Focus on the developmental goals of central banks

It was nice to hear appreciation of policy machinery of one's own country in a global forum especially when it happens to be a prestigious platform of the World Congress of the International Economic Association (IEA). On June 08, 2014, the developmental banking initiatives of the Bangladesh Bank (BB) were appreciated in a session titled 'Coherence between Macro and Industrial Policy Objectives: Lessons for Developing Countries,' of the 17th IEA World Congress held in the Dead Sea, Jordan. As a participant of the World Congress, it was really inspiring for this writer to observe that renowned speakers and researchers were drawing lessons from the Bangladesh Bank's developmental initiatives for developing countries.
As observed in the available literature and also discussed in the session, the recent global crisis brought notable changes in approaches and mandates of the central banking. In place of one single objective of price stability, central banks are now to concentrate on multiple objectives covering both price and financial stability. The crisis has broadened the scope of central banks' policy objectives, with regard to their independence and mandates. Especially, the necessity of developmental goals of a central bank is receiving growing acceptability. More specifically, lack of access to finance for low-income households or financial exclusion is hurting economic growth and overall wellbeing. This realisation has induced many central banks in developing countries to use financial inclusion to spur economic and social development. These developmental issues are also connected with maintaining financial stability.
Gerald Epstein, professor of Economics at the University of Massachusetts and renowned researcher of developmental central banking, told the session that the recipe of developmental central banking is dramatically different from the historically dominant theory and practice of central banking, not only in the developing world but also in the developed countries. He said, in this connection the most dramatic change and transformations have taken place in the central banking in developing world where central banks are serving much more emphatically as 'agents of economic development'.
As an example, Professor Epstein cited the case of Bangladesh and noted, the financial inclusion and developmental finance campaign of the Bangladesh Bank tried to engage the private financial sector to help reach the underserved households and businesses with both banking services and credit to help generate employment, investment and growth. Other speakers also spoke high of the BB's initiatives.
Financial inclusion and developmental finance campaign for the underserved are strategies adopted by the BB as part of maintaining financial stability in the country.  The BB has undertaken a comprehensive financial inclusion campaign to reach out with financial rules from 5:1 to 1:1 (for opening 1 urban branch, 1 rural branch is to be opened). It has made banking services available to farmers by allowing them to open bank accounts with minimum initial deposit, issuing branch licences to all SME/agriculture service centres, providing easy and effective access to banking services for physically incapable people, hard-core poor, unemployed youth, freedom fighters, etc. The BB has relaxed conditions of loan repayment and provided fresh facilities to natural calamity-affected farmers, ensured mandatory participation in agriculture/rural credit for all banks and provided agricultural credit to sharecroppers. It put emphasis on financing women entrepreneurs, arranging refinancing schemes for banks, developing ICT solutions (mobile banking, smart card etc.) for inclusive banking, encouraging creative partnership between banks and MFIs, introducing agent banking and policy guidelines for green banking. The central bank of Bangladesh introduced financial inclusion-oriented CSR, school banking, arranging cross-country banking road show etc.  
More or less, all banks that are in operation in the country, local and foreign, private and state-controlled, have come forward in the financial inclusion drive in response to the central bank's initiatives.  
As impacts, it can be seen that total disbursement of agricultural credit has been on steadily rising trend since 2009. Under the refinance scheme for landless sharecropper, loans were provided to almost 15 million sharecroppers in 14 months till end-2013. In a major financial inclusion initiative, banks have opened over 10 million new bank accounts in 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.
The BB's initiatives have made significant changes with regard to the creation of green governance frameworks in banks. By this time, all banks formulated environmental policies and Green Banking Cells and around three-fourth banks have formulated one or more sector specific environmental policy guideline. The BB has already taken various initiatives for identifying different clusters around the country and is encouraging all stakeholders for further development of such clusters.
Various small-scale manufacturing clusters have already been identified by this time in 20-25 districts of Bangladesh. Proportion of bank loans to the total credit increased remarkably, and the share of women entrepreneurs in total SME loan disbursement has been increasing consistently. In response to the initiatives and supports of the central bank, mobile financial services has created an opportunity of fast and cost-effective transaction even to the remotest corner of villages. It has given access to modern banking services to the rural poor including social safety net beneficiaries. The recent agent banking guidelines of the BB might ensure greater access to banking services in under-served areas. This would complement the growth of mobile banking services where over 13 million accounts were already in use.
The central bank's developmental role in Bangladesh is expected to act as an in-built stabiliser of the financial system. We believe, the policies and measures which have been undertaken so far in Bangladesh in the context of developmental and inclusive banking are in the right direction and have already started creating positive impacts. Designing target-specific products and strategies for groups like women, farmers, small enterprises and sharecroppers are working for Bangladesh. We think, able leadership and extensive monitoring have been the key for the Bangladesh Bank in making all these achievements. However, impact assessment is the next step to find the future direction.
Dr.Shah Md. Ahsan Habib is Professor and Director [Training], Bangladesh Institute of Bank Management (MIBM).
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