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Financial Inclusion Bolstering Inclusive Economic Growth in Bangladesh
Atiur Rahman, PhD
Governor, Bangladesh Bank
16 February, 2015
1
Content
o Financial inclusion as a tool for bolstering inclusive growth
o Bangladesh Bank (BB) initiatives for inclusive financing
o Financial inclusion status in Bangladesh
o Growth and stability outcomes
o Concluding remarks
2
Financial Inclusion: how does it accelerate inclusive growth?
o Financial inclusion:
a key element of social inclusion
necessary to foster inclusive growth
combats poverty by opening up blocked opportunities
o Inclusive financing of farm/non-farm output initiatives generatenew employment on the demand side
matching new domestic output on the supply side
3
Why do we need inclusive financing
o Conventional monetary and financial policies do not address inclusivity concerns, liquidity flows into profit seeking from speculative pursuits.
o Bangladesh Bank therefore stepped in with financial policies steering initiatives financing away from speculative uses towards socially responsible productive pursuits.
o BB initiatives include interalia motivational efforts, creation of necessary enabling environment, and policy support.
4
A glimpse of financial inclusion programs in Bangladesh
5
Three broad pillars of inclusive financing in BD
o BB’s inclusive financing thrusts are on output initiatives in
Agriculture supporting food security and food price stability
SME financing promoting output, employment and income generation
green financing supporting environmental sustainability
o Widening advancement opportunities for the poorer population segments
6
Agriculture contributing about a fifth of GDP gets less than 6% share of total bank credits
o Policy initiatives of ensuring adequate financing for agriculture include:
Mandatory minimum 25% agricultural lending target for all banks
Government interest subsidy on loans for specified higher value exotic crops and spices
Banks with inadequate rural branch presence can lend through local MFIs
Credit needs of tenant farmers supported by lending through a large reputed MFI
Bank accounts for farmers available at nominal deposits; 10 million accounts opened so far
7
Small and medium enterprises (SMEs)
o Contributes to 22.5% of GDP and 40% of employment.
o SME financing supported by refinance lines funded partly by development partners (IDA, ADB and JICA) and partly by BB.
o Taka 3.45 billion disbursed from refinance window
o 21.9% of the SME credit distributed to women entrepreneurs
o ‘New Entrepreneurs Fund’ and ‘Jute Sector Fund’ launched in 2014
8
SME credit rose sharply in recent years
Source: Bangladesh Bank
19.4317.61
20.60
22.88
27.27
24.74 24.6225.70
10.81
10.47
13.38
16.05
20.58
18.8219.58 20.27
0.0
5.0
10.0
15.0
20.0
25.0
30.0
FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13
% s
hare
Aggriculture and SME Credit as % of Total Domestic Credit SME % of Domestic Credit
9
Green financing
o Macro prudential policy support for green financing includes:
Banks & financial institutions must allocate ≥5% of loanportfolio to green finance by 2016.
Better supervisory (CAMELS) rating for good performers
Differential equity margin and loan pricing requirementaccording to environmental risk grading
o Green financing supported by refinance lines funded by BB & ADB
o Refinance line covers 47 green products.
10
o Taka 112.57 billion invested so far as green finance.
Green financing..(cont’d)
Amount (million Taka) Number
Solar home system 154 4,867
Irrigation pumps 68 12
Solar PV module plants 421 3*
Biogas plants 524 1,578
* Total capacity of 53 MW/year
Refinance supported green financing covered:
Source: Bangladesh Bank
11
Inclusive financing delivery supported by major modernization of financial sector IT infrastructure
o Multifarious initiatives launched to digitize the financial sector:
Bangladesh Automated Clearing House (BACH)
National Payment Switch (NPSB)
Online credit information and supervisory reporting
Mobile financial services (MFS)
Enterprise Data Warehouse
Online Bond Trading
Anti-Money Laundering Monitoring (goAML)
12
Mobile Financial Services (MFS)
o Why MFS in Bangladesh?
Agro-based livelihood
Cash based economy
Significant domestic remittance flows
Growing urbanization
Omnipresent mobile telephone network
o Guidelines on MFS and agent banking issued to facilitate inclusive financing
o 25.2 million mobile bank accounts opened so far, employing 0.5 millionagents
13
Regulatory Structure for MFS
o Stakeholders Banks Mobile Network Operators Technology Providers Distributors Agents Involvement of other Regulator (i.e. BTRC)
o Bank-led Model
Regulated by Bangladesh Bank
Financial institutions provide the service
MNOs provide mobile connectivity for fees
Customers and agents use their handsets
Guidelines issued in September 2011
28 banks were permitted; now over 20 million accounts
14
Common people transferring money from urban to ruralBA
GER
HAT
BARG
UN
A
BHO
LA
BRAH
MAN
BARI
A
CHAP
AIN
AWAB
GAN
J
CHU
ADAN
GA
COXS
BAZ
AR
DIN
AJPU
R
FEN
I
GAZ
IPU
R
HO
BIG
ANJ
JESS
ORE
JHEN
AID
AH
KHAG
RACH
HAR
I
KISH
ORE
GAN
J
KUST
IA
LALM
ON
IRH
AT
MAG
URA
MAU
LVIB
AZAR
MU
NSH
IGAN
J
NAO
GAO
N
NAR
AYAN
GAN
J
NAT
ORE
NIL
PHAM
ARI
PABN
A
PATU
AKH
ALI
RAJB
ARI
RAN
GAM
ATI
SATK
HIR
A
SHER
PUR
SUN
AMG
ANJ
TAN
GAI
L
Cash In Count Cash Out Count
$1 billion transaction per month
Source: Bangladesh Bank
15
Other financial inclusion programs
o Bank accounts for school children
itinerant wage labourers
street children
o 850 thousand school bank accounts opened so far
o 5 million ‘10 Taka’ accounts opened to distribute financial aid to:
social security program beneficiaries
hardcore poor, freedom fighters
destitute beneficiaries under Hindu Welfare Trust
16
Status of financial inclusion in Bangladesh
17
2009 2014 % Change
Total number of bank branches 7,187 8,821 23%
a) Urban 3,051 3,787 24%
b) Rural 4,136 5,034 22%
o Banks are obliged to maintain 1:1 ratio in rural-urban areas for opening of new bank branches.
Status of financial inclusion in Bangladesh
Source: Bangladesh Bank
18
6.98 7.19 7.44 7.65 7.848.19
0.82 1.
25
2.05
3.61
4.89
6.33
0
1
2
3
4
5
6
7
8
9
2008 2009 2010 2011 2012 2013
Commercial bank branches per 100,000 adults
ATMs per 100,000 adults
Demographic Penetration of Bank Services
816 12
67
2121
3797
5248
6797
69027244
76418009
83788742
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2008 2009 2010 2011 2012 2013
Number of Automated Teller Machines
Commercial banks: Number of Branches
Number of Bank Branches & ATMs
Status of financial inclusion...(cont’d)
Source: Financial Access Survey (Sept. 2014), IMF
19
Growth and stability outcomes of financial inclusion programs
20
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
21
-2
0
2
4
6
8
10
12Bangladesh India Pakistan Sri Lanka
Projection
Perc
ent
Highest growth prospect in the region
Source: World Economic Outlook (Sept. 2014), IMF
22
6.77
5.49
4.29
5.73
2.132.61
1.95
0.57
0
1
2
3
4
5
6
7
8
India Sri Lanka Pakistan BangladeshAverage Rate of GDP Growth Growth Volatility
Perc
ent
2nd highest growth and lowest volatility in the region: 1995-2014
Source: World Economic Outlook (Sept. 2014), IMF
23
0%
2%
4%
6%
8%
10%
12%Ju
n-01
Dec
-01
Jun-
02D
ec-0
2Ju
n-03
Dec
-03
Jun-
04D
ec-0
4Ju
n-05
Dec
-05
Jun-
06D
ec-0
6Ju
n-07
Dec
-07
Jun-
08D
ec-0
8Ju
n-09
Dec
-09
Jun-
10D
ec-1
0Ju
n-11
Dec
-11
Jun-
12D
ec-1
2Ju
n-13
Dec
-13
Jun-
14D
ec-1
4
Non-Food Food General
Inflation is falling since the end of 2011
Source: Bangladesh Bank
24
02468
1012141618202224
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
Perc
ent
Bangladesh India Pakistan Sri Lanka
Projection
Projected inflation shows a downward trend
Source: World Economic Outlook (Sept. 2014), IMF
25
9.458.57
7.316.45
4.523.84
2.872.44
0123456789
10
Sri Lanka Pakistan India BangladeshAverage Rate of inflation Inflation Volatility
In P
erce
ntLowest inflation and volatility in the region:1995-2014
Source: World Economic Outlook (Sept. 2014), IMF
26
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
27
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
28
100
300
500
700
900
1100
1300
1500Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
Jan-
13Ju
l-13
Jan-
14Ju
l-14
Mill
ion
USD
Worker's remittances are on the rise
Source: Bangladesh Bank
29
0102030405060708090
100110120
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Bangladesh India Pakistan Sri Lanka
Lowest Debt-GDP Ratio in the region
Source: World Economic Outlook (Sept. 2014), IMF
30
0.0115
0.0120
0.0125
0.0130
0.0135
0.0140
0.0145
0.0150Ju
n-07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
US
D p
er T
aka
Stability
Depreciation
Stability
Appreciation
Exchange rate is stable since June 2013
Source: Bangladesh Bank
31
o Inclusive and environmentally responsible financing is of highurgency for low income climate-change threatened economieslike Bangladesh.
o Inclusive financing has served Bangladesh well to retain real andfinancial sector stability amid the global financial crisis.
o Bangladesh’s approach of internalizing inclusive, green financingwithin the framework of traditional stability focused monetaryand financial policies have started attracting external attention.
Concluding remarks