Ensuring financial inclusion

The SAARCFINANCE member central bankers have regularly been taking turns holding a seminar annually on chosen issues of topical importance. This year's seminer is, 'Role of central Banks in Financial Inclusion'. The major aspects of issues and matters relevant to this theme have been highlighted amply well in the theme paper presentation, the insightful observations of distinguished guests and the floor interventions. It may have be worthwhile to briefly recall why we took up the role of central banks in financial inclusion as this year's seminar theme, and how we at Bangladesh Bank (BB) are going about it. The world economy only just coming out of a downturn triggered by the global financial crisis is showing indications of slipping yet again into another slowdown, this time precipitated by the simmering European debt crisis. Crippling credit crunch from the earlier slowdown still lingers for small businesses and new startups even in mature developed economies like the US and UK; and without appropriate policy interventions their difficulties will be prolonged and worsened further by the looming new slowdown. In our South Asia region the basically urban big business focused financial markets have not developed adequate capacities of reaching out to meet the financing needs of micro and small scale farm and nonfarm productive undertakings, leaving these productive segments of economy underserved or unserved, at substantial cost in forgone pace of growth and poverty reduction. It is clearly the onus of central banks as financial sector regulators and supervisors to redress this failing, with well conceived financial inclusion initiatives. The BB's initiatives in this direction during the global financial crisis served the Bangladesh economy well in upholding employment, output and domestic demand; helping it sail through the global turmoil with only modest growth slowdown. The looming new global economic slowdown adds urgency to pursuing the financial inclusion initiatives, in Bangladesh and elsewhere in South Asia. Up until the later decades of the last century, directed lending from a predominantly state-owned banking system was the main mode of channeling credit flows to underserved sectors like smallholder agriculture, micro and small businesses, in Bangladesh and other South Asian economies. Dwindling market share of state-owned banks has eventually rendered this approach ineffectual, with only half-hearted and non-committal engagement of the solely private gain oriented privately owned banks in lending based on social need driven priorities. Against this backdrop, the BB's financial inclusion drive has substituted directed lending with Corporate Social Responsibility (CSR) driven financing of productive undertakings of the underserved population segments, supporting inclusive socioeconomic growth equitably opening up advancement opportunities for all. Back in June 2008, the BB issued a guidance circular urging and encouraging all banks to embrace and mainstream CSR obligations in their corporate goals, objectives and ethos; interalia making financial inclusion their consciously and spontaneously adopted approach of socially and environmentally responsible lending. Experience with this approach thus far has been encouraging, with all banks enthusiastically taking up multifaceted initiatives widening and deepening financial inclusion; such as extending branch and ATM networks into rural areas, mass scale opening of no-frills bank accounts with nominal deposits for poorer people (more than nine million such new accounts opened by now), adopting new cost saving remote delivery modes for financial services like mobile phonesmart card based banking, financing schemes for renewable energy generation projects and so forth. The BB has supported such initiatives by putting in place necessary enabling infrastructure, including a fully automated interbank clearing and settlement platform for paper based and electronic payment instruments, an upgraded online credit information bureau, and some refinance lines for banks against their SME and environment focused lending. The refinance lines are modest, consistent with BB's announced monetary policy stance. While promoting financial inclusion with appropriately designed initiatives, the banks and the supervision authorities will of course need to keep eye on proper risk management in the newer areas of lending expansion; to protect financial stability by preserving the desired standards of asset quality. Transparency and fairness in pricing of financial services for micro and small enterprises are also important issues from consumer rights protection viewpoints. For this, a Consumer Interest Protection Center (CIPC) has already been activated, with a hotline (16236) and other electronic connectivities to address consumer grievances and to monitor their satisfaction levels. Together, these diverse initiatives of the banks and the BB are enhancing the image of our financial sector as humane and socially responsible. This is an edited version of a write-up by Dr. Atiur Rahman, Governor, Bangladesh Bank, presented at inaugural session of SAARCFINANCE seminar on 'Role of central Banks in Financial Inclusion' on Tuesday