Credit market Banks have low penetration rate

Kamrun Nahar Experts Friday suggested formulation of an appropriate policy by the Bangladesh Bank (BB) to expand formal financial services nationwide as the penetration of banking services is only 8.0 per cent at the national level. They also said the situation is worse in the rural areas and the financial market is still dominated by informal financial service providers. "In the context of Bangladesh, contribution of banking services is very low. For the sake of economic growth, financial services need to be expanded," Baqui Khalily, professor, finance department of Dhaka University, told the FE. A recent study report of Institute of Microfinance (InM) supported by UKAid titled 'Access to Financial Services (ATFS) in Bangladesh' shows that 54.12 per cent of the country's households have access to credit (formal, quasi-formal andor informal) where the contribution of formal credit is only 7.99 per cent. An important finding of this study is that access to credit has been contributing to poverty alleviation. The rate of penetration of the formal banking services is less compared to microcredit and informal services, Mr Khalily said. "So this banking service should be expanded not only to the rural areas but also in the whole country. Also, credit supply needs to be increased." About 77 per cent of the households have access to some kind of fianancial services (savings, credit andor insurance services in formal, quasi-formal and informal markets). Access to quasi-formal (microcredit and cooperative) credit is 36.63 per cent and informal credit access 21.78 per cent. About 45.88 per cent households have no access to credit. Shares of access to informal and quasi-formal credits are dominating in rural areas compared to urban areas. Urban households have less access to credit in general than the rural households. The study was conducted among 9,000 households in 63 districts between October 2009 and April 2010 following the sampling design of Household Income and Expenditure Survey (HIES) of Bangladesh Bureau of Statistics (BBS). "The objective of the study was to evaluate what the financial services in various markets for our people are and how much accessibility they have to those services, the impact of these services, specially credit and how to expand the financial services," Mr Khalily, also team leader of Access to Financial Services in Bangladesh research project said. "We have seen two types of impact of credit services: impact on poverty and impact on productivity and profitability of enterprises," he said. "It was found that enterprises having taken credit have better productivity and profitability than the non-borrowers. In the case of poverty, we have seen the intensity of poverty was less among the households having access to credit compared to those which do not have access to it," he added. He said the government should expand the formal banking network throughout the country and increase credit supply if it wants to accelerate the growth of the economy through financial services.