Md. Habibur Rahman, Bangladesh Bank

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RETREAT #6 - INCLUSIVE AND INNOVATIVE FINANCING FOR SUSTAINABLE DEVELOPMENT -

BB EXPERIENCE TARRYTOWN HOUSE ESTATE AND CONFERENCE CENTER – TARRYTOWN, NEW YORK 15-16 FEBRUARY 2015

Outline 2

¤  A Brief Overview of BB’s Developmental Approach n  BB mandate, inclusivity and stakeholders’ responses

¤  Growth and Stability Outcome n  Resilient Economic Growth n  Robust External Sector n  Sustained Financial Stability n  Improved socioeconomic conditions

¤  Concluding Remarks

•  Mandate •  Financial inclusivity •  Supportive macro-prudential policies •  Stakeholders’ responses

A Brief Overview of BB’s Developmental Approach

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4

Mandate

“… to manage the monetary and credit system of Bangladesh

with a view to stabilizing domestic monetary value and

maintaining a competitive external par value of the

Bangladesh Taka towards fostering growth and development of

country’s productive resources in the best national interest1.”

1 THE BANGLADESH BANK ORDER, 1972 substituted by the Bangladesh Bank (Amendment) Act, 2003

v  Policy support initiatives o  Concessional refinance against three major

sectors: o  Agriculture

o  SME lending and

o  green financing

o  Rural bank branch expansion

o  Off branch agent based financial services delivery using MFIs and Mobile phone/smart card based banking;

o  No- frill accounts for farmers and disadvantaged people.

Financial inclusion initiatives of BB – reaching the unreached

v  Motivational initiative o  Road shows/fair/campaign;

o  CSR initiatives;

o  Own need based assessments.

v  Technology driven initiatives o  Digitization/modernization of

payment system.

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o  Investment Gap? o  Availability of Fund? o  QE and persistent instabilities and

economics weakness?

Agriculture contributing about a fifth of GDP gets less than 6% share of total bank credits

q  Policy initiatives of ensuring adequate financing for agriculture include:

ü Mandatory minimum 2.5% agricultural lending target for all banks

ü Government interest subsidy on loans for specified higher value exotic crops and spices

ü Banks with inadequate rural branch presence can lend through local MFIs

ü Credit needs of tenant farmers supported by lending through a large reputed MFI

ü  Bank accounts for farmers available at nominal deposits; 10 million accounts opened so far

Small and medium enterprises (SMEs)

q  Contribute to 22.5% of GDP and 40% of employment

q  SME financing supported by refinance lines funded partly by development

partners (IDA, ADB and JICA) and partly by BB

q  Taka 3.45 billion disbursed from refinance window

q  21.9% of the SME credit distributed to women entrepreneurs

q  ‘New Entrepreneurs Fund’ and ‘Jute Sector Fund’ launched in 2014

Deliberate directional bias for agriculture and SMEs credit

19.43 17.61

20.60 22.88

27.27 24.74 24.62 25.70

10.81 10.47

13.38 16.05

20.58 18.82 19.58 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

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Green financing

o  Macro prudential policy support for green financing includes:

ü  Banks & financial institutions must allocate ≥5% of loan portfolio to green finance by 2016.

ü  Better supervisory (CAMELS) rating for good performers

ü  Differential equity margin and loan pricing requirement according to environmental risk grading

o  Green financing supported by refinance lines funded by BB & ADB

o  Refinance line covers 47 green products

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

Other financial inclusion programs

q  Bank accounts for

ü  school children

ü  itinerant wage labourers

ü  street children

ü  850 thousand school bank accounts opened so far

q  5 million ‘10 Taka’ accounts opened to distribute financial aid to:

ü  social security program beneficiaries

ü  hardcore poor, freedom fighters

ü  destitute beneficiaries under Hindu Welfare Trust

Supportive macro-prudential policies 12

¨  BB has continued strengthening the financial sector regulatory and supervisory regime in line with evolving global best practices interalia in capital adequacy, liquidity, solvency, corporate governance, risk management, disclosures.

¨  Macro-prudential policies like lower risk weights on green output options, higher equity margins on loans for private cars than say for mass transit vehicles, etc.

Stakeholders’ responses 13

q  The entire financial sector has responded enthusiastically, with their own innovative approaches in reaching out with financial services to new inclusion client bases.

q  Helped upholding domestic output and demand, compensating for weak export demand in global growth slowdown.

q  Green financing promotion has yielded substantial gains in solar and biomass based energy generation, industrial effluent treatment, replacement of polluting output options with efficient low emission alternatives, e.g., in brick baking.

•  Resilient economic growth •  Robust external sector •  Sustained financial stability •  Improved socioeconomic condition with lower

inequality and poverty incidences

Growth and Stability Outcome 14

Resilient Economic Growth against all odds

q  Sustained and stable GDP growth with moderate single digit inflation.

q  Nominal GDP in USD terms have grown more than eighteen-fold, while population has grown about two- fold during the last four decades.

q  The semi-feudal agrarian economy of the 1970’s has transformed vastly over the decades into a predominantly manufacturing and services driven open economy.

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o  Incremental domestic output stabilizing domestic prices ü  sound macroeconomic fundamentals ü  sustained 6% plus economic growth over the last decade ü  downward edging inflation ü  moderate fiscal deficits

o  Robust and viable external sector

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

Stable output growth with moderate inflation Socially responsible financing policies have upheld output growth along with single digit moderate

inflation in Bangladesh economy

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5.26

6.27 5.96 6.63 6.43 6.19

5.74 6.07 6.71 6.23

6.18 6.01 6.50

0 1 2 3 4 5 6 7 8

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

P

Real GDP growth trend

Six-plus percent annual average real GDP growth for over a decade

7.2 7.2

9.9

6.7 7.3

8.8 8.7

6.8 7.0 6.5

0

2

4

6

8

10

12

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

P

CPI inflation trend

Infla%on  moderate  at  single  digit  

Robust and improving external sector 18

q  Trade deficit has narrowed on the back of strong export performance.

q  Quadrupling of exports over the past decade is an indication of Bangladesh’s improving trade integration with the rest of the world.

q  Key strength continues in export competitiveness of its apparel and textiles sector.

Robust and improving external sector … 19

¨  Openness in external trade has widened from around 20% of 1970-80’s to around 47% now, a level typical for middle-sized open economies integrated with the global economy.

¨  Record high foreign reserves, competitive exchange rate and steady inflows of workers remittances provide a buffer against external shocks.

Sustained financial stability 20

q  BB’s  thrust  for  socially  responsible  financing  has  served  well  in  inducing  financing  flows  to  output  ini%a%ves  of  all  popula%on  segments  in  all  economic  sectors.    

q  Small  holder  agriculture  and  MSMEs  in  Bangladesh  suffered  no  credit  crunch  during  or  aBer  the  last  global  financial  crisis.  

q  Inclusive  financing  has  upheld  real  sector  output  and  employment  growth  momentum  while  also  at  the  same  %me  enhancing  financial  stability.  

q  This approach has stimulated new output activities in the economy and has also helped banks broaden their deposit and asset bases, making the sector more resilient.

Improved social development indicators with lower inequality and poverty incidences.

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q  Poverty is receding faster with sustained spell of inclusive growth; per capita GNI rose to USD 1190 in 2014. Bangladesh is on course for coming out from the low income and least developed country groups in near term.

q  Bangladesh is outperforming higher income neighbors in socio-economic development indices in areas of health, primary education and poverty.

1991 2012 / Latest

Bangladesh (BB-) Bangladesh (BB-) India(BBB-) Sri Lanka (B-)

Fertility rate, total (births per woman) 4.4 2.2 2.5 2.4

Immunization, DPT (% of children 12-23 mths) 74% 96% 72% 99%

Life expectancy at birth, total (years) 60.5 69.9 66.0 73.9

Literacy rate, adult total (% of people ages 15 and above) 35.3% 57.7% 48.2% 91.2%

Malnutrition prevalence, height for age (% of children under 5) 76.7% 41.4% - -

Mortality rate, infant (per 1,000 live births) 95.8 35.2 43.8 8.3

‘It is to huge credit of Bangladesh that despite the adversity of low income, it has been able to do so much so quickly’ - Nobel Laureate AK EN Source: World Bank (WDII) December 2013

Progress in Human Development Indicators (HDI) Bangladesh shows remarkable progress in recent years, outperforming regional peers in several key social indicators

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… but more remains to be done, especially for the extreme poor

% of population below the lower poverty line

Poverty declined substantially in the preceding decades…

% of population below the upper poverty line

56.6

48.9

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31.5

58.7 52.3

43.8

35.2

42.7

35.2 28.4

21.3

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

1991-92 2000 2005 2010

National Rural Urban

Source: HIES 2005, 2010

§  Population in poverty fell from 61.6 million in 2000 to 44.8 million in 2010

§  Consumption Gini coeff. unchanged at 0.33 over ten years, evidencing social cohesion

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34.3

25.1

17.6

43.7

37.9

28.6

21.1 23.6

20

14.6

7.7

0.0

10.0

20.0

30.0

40.0

50.0

1991-92 2000 2005 2010

National Rural Urban

Substantial poverty decline evidences inclusiveness of growth

Concluding remarks 24

¨  Despite our noteworthy achievements in terms macro and socio-economic developments through inclusive growth initiatives, there are a lot of issues that are considered to negative affecting our long term sustainability outcome, such as: ¤  governance weaknesses, lack of adequate longer term funds and

saving instruments, absence of diverse capital, secondary bond and derivatives markets

¤  Political conflicts, appearance of frequent and severe natural calamities, and prolong instability in the international commodity markets

Many Thanks 25