Inclusive Finance in Bangladesh

Session 1:

Empowerment is the Key to Poverty Eradication and Human Dignity: Lessons and Perspectives from the ENRICH Programme in Bangladesh

InM organised a two day National Convention on “Inclusive Finance in Bangladesh” on August 18-19, 2015 in Carnival, Bangabandhu International Conference Centre (BICC). Seminar on the topic “Empowerment is the Key to Poverty Eradication and Human Dignity: Lessons and Perspectives from the ENRICH Programme in Bangladesh” was held in Session 1 of the convention. Dr. Qazi Kholiquzzaman Ahmad, Chairman, InM, was the keynote speaker of the session. Ambassador Munshi Faiz Ahmad, Member, General Body, PKSF, presided over the session.

In his speech, Dr. Qazi Kholiquzzaman Ahmad stated that poverty is multidimensional rather than just being contained by income. Issues such as access to safe drinking water, health, living standard, and climate change and disaster coping etc. are just few of the aspects that poverty stricken people continuously face. Therefore, it is imperative to measure poverty in that light, and a study by InM showed that multidimensional poverty is higher poverty measured by CBN method.

Dr. Ahmad said that PKSF is focusing on different development issues, thus, the emphasis is not just on credit but other aspects. For sustainable development, it is important to create opportunities for people, empower them through education, health service provision etc., and ENRICH is a programme with such targets and tools. He emphasised on rule of law and human rights as the keys to establishing human dignity. According to Dr. Ahmad, awareness building and cultural expansion are crucial for development and poverty eradication. He concluded by stating that development has to be human centric, and for reducing multidimensional poverty, sustainable development and integrated approach is essential.

Ambassador Munshi Faiz Ahmad appreciated Dr. Ahmad’s inspiring speech. He remarked that Bangladesh have achieved a lot of success by reaching Millennium Development Goals. He echoed Dr. Ahmad’s notion that next step should be sustainable development. He drew attention on empowering marginalised people of the country and how PKSF can play a key role through various interventions led by flagship programme ENRICH. In closing, he thanked all the participants for coming and giving their valuable inputs to the session.

Session 2: Returns to Microenterprise and Access to Finance in Bangladesh

InM organised a two day National Convention on “Inclusive Finance in Bangladesh” on August 18-19, 2015 in Carnival, Bangabandhu International Conference Centre (BICC). Seminar on the topic “Returns to Microenterprise and Access to Finance in Bangladesh” was held in Session 2 of the convention. Ms. Farah Muneer, Research Associate, InM, was the keynote speaker of the session. The seminar paper was co-authored by Ms. Farah Muneer, Research Associate, InM and Professor M.A. Baqui Khalily, Executive Director, InM. Mr. Md. Abdul Karim, Managing Director, PKSF, presided over the session. Dr. Rushidan Islam Rahman, Research Director, BIDS and Mr. Fazlul Kader, Deputy Managing Director, PKSF, was present as the designated panelists.

In her speech, Ms. Muneer stated that the discussion of enterprise is important because households with microenterprise are less likely to be poor. The paper was prepared based on Access to Financial Services survey data, conducted by InM. Enterprises were defined in terms of employment; enterprises that have less than 5 full time employees were considered as microenterprise. The study found that average rate of financial and economic return is positive. Average returns of microenterprises are higher than the small enterprises. Average economic ROA and ROS is around 52 percent and 7 percent respectively. Furthermore, the study showed that access to credit contributed to increase in production, labour productivity and total factor productivity. Enterprises having credit access have 6 percent higher labour productivity than the enterprises without credit access. Total factor productivity also increases by 3 percent for the enterprises having access to credit compared to those without credit access.The study also found that micro-enterprises with higher access to finance contribute to non-farm employment creation. Credit access increases the probability to participate in non-farm activity by almost 12 percent and furthermore, it increases the expected number of non-farm working days by almost 3 days per month which means 36 days per year. One of the major findings of the paper was that micro-enterprises have less access to bank credit presumably because of high transactor cost. Therefore, microenterprise financing is dependent upon alternate institutional mechanism like MFIs. The data shows that MFIs appeared to be the major agency for financing microenterprise. However, they suffer from inadequate funds. Therefore appropriate financial policies need to be pursued for promotion and expansion of microenterprise. In this regard Bangladesh bank can develop a “targeted credit policy” for microenterprise development with specific credit floor.

After the presentation the chair of the session Abdul Karim; the managing director of PKSF made some valuable comments on the paper. He also mentioned about some of the programmes of PKSF supporting microenterprises. One of the panelists of the session Rushidan Islam commented on the paper regarding size of the enterprises as large one is more productive. Does that mean larger one should be financed more? She also mentioned that production function should be different for different type of activity. This paper need to address these issues. Another panelist of the session Fazlul Kader mentioned that the study perfectly match with the practical experience. He also showed his concern regarding different institution using different definition of microenterprises. He added further, InM can play a role to provide a standard definition of enterprises. Lastly, Professor Khalily ; Executive Director of InM pointed out as banks cannot support the microenterprises due to higher cost, we need to craft a credit policy exclusively for microenterprises.

Session 3: Access to Financial Services in Bangladesh

InM organised a two day National Convention on “Inclusive Finance in Bangladesh” on August 18-19, 2015 in Carnival, Bangabandhu International Conference Centre (BICC). Seminar on the topic “Access to Financial Services in Bangladesh” was held in Session 2 of the convention. Professor M.A. Baqui Khalily, Executive Director, InM, was the keynote speaker of the session. Dr. Qazi Kholiquzzaman Ahmad, Chairman, InM, presided over the session. Mr. Abul Maal A. Muhith, Honorable Minister, Ministry of Finance, Government of The People’s Republic of Bangladesh, graced the seminar as the chief guest. Dr. Mahbub Hossain, Distinguished Professor, BRAC University, was the panelist of the seminar.

Professor Khalily stated the importance of inclusive finance for inclusive growth as an important global policy issue. He added that financial inclusion is about providing financial services to otherwise excluded individuals and firms at affordable cost, and inclusive growth should advance equitable opportunities to all economic participants. Therefore, it is important to know the state of financial inclusion in Bangladesh. He said that even though bank branch density increased over time, it is still concentrated in urban areas, while MFIs have wider network of branches.

In his speech, Professor Khalily highlighted that household survey conducted by InM is essential to understand the intensity and extent of financial inclusion, and characteristics of included and excluded households. According to study by InM around 88 percent of households have access to any financial services in Bangladesh, which shows a significant progress in aggregate access. He stated that 55 percent of households have access to bank services but focus is more on non-poor households despite increased rural access. On microfinance, findings suggest that over 60 percent of households are served by this market, and MFIs have been offering services to low income households. He praised the role of microfinance in increasing financial deepening, as indicated by findings. In terms of inclusive growth, access to finance has positive impact on the productivity of enterprise and non-firm employment creation. He added that this study by also managed to depict the importance and popularity of mobile banking in Bangladesh.

However, according to Professor Khalily, situation of financial inclusion should be further improved. He remarked that certain type of households are still excluded e.g. labor and resort to informal market for credit, while education plays a role in presence of credit constrained families. He concluded by stating that further changes in financial policies and market structure can lead towards sustainable financial inclusion.

Dr. Mahbub Hossain commended the rich study conducted by InM. He agreed that despite progress, bank branches could not spread much, especially in providing services to rural regions and poor families. He suggested that if banks and MFIs make their duration of loan more flexible, then people will rely less on informal market.

In his speech, honorable chief guest, Mr. AbulMaal A. Muhith said there is still massive opportunity of expanding. He observed that cost of providing financial services is high, and it is the barrier to inclusive finance. There are many elderly, widowed, and impaired people who are excluded from financial services, even though it is essential to provide them. He expressed that provision of financial services is not enough but it is advanced. Mr. Muhith concluded his speech on a positive note by stating that as long as all of us are on same page, progress can be made.

In his concluding remark, Dr. Qazi Kholiquzzaman Ahmad resonated on how inclusive growth is the key and financial inclusion is crucial. He added that more focus needs to be given on financing small enterprises and also insurance services in Bangladesh. Dr. Ahmad concluded by thanking the chief guest, panelist and all the participants for their valuable contribution to the session.