, and women entrepreneurs who were excluded or underserved.

Some weakness such as 'the missing middle' segment of MSMEs, exiting higher interest rates, a very low insurance coverage and delayed to adopt expected NFIS are critical for broadening financial inclusion in future.