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Inclusive finance initiatives for Inclusive growth
Md. Ashraful Alam Deputy General Manager
Bangladesh BankBangladesh 1
Bangladesh is considered a thought leader in financial inclusion, in light of the many initiatives and gains in agricultural, MSMEs, women entrepreneurs, microfinance and more recently in mobile financial services.
2
Financial inclusion is a key element of social inclusion necessary in fosteringinclusive growth participated by and benefiting all population segments.
Dr. Atiur Rahman
An Acute Global Problem
Note: According to latest available data, the adult population now is about 5.08 billion
Financial Exclusion
Adults who use and do not use formal or semi formal financial services globally(Billions of adults)
3
Global distribution of unbanked adults
Percentage of total adult population who do not use formal or semiformal financial services
4
Asia is home for 59% of the Unbanked Adults
An Acute Global Problem
876
612
0100200300400500600700800900
1000
East Asia South Asia
35% 24%Mill
ions
5
Key drivers of inclusion
Many countries do not fit the overall pattern. For example, India and Thailand appear to be countries with relatively low per capita income and a large rural population,
but have greater use of financial services than many relatively richer and more urban countries.
Relationship between GDP per capita and financial services
6
Inclusive growth
Inclusive growth defined: Inclusive growth is a concept that advances equitable opportunities for economic participants in the economic growth process with benefits equitably shared by the participants.
Wide variation in definition by ADB, World Bank and others ; however the following characteristics are critical:
7
Inclusive Growth
Reduce poverty and inequality
Benefit the most
marginalized
More than income
Translate into gains in human
development and increased well-being
Participation, not just
outcomes
Sustainable
Financial Inclusion/Inclusive finance
Financial inclusion is a state wherein there is effective access to a wide range of financial services for all.
Inclusive financial system is one that serves all clients—not just the relatively well-off. This means reaching out to underserved, unserved, poor and low-income clients and providing them with affordable and quality financial services tailored to their needs.
An inclusive financial system is an arrangement to achieve financial inclusion. An inclusive financial system involves fostering: 8
Financial
Inclusion
Sound institutions
,
Financial and
institutional sustainabilit
y
Multiple providers
of financial services,
Broad range of financial services,
Importance and relevance of Financial Inclusion
Growing body of literature suggests that greater financial inclusion contributes to financial stability and economic development and is critical for achieving inclusive growth.
An inclusive financial system is not only pro-growth but also pro-poor, which along with other interventions, reduces income inequality and poverty which is central to inclusive growth.
Inclusive growth with stability as a policy choice is not possible without achieving full Financial Inclusion.
In essence financial inclusion is not an policy option in achieving inclusive growth rather its a prerequisite.
As agents entrusted with the task of achieving financial inclusion, the role of the mainstream financial sector participants in achieving inclusive growth becomes central. 9
Inclusive Finance virtuous cycle
Appropriate financial inclusion
Inclusive economic growth Enhanced access to formal economy/more savings and investment
10
Goals of Financial Inclusion initiatives
Main goals of Inclusive Finance: Providing access at a reasonable cost to all unbanked
households and enterprises to the range of financial services for which they are “bankable,”
Establishing sound institutions,
Financial and institutional sustainability;
Multiple providers of financial services; and
Achieving an `Inclusive growth’
11
Exclusion-factors and consequences
The financially excluded sections largely comprise
• Marginal farmers• Self employed and
unorganized sector enterprises
• Ethnic minorities and socially excluded groups
• Women• disadvantaged and
vulnerable groups• low income households• handicapped persons• women-owned SMEs• SMEs in rural areas• Newly established SMEs
Factors Affecting Financial Inclusion
• Legal identity• Limited literacy• Level of income.• Religion• Ethnicity• Geographical barriers• Terms and conditions• Complicated procedures• Psychological and cultural
barriers• Lack of awareness
Consequence of Financial Exclusion
• Losing opportunities to grow• Country's growth will retard• Business loss to banks• All transactions cannot be
made in cash• Exclusion from mainstream
society • Loss of opportunities to thrift
and borrow• Employment barriers
12
Benefits of Financial Inclusion
Opportunities to grow
Enhanced economic activities and inclusive growth
New business opportunities for banks
Enlarge the size of formal sector
Cashless transactions, reduced risk and low cost
More inclusive society and social cohesion
Increased opportunities to thrift and borrow
Employment creation
Other allied financial services13
Financial Inclusion continuum
14
Products Features Channels
Measuring Financial Inclusion
Robust, objective and reliable data can provide meaningful insights on the state of financial inclusion that can be used to identify gaps, establish priorities and craft evidence-based policies. There are four lenses through which financial inclusion can be measured:
Access• Supply and
availability of financial products and services
Usage• Utilization of
different products and services
Welfare• Impact of a
products or services on the lives of the consumers
Quality• Consumer
experience; relevance of a product or services
15
A Paradigm Shift
“Access to Finance” is shifting to embrace the idea of providing banking services (Payments, credit, savings, and insurance) to vast majority of poor household and MSMEs rather than primarily delivering microcredit for small scale business.
Bangladesh Bank has invested huge efforts in mainstreaming inclusion agenda in its policy regime through various initiatives like:– No frill accounts– Agricultural Credit– MSE and women entrepreneurs financing– Green financing– CSR– Mobile banking– Agent banking – Financial education and literacy initiatives– School banking etc.
16
Institutional framework– Establishment of a cluster of development financing related
departments in BB» Agricultural Credit and Financial Inclusion Department(ACFID)» SME & Special Programs Department (SMESPD)» Green Banking & CSR Department (GBCSRD)» Financial Stability Department» Financial Integrity and Customer Services Department» Onsite supervision Department for MSME credit» Mainstreaming Regulation and supervision department
– Engagement with public and private sector organization– Advocacy and Promotion– Stakeholders engagement
Inclusive Finance Approach: Institution building
17
Inclusive Finance Approach: Operational mainstreaming
Operational: Bangladesh Bank has taken a number of operational initiatives to organize the inclusive financial initiative to spur inclusive economic growth:
• Provisioning of low cost Funding– Refinance window
» ACFID, SMESPD & GBCSRD– Low cost funding to specific sectors
• Technology– Bangladesh Automated Clearing House (BACH)
» Bangladesh Automated Cheque Processing System (BACPS) and » Bangladesh Electronic Funds Transfer Network (BEFTN)» e-Payment Gateway
– National Payment Switch Bangladesh (NPSB) to facilitate inter-bank electronic payments– Core Banking software for the banking system– Online CIB– Real-time gross settlements system (RTGS)
• Financial Literacy & Education• Data & Measurements 18
Bangladesh bank has brought a paradigm shift in the policy environment. The new policy environment is pro-poor, pro-people and driven towards broadening financial access to the vast majority of unbanked, underserved population. Inclusive financing policy initiatives are in various areas
Inclusive Finance Approach: Policy intervention
19
No-frills accounts for marginal farmers, share croppers, social safety net people
Share croppers loan
Target based lending • Agriculture, • SME and • Green finance
Women entrepreneurs development
Digital Financial services• Payments systems• Bank led mobile financial services
–Linkage with MFIs–Agent banking– SME & Agricultural branch–Rural vs Urban branch–Corporate social responsibility–Environmental Risk Management –Green Financing–Customers’ interest protection Centre (CIPC)
Inclusive Finance Approach: Policy intervention
20
Transmitting inclusive growth agenda through Monetary Policy
Bangladesh Bank administers the monetary policy mainly to achieve price stability and to support projected GDP growth.
Inflation targeting and promoting inclusive growth, not merely growth, has been the focus of BB’s monetary policy since Dr. Atiur Rahman has joined as Governor. His first MPS states that-
“The efforts would be directed at gearing up economic activities by encouraging adequate credit flows to all productive sectors, especially to agriculture, SMEs, infrastructure, and other rural activities, for recouping the losses due to floods and cyclone and improving the domestic supply situation.”
- Monetary Policy StatementJuly 2009
21
Outcomes
22
Credit Growth Rates
Source: Bangladesh Bank, 2014
Perc
en
tag
e
2011 2012 2013 20140%
5%
10%
15%
20%
25%
30%
35%
40%
MSME AgricultureTotal Advances MSME+Agriculture
Outcomes
23
FY 10 FY 11 FY 12 FY 13 FY 1450
70
90
110
130
150
170
115
126
138 141146
111
122
131
147
160
Target Achievement
Agricultural Financing in Bangladesh
Source: Bangladesh Bank, 2014
BD
T b
illio
n
Outcomes
24
2010 2011 2012 2013 20140
200
400
600
800
1000
1200
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Target AchievementTotal Number of Beneficiaries
MSME Financing in Bangladesh
Source: Bangladesh Bank, 2014
BD
T b
illio
n
Nu
mb
er o
f Ben
efi
cia
ries
Outcomes
25
2010 2011 2012 2013 20140
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
13,83116,696 17,362
41,695 42,730
Women MSME Finance in Bangladesh
Source: Bangladesh Bank, 2014
Nu
mb
er
of
Wom
en
En
trep
ren
eu
rs
Fin
an
ced
Outcomes
26
Mar 12 Jun 12 Jun 13 Dec 13 Jun 14 Dec 140
5
10
15
20
25
30
0
100,000
200,000
300,000
400,000
500,000
600,000
No. of Accounts No. of Agent
Mobile Financial Service
Source: Bangladesh Bank, 2014
Nu
mb
er
of
Accou
nts
(in
million
s)
Nu
mb
er o
f Ag
en
ts
Outcomes
Disbursement : Green Financing
27
Source: Bangladesh Bank, 2014
BD
T b
illio
n
Outcomes
28
Source: Bangladesh Bank, 2014
Achievements in school banking
Dec. 2013 Mar. 2014 Jun. 2014 Sep. 20140
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
No. of Accounts Outstanding
Nu
mb
er
of
Ban
k A
ccou
nts
Ou
tstan
din
g D
ep
osits (B
DT m
illion
)
Status of Financial Inclusion in Bangladesh
29
Account at a formal Financial Institutions
(%, age 15+)
Account at a formal Financial Institutions, Female (%, age 15+)
Loan from Financial Institutions past year
(%, age 15+)
Saved at a Financial Institutions past year
(%, age 15+
Account at a formal Financial Institutions, Young Adults (%, age
15+)
Account at a formal Financial Institutions, income bottom 40%
(%, age 15+)
World 50 47 9 22 37 41
South Asia 33 25 9 11 24.7 26
Bangladesh 40 35 23 17 25.6 35
5
15
25
35
45
55
Bangladesh FindexSource: Little Data book on Financial Inclusion, The World Bank- 2012
Pe
rce
nta
ge
30
Status of Financial Inclusion in Bangladesh
31
2009 2010 2011 2012 2013 20140
10
20
30
40
50
60
48.0851.89
53.9556.39
58.8561.86
7.96
14.43
20.04
29.36
35.4537.95
Bank Branch ATMs
Number of bank branches and ATMs per 1000 sq. km
Source: Bangladesh Bank, 2014
Status of Financial Inclusion in Bangladesh
Status of Financial Inclusion in Bangladesh
32
2009 2010 2011 2012 2013 20140
1
2
3
4
5
6
5.085.28 5.31 5.46
5.65 5.78
0.81
1.44
1.97
2.84
3.413.55
Bank Branch ATMs
Number of bank branches and ATMs per 100,000 population
Source: Bangladesh Bank, 2014
Status of Financial Inclusion in Bangladesh
33
2009 2010 2011 2012 2013 20140
50
100
150
200
250
300
350
400
450
267.29
329.58
368.33385.33
412.84 423.38
60.24 62.60 63.94 62.94 62.91 62.92
Deposit AC Loan AC
Number of deposit and loan accounts per 1000 population
Source: Bangladesh Bank, 2014
Growth and stability outcomes of financial inclusion programs
o Sustained 6% plus economic growth over the last decade with:
sound macroeconomic fundamentals
downward edging inflation
moderate fiscal deficits
o Incremental domestic output stabilizing domestic prices
o Inclusive financing stabilizing the financial sector by bringing
large and diverse bases of small loans and deposits
o Inclusive growth strategy generating strong internal demand
Growth and stability outcomes
GDP and per capita GDP movement over time
37
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
200
400
600
800
1000
1200
400421
496
544
619
685
763
842862
958
1,115
GDP per capita (current USD)
US
D
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20144
4.5
5
5.5
6
6.5
7
7.5
GDP growth in Bangladesh
Perc
enta
ge
Source: World Bank and Bangladesh Bank
Inclusive growth performance
38
1992 1996 2000 2005 20100
10
20
30
40
50
60
70
0
10
20
30
40
50
60
Number of poor at national poverty line (millions)
Poverty headcount ratio at national poverty lines (% of population)
GINI coefficient Poverty incidence
32.10
32.12
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
-2
0
2
4
6
8
10
12
Bangladesh India Pakistan Sri Lanka
Projection
Perc
en
t
Highest growth prospect in the region
Source: World Economic Outlook (Sept. 2014), IMF
India Sri Lanka Pakistan Bangladesh 0
1
2
3
4
5
6
7
8
6.77
5.49
4.29
5.73
2.132.61
1.95
0.57
Average Rate of GDP Growth Growth Volatility
Perc
en
t
2nd highest growth and lowest volatility in the region: 1995-2014
Source: World Economic Outlook (Sept. 2014), IMF
1 5 91
31
72
12
52
93
33
74
14
54
95
35
76
16
56
97
37
78
18
58
99
39
71
01
10
51
09
11
31
17
12
11
25
12
91
33
13
71
41
14
51
49
15
31
57
16
1
-2%
0%
2%
4%
6%
8%
10%
12%
Non-Food Food General
Inflation is falling since the end of 2011
Source: Bangladesh Bank
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
0
2
4
6
8
10
12
14
16
18
20
22
24Bangladesh India Pakistan Sri Lanka
Perc
en
t
Projection
Projected inflation shows a downward trend
Source: World Economic Outlook (Sept. 2014), IMF
Sri Lanka Pakistan India Bangladesh 0
1
2
3
4
5
6
7
8
9
10 9.45
8.57
7.31
6.45
4.523.84
2.872.44
Average Rate of inflation Inflation Volatility
In
Perc
en
t
Lowest inflation and volatility in the region:1995-2014
Source: World Economic Outlook (Sept. 2014), IMF
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
10
15
20
25
30
35
40
India Pakistan Sri Lanka Bangladesh
Investment as share of GDP is steadily rising
Source: World Economic Outlook (Sept. 2014), IMF
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
0
10
20
30
40
50
60India Pakistan Bangladesh
Liberalization
Trade-GDP Ratio: Bangladesh is opening up gradually
Source: World Economic Outlook (Sept. 2014), IMF
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
0
10
20
30
40
50
60
70
80
90
100
110
120
Bangladesh India Pakistan Sri Lanka
Lowest Debt-GDP Ratio in the region
Source: World Economic Outlook (Sept. 2014), IMF
Financial Inclusion : Challenges
• Holistic approach• Viability• Scalability• Adoption of technology• Financial Stability–US Subprime crisis–Indian MFI credit crisis
• Use of intermediate agencies.47
Way forward
• Regulatory framework has a profound impact on financial eligibility of poor households and MSMEs
• But regulators struggle to keep abreast of new technologies and business models
• Standard Setting Bodies (SSBs) have advocated a risk-based approach to balance financial stability/integrity with financial inclusion.
• With an enabling policy environment together with technology-driven innovations, alternative Financial Service Points(FSPs) and delivery channels can become effective ways to access and use different financial products and services
• Peer learning through various platforms (AFI, IFC GPFI etc.) plays a critical role in helping countries to implement balanced regulatory frameworks
48
o Inclusive and environmentally responsible financing is of high urgency for low income climate-change threatened economies like Bangladesh.
o Inclusive financing has served Bangladesh well to retain real and financial sector stability amid the global financial crisis.
o Bangladesh’s approach of internalizing inclusive, green financing within the framework of traditional stability focused monetary and financial policies have started attracting external attention.
Concluding Remarks
“Those whom you push down will chain you down Those whom you leave behind will pull you behind
The more you envelope them under darkness of ignorance The more distant will your own welfare be!”
Literal translation from a poem of Rabindranath Tagore (1861-
1914) “Disgraced” in Gitanjali
Thank you ধন্য�বা�দ