Session One: Financial Inclusion in Bangladesh
“Bangladesh has the second highest financial inclusion in South Asia, and about 77 percent of the households have access to financial services in any market” said Professor M. A. Baqui Khalily, Executive Director, InM.
A recent research study of InM titled “Access to Financial Services in Bangladesh” revealed its findings at the two-day National Conference on “Microfinance and Development” and showed considering banks and MFIs, the rate of financial inclusion in Bangladesh is around 67 percent.
The Executive Director of InM, also the Team Leader of the study, and the Keynote Presenter of ‘Session One’ entitled “Financial Inclusion in Bangladesh”, Professor Khalily presented the findings of the study at the session.
Professor Khalily informed that the major contribution in financial inclusion has come from the MFIs. Banks have higher share in urban areas but not in rural areas. However, in light of access to credit, banks have little share in household level credit. Only around 8 percent of the households had access to credit.
In contrast, over 37 percent of the households have access to micro credit. But informal credit dominates in share of total supply of loans of the borrowing households despite the fact that banks and MFIs have wide branch network. One of the major reasons is product diversification. Informal market offers loans largely for consumption purpose. In poverty alleviation, it cannot be forgotten. Over three-fifth of formal and MFI credit is utilized for productive and income generating activities.
The ‘Session One’ was chaired by Mr. Khondkar Ibrahim Khaled, former Chairman, Bangladesh Krishi Bank, and former Deputy Governor, Bangladesh Bank. Dr. Hassan Zaman, Chief Economist, Bangladesh Bank, and Professor Mamun Rashid, Banker and Economic Analyst, and Vice Chairman, Financial Excellence Ltd (FinExcel), were present as the distinguished panelists.
Professor Khalily said financial inclusion is not only about bringing all households under financial network through savings. It is also about deepening credit services in every part of the country. Only around 11 percent of the households have access to formal insurance services due to less awareness of the service, he added.
The study, however, suggested that fundamental changes in financial policies and market structure are required for sustainable financial inclusion. Professor Khalily called for restructuring of private banks and insurance companies so that their services can be effectively expanded beyond urban areas.
Another paper entitled “Financial Inclusion in Char and Haor Areas in Bangladesh” was presented by Dr. Mahfuz Kabir, Senior Research Fellow, BIISS. A short speech on the overall thematic issue was also given by Mr. Amit Mittal, Analyst (Asia and the Pacific), MIX Market.
The major findings of the additional paper were that people in char and haor areas have relatively less access to different financial services. The core impediments for this are said to be: adverse geographical conditions creating different demand and supply side barriers to financial inclusion. As a result there is less financial inclusion, which in turn results in lesser scope of socio-economic development.
Economic growth of a country plays a pivotal role for greater financial inclusion, said Dr. Hassan Zaman, Chief Economist of Bangladesh Bank. Bangladesh Bank has been providing a big thrust to financial inclusion over the last couple of years by promoting mobile banking and compelling the banks to open more branches in rural areas, he said. He also agreed that non-interest costs are high in the formal credit market due to a number of factors that include loan processing fees and bribes.
Professor Rashid emphasized on e-commerce and technology to be introduced in remote areas as well as the institutions to be selected and strengthen their infrastructure to provide financial services in remote areas.
According to the panelists, one of the policy suggestions was to increase the number of formal bank branches in the rural areas. Moreover, transaction cost of these rural branches should also be reduced. Besides, insurance sector needs to be strengthened, considering the interest of both clients and service providers.