Use of ICT and mobile technology has brought notable positive changes in the area of channelling financial services, writes Shah Md Ahsan Habib concluding his three-part article on Sustainable financial system
Responses by banks and non-bank financial institutions (NBFIs) to the policy initiatives related to sustainable banking and finance are inspiring. Notable changes have taken place in terms of greater financial inclusion, higher access to finance, and increased geographical penetration in the last few years. According to the current available information, four in five households in Bangladesh have access to financial services mainly because of improvement in networks of banks and microfinance institutions as well as a booming mobile banking segment. In a major financial inclusion drive, banks have opened a large number of new accounts in the names of small farmers and other rural and urban people of small means at no charge, with nominal initial deposits as low as Taka 10. These accounts are being used by the account-holders for receipt of agricultural input subsidies, social safety net payments etc. besides its use as savings and payments medium. With a view to fostering savings habits and financial literacy among the young, banks have launched 'School Banking' initiatives in schools. So far, almost all scheduled banks have opened a large number of bank accounts for school students. This is basically a joint account between the student and the guardian. ATM cards are also issued for accounts. Banks are not expected to see school banking as a profit-making business. But they hope that many of these students would become their customers in future. It has been performing wonderfully in spreading financial literacy among students and youth. As a whole, the responses of all categories of banks are really inspiring. The Bangladesh Bank is also recognising the contribution of banks in this connection. To bring the unbanked people under the coverage of the formal financial sector, agent banking, an initiative of Bangladesh Bank, is contributing. Through agent banking, the formal banking sector is reaching out to the marginalised people of the society through their agents that provide several banking services to the people locally.
Most of the big organisations like BRAC, Grameen Bank and ASA have their outreach almost all over the country. Having targeted the poverty-stricken segment of people, they have done a great job in providing small-scale financial services to these marginalised people and making them included in the financial system. But the MFIs also have limitations with respect to provision of a wide range of financial services to the customers which a scheduled bank can provide. Agent banking is attempting to ensure access of the marginalised people to several financial services, especially in remote areas using the services of MFIs and others. Agent banking can work wonders in financial inclusion and enhancing financial activity in remote areas.
Use of information and communications technology (ICT) and mobile technology has brought notable positive changes in the area of channelling financial services. By late 2011 and into 2012, two early leaders have emerged with the largest customer bases and agent networks, bKash service and Dutch Bangla Mobile. The bKash service is provided by BRAC Bank in cooperation with its subsidiary bKash. And Dutch Bangla Mobile is a service from Dutch Bangla Bank. Use of ICT in remittance flows has also brought remarkable improvements in the remittance services of banks. Other than the branch networks, a number of banks use online network, mobile network, and money transfer organisations in the process of faster channeling of funds to the rural areas. Alongside using ICT tools and mobile technologies, banks have started using the services of each other's networks/branches and services of MFIs more extensively. Because of the quick adoption of technology, private commercial banks of the country are now dominating the remittance market.
MAINSTREAMING WOMEN IN ECONOMIC ACTIVITIES: For mainstreaming women in economic activities, the Bangladesh Bank (BB) has taken a number of policy initiatives. Every bank has to mandatorily have a separate 'Women Entrepreneur's Dedicated Desk'. Recently, the BB has opened a separate 'Women Entrepreneurs Development Unit' in its head office and branch offices. Banks have been instructed to employ competent officials in that dedicated desk and to train up the officials. The SME department is operating the woman entrepreneurship scheme through which women's empowerment and their participation in business are being ensured. To help women in increasing their contribution to industrialisation, the BB is detecting the hindrances on the way and it has been made mandatory that at least 15 per cent of the credit would be disbursed among women entrepreneurs. Instructions have been given to banks to charge reduced interest rate to women entrepreneurs. Recently, to provide credit to new women entrepreneurs under cottage, micro, and small sectors, each branch of banks and NBFIs has been advised to seek out at least three prospective women entrepreneurs who have not taken any formal loans yet. Banks and NBFIs have also started providing required training to the selected women entrepreneurs as per the instruction of the BB.
Green and energy sustainability has received impetus from banks and NBFIs in several instances. The Bangladesh Bank's initiatives have made significant changes with regard to creation of green governance frameworks in commercial banks and NBFIs. Currently, all banks and NBFIs have environmental policies and Green Banking Cells. Most of the policy documents are replications of the Bangladesh Bank's policy guidelines. Banks have introduced green office guides for their employees and in some banks, there are notable initiatives with regard to savings of paper, water and power etc. The BB has also issued a common reporting format to all the commercial banks to report green banking activities including the extent of carbon footprint in a structured way. Banks and financial institutions now regularly submit a quarterly report to the BB on their performance of green banking activities. It is true that till date the proportion of green financing is insignificant. However, it is a good starting and over the years, financing to green projects/activities has increased covering renewable energy, energy efficiency, fire-burnt brick, solid and liquid waste management, recycling and recyclable products etc. Especially, financing renewable energy initiatives have received tremendous boost. The major areas include financing of solar home systems, solar mini-grid, solar irrigation, and bio-gas. It is inspiring that the UNFCCC issued carbon credit to the IDCOL for its solar home system initiative.
GREEN FINANCING: It is pleasant to observe that most of the clients of green financing are from rural areas. It is particularly noteworthy when very insignificant number of rural clients gets access to banks' credit as a whole. Survey data reveal that three-fourths of the total clients of green financing belong to rural Bangladesh. Rural clients are particularly targeted by banks. Thus, alongside affecting environmental concerns, the interventions are expected to bring notable positive changes in rural livelihood. It indicates that this is one of the crucial ways by which several goals of sustainable and green growth of the country can be attained by offering access to finance and other basic services through improving rural economy and the livelihood of the marginalised people.
There is no doubt that some changes in the financial sector are really inspiring, and have created a good backdrop of designing a sustainable financial system. However, some areas require greater attention to attain a big push towards the desired direction. Many of bank accounts opened by farmers are inactive, and the poor are yet to reach the formal rector financing of the country. Small and micro enterprises need much more support. Small and micro enterprise financing using cluster approach needs support of the policymakers and financial institutions to really boost micro and small enterprises of the country. In environmental risk rating, simply filling up of a checklist will not serve; rather it is necessary to examine the potential impact of any intervention on the demand side i.e. contribution of investment on green growth. In spite of some remarkable change and improvements, several areas of green banking have remained trifling or untouched. Areas like waste management, bio-diversity, green transportation and disaster risk should get due emphasis to obtain required benefits. Disaster risk should be considered a part of environmental risk estimation by the financial institutions. Bangladesh may think of green products in the capital market like 'Green Bond' only after establishing a sound regular bond market in the country. With regard to renewable energy financing, in some instances, there are complaints of under-performance of renewable energy equipment, inadequate maintenance services, undue prices of equipment etc. In some cases, local-level bank management is not found adequately motivated to handle green and inclusive financing. Probably, the most critical area that is yet to find the right path is financing of the agriculture sector. Practically, improvement in agricultural financing is not exciting. There is no doubt that a sustainable financial system cannot be designed for a country like Bangladesh without addressing the agriculture sector of the country adequately. Probably, such financing cannot be ensured without establishing an effective 'Agricultural Commodity Market' in the country. It is also critical to create required environment for offering micro insurance to agriculture and farm sector.
With regard to offering inclusive banking and financial services to the doorstep of the low- income people, in many rural areas, there aren't many banks or institutions. Partnering local-level MFIs with banks/NBFIs to expand financial services to rural areas is one option. At the end, the end user bears the cost. However, direct bank/NBFI lending to the end-users does not seem feasible in some instances. In some cases, using intermediary and partnering organisations offers better outcome. Especially, integrated approach of some MFIs in offering ground level green services is really encouraging and related to the improvement of community livelihood. Practically, a coordinated and integrated approach might be effective.
Dr. Shah Md Ahsan Habib is Professor and Director (Training), Bangladesh Institute of Bank Management (BIBM).