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Inclusive finance initiatives for Inclusive growth Md. Ashraful Alam Deputy General Manager Bangladesh Bank Bangladesh 1

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Page 1: Inclusive finance for inclusive growth -Final

Inclusive finance initiatives for Inclusive growth

Md. Ashraful Alam Deputy General Manager

Bangladesh BankBangladesh 1

Page 2: Inclusive finance for inclusive growth -Final

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

Page 3: Inclusive finance for inclusive growth -Final

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

Page 4: Inclusive finance for inclusive growth -Final

Global distribution of unbanked adults

Percentage of total adult population who do not use formal or semiformal financial services

4

Page 5: Inclusive finance for inclusive growth -Final

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

Page 6: Inclusive finance for inclusive growth -Final

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

Page 7: Inclusive finance for inclusive growth -Final

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

Page 8: Inclusive finance for inclusive growth -Final

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,

Page 9: Inclusive finance for inclusive growth -Final

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

Page 10: Inclusive finance for inclusive growth -Final

Inclusive Finance virtuous cycle

Appropriate financial inclusion

Inclusive economic growth Enhanced access to formal economy/more savings and investment

10

Page 11: Inclusive finance for inclusive growth -Final

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

Page 12: Inclusive finance for inclusive growth -Final

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

Page 13: Inclusive finance for inclusive growth -Final

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

Page 15: Inclusive finance for inclusive growth -Final

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

Page 16: Inclusive finance for inclusive growth -Final

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

Page 17: Inclusive finance for inclusive growth -Final

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

Page 18: Inclusive finance for inclusive growth -Final

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

Page 19: Inclusive finance for inclusive growth -Final

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

Page 20: Inclusive finance for inclusive growth -Final

–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

Page 21: Inclusive finance for inclusive growth -Final

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

Page 22: Inclusive finance for inclusive growth -Final

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

Page 23: Inclusive finance for inclusive growth -Final

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

Page 24: Inclusive finance for inclusive growth -Final

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

Page 25: Inclusive finance for inclusive growth -Final

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

Page 26: Inclusive finance for inclusive growth -Final

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

Page 27: Inclusive finance for inclusive growth -Final

Outcomes

Disbursement : Green Financing

27

Source: Bangladesh Bank, 2014

BD

T b

illio

n

Page 28: Inclusive finance for inclusive growth -Final

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

)

Page 29: Inclusive finance for inclusive growth -Final

Status of Financial Inclusion in Bangladesh

29

Page 30: Inclusive finance for inclusive growth -Final

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

Page 31: Inclusive finance for inclusive growth -Final

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

Page 32: Inclusive finance for inclusive growth -Final

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

Page 33: Inclusive finance for inclusive growth -Final

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

Page 34: Inclusive finance for inclusive growth -Final

Growth and stability outcomes of financial inclusion programs

Page 35: Inclusive finance for inclusive growth -Final

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

Page 36: Inclusive finance for inclusive growth -Final

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

Page 37: Inclusive finance for inclusive growth -Final

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

Page 38: Inclusive finance for inclusive growth -Final

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

Page 39: Inclusive finance for inclusive growth -Final

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

Page 40: Inclusive finance for inclusive growth -Final

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

Page 41: Inclusive finance for inclusive growth -Final

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

Page 42: Inclusive finance for inclusive growth -Final

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

Page 43: Inclusive finance for inclusive growth -Final

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

Page 44: Inclusive finance for inclusive growth -Final

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

Page 45: Inclusive finance for inclusive growth -Final

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

Page 46: Inclusive finance for inclusive growth -Final

Financial Inclusion : Challenges

• Holistic approach• Viability• Scalability• Adoption of technology• Financial Stability–US Subprime crisis–Indian MFI credit crisis

• Use of intermediate agencies.47

Page 47: Inclusive finance for inclusive growth -Final

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

Page 48: Inclusive finance for inclusive growth -Final

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

Page 49: Inclusive finance for inclusive growth -Final

“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

Page 50: Inclusive finance for inclusive growth -Final

Thank you ধন্য�বা�দ