Developing a national strategy for financial inclusion  

Shahiduzzaman Khan     | Published: February 23, 2019 22:10:15


The high cost of financial transaction and poor regulations caused one-third of the country's population to remain financially excluded until now. Other reasons for the exclusion include lack of banks' interest to offer diversified services, existing collateral-based system for loan disbursement, low level of financial literacy, and information discrepancy.

Globally, 1.7 billion adults are un-banked. However, two-thirds of them own  mobile phones that help them access financial services. Digital technology is taking advantage of existing cash transactions to bring increasing number of people into the financial system. 

Bangladesh is performing well in terms of financial inclusion. What is encouraging is that the number of bank accounts now stands at around 900 million or over 56 per cent of the total 1.6 billion population of the country. If only the adult population is taken into account, nearly 90 per cent people have bank accounts, which is a remarkable achievement for Bangladesh compared to other least developed and developing countries.

A World Bank (WB) survey shows that in most developing countries, less than half the population has account with a financial institution, and in many countries the number is less than one in five households.

It is not very long ago when Bangladesh was dubbed as an under-banked country. Financial inclusion was a far cry at that time. Discussions were limited to the challenges, such as lack of knowledge and awareness in financial inclusion.

Now the situation has radically changed. Financial inclusion of the total population is rising fast. Financial inclusion was 39.76 per cent in 2004 which rose to 56.42 per cent in 2010 due to the opening of 9.0 million Tk 10 farmers' accounts in state-owned banks.

There is a need for reducing the transaction cost and strengthening the regulatory frameworks to bring the un-banked people under the financial system. As a huge number of people do not have access to banks in Bangladesh, it is crucial to have them on board.

Except a few banks, many lenders -- both public and private -- are still far away from helping the un-banked people. Major reasons for maintaining the distance from the un-banked people are the profitability issue and the infrastructural ecosystem that comes with serving the underserved.

 There are many other barriers in the financial sector that the country faces in giving a boost to the financial inclusion. There is a lack of proper infrastructure. The country's literacy rate is also low. Technological innovation, introduction of alternative business models and accessibility of data can create a unique opportunity to drive financial inclusion.

The inability and high cost of financing for micro-enterprises remain a common challenge in rural areas of the country. Rural areas are still cash-dominant. Bringing the illiterate rural villagers to the formal financial system and telling them to use the service is very cumbersome.

Financial inclusion has become one of the country's core strategies to achieve the sustainable development goals and the Seventh Five-Year Plan. As traditional banking is failing to include the rising number of un-banked people into the banking network, a dire need for 'alternative' financial institutions for un-banked people is always felt, especially in rural areas.

In fact, only banks cannot solve the problem of the financial exclusion. Multiple stakeholders and institutions will have to work in unison to accelerate financial inclusion activities. But in reality, this is not happening.

There is no denying the fact that most of the banks have limitations. The existing banks and non-bank financial institutions could provide services as long as they can recover transaction costs. It is thus natural that the banks will not go any places where they fear to incur losses.

The government should launch an awareness campaign as bank-related knowledge helps people understand about its services and necessity, thus fostering financial inclusion and inclusive growth. Regional banks or specialised rural banks and rural financial institutions will have to play a major role in promoting financial inclusion for inclusive growth.

A recent survey found that the rural savings were larger than rural loans, which is obviously a positive sign. The private banks, in addition to their profit-making goals, need also to explore the possibility of opening more branches in rural areas.

Earlier, many products of financial inclusion were experimented with, and many initiatives were taken under the inclusion programme of the central bank. But the end-result was not that much encouraging. Financial inclusion and financial literacy have long been the words mostly used by the country's policymakers, bankers and researchers. Yet those were all rhetoric. Henceforth, there is a need to undertake such programmes for economic growth of the country.

Banking sector experts believe quick formulation of a national strategy on financial inclusion in Bangladesh will help the un-banked population get financial services easily. There is a national financial inclusion strategy that was prepared by the government earlier. Sporadic bids were made to implement it.

Around 50 per cent of Bangladeshis, aged 15 and above, have an account-either through a financial institution or a mobile money provider. This is a significant progress from 2014 when only 31 per cent adult population of the country had bank account.

The percentage of people who have account at financial institutions has also increased from 29 per cent in 2014 to 41 per cent in 2017. Between 2014 and 2017, this contributed to a rise in the share of account owners sending or receiving payments digitally from 67 per cent to 76 per cent globally, and in the developing world from 57 per cent to 70 per cent.

Bangladesh needs to take appropriate steps to bring all the un-banked people under formal financial network. SIM registration, strong regulation and issuing national ID cards with biometric verification will make things easier and safer to provide financial services.

In the circumstances, a fresh strategy for financial inclusion needs to be developed by the government and the stakeholders for promoting inclusive growth in the country. All development partners including central bank, ministries and other organisations of the financial system should find out a cohesive way to frame a strategy for financial inclusion.

 szkhanfe@gmail.com

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