Financial inclusion or inclusive financing is the delivery of financial services at affordable cost to disadvantaged and low-income segments of people in contrast to financial exclusion where those services are not available or affordable.
The United Nations defines the goals of financial inclusion as follows: 1. access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance; 2. sound and safe institutions governed by clear regulation and industry performance standards; 3. financial and institutional sustainability to ensure continuity and certainty of investment; and 4. competition to ensure choice and affordability for clients.
THE UNITED NATIONS AND FINANCIAL INCLUSION: In partnership with the National Bank for Agriculture and Rural Development, the UN aims to increase financial inclusion of the poor by developing appropriate financial products for them and increasing awareness on available financial services and strengthening financial literacy, particularly among women. The UN's financial inclusion product is financed by the United Nations Development Programme.
Some of these steps are:
n Opening of no-frills accounts,
n Relaxation of know-your-customer (KYC) norms,
n Engaging business correspondents (BCs),
n Use of technology,
n Adoption of Electronic Benefit Transaction (EBT),
n Simplified branch authorisation,
n Opening of branches in unbanked rural centres,
n Q-Cash facility,
n ITC / Q-Cash financial inclusion strategy empowers Bangladesh's unbanked population,
n Reaching out to the unbanked,
n Financial inclusion for all,
n Rural model,
n Urban model and
n Role of technology.
The nature and forms of exclusion and the factors responsible for it are varied and, thus, no single factor could explain the phenomenon. A number of 'dimensions' or 'forms' of financial exclusion have been identified. The critical dimensions of financial exclusion include:Â (i) Access exclusion: Restriction of access through the process of risk management (by financial services providers); (ii) Condition exclusion: Conditions attached to financial products which make them inappropriate for the needs of some segments of population; (iii) Price exclusion: Some people can only gain access to financial products at prices they cannot afford; (iv) Marketing exclusion: Some people are effectively excluded by targeted marketing and sales;
(v) Self-exclusion: People decide not to opt for a financial product because of the fear of refusal to access by the service providers, (vi) Exclusion may also have resulted from a variety of structural factors such as unavailability of products suiting their requirements, stringent documentation and collateral requirements and increased competition in financial services; (vii) Apart from the supply-side factors, demand-side factors also have a significant bearing on the extent of financial inclusion. A higher share of population below the poverty line results in lower demand for financial services as the poor may not have savings to place as deposit in savings banks.
FACTORS AFFECTING ACCESS: A number of factors affecting access to financial services have been identified in many countries. These are, according to World Bank and ADB, as follows: 1. Gender issues, Â
2. Age factor, 3.   Legal identity, 4. Limited literacy,
5.   Place of living, 6.   Psychological and cultural barriers, 7. Social security payments, 8. Terms and conditions, 9.   Level of income, 10. Type of occupation and 11. Attractiveness of the product,
The United Nations uses various criteria to measure the status of financial inclusion in an economy such as (i) outreach dimension and (ii) actual usage dimension. In terms of outreach dimension, there are two types of indicators: Geographical penetration (number of bank branches or ATMs per 1000 square kilometres) and demographic penetration (number of bank branches or ATMs per 100000 people). More bank branches and ATMs per 1,000 square kilometres indicate smaller distances to nearest physical bank outlets and easier geographical access.
Bangladesh may consider the following institutions in measuring access to financial services:
1. Banks and financial institutions supervised by the Bangladesh Bank,
2. MFIs supervised by the Microcredit Regulatory Authority (MRA),
3. Credit co-operatives supervised by the registrar of cooperative societies,
4. Insurance companies supervised by the Insurance Regulatory Authority,
5. Capital market institutions like investment banks, merchant banks, stock exchanges supervised by the Bangladesh Securities and Exchange Commission;
6. Post offices under the Post Office Department of the government offering savings, money transfer and insurance services; bureaus of National Savings Directorate of the government issuing government savings instruments.
BENEFITS OF FINANCIAL INCLUSION: Access to credit in the formal sector may create entrepreneurship opportunities for low income people and increase the scope for investment.
n Linkages with the formal financial sector enable clients to access different credit, savings and insurance products with soft conditions provided by regulated institutions. In terms of cost, easy access to the formal financial sector reduces the growth of informal sector credit provided by moneylenders, which can often be expensive and exploitive.
n An account can be used for multiple purposes including making payments for essential utilities, receiving benefits from government programmes; therefore contributing to financial deepening.
n Studies suggest that access to financial services allows the poor to save money safely outside their homes, prevents the concentration of economic power with a few individuals and helps mitigate the risks that the poor face as a result of economic shocks or natural calamities.
Role of Bangladesh Bank in enhancing financial inclusion: The government of Bangladesh has been pursuing inclusive socio economic growth aiming at well-being for all outlined in its five-year and annual development plans. Supporting the government's inclusive growth strategy, Bangladesh Bank has been pursuing financial inclusion as a policy priority for accelerated economic growth while maintaining monetary and financial stability.
Banks and financial institutions have been advised to follow the Bangladesh Bank's financial inclusion initiatives by engaged themselves in increased lending to the under-served/un-served economic sectors and population segments, including micro and SME entrepreneurs, agricultural and other rural and urban farm and non-farm productive activities. Credit facility to farmers and small entrepreneurs, who have been the missing middle, is also a policy priority from the Bangladesh Bank financial inclusion initiatives. For deepening and broadening financial inclusion, Bangladesh Bank has also been motivating banks and financial institutions to extend their services to the physically and mentally-challenged people; in other words, it conforms to their CSR obligations and also creates new opportunities of viable business in new clients.
FUTURE PLAN IN BANGLADESH:
The approach involves three mutually-reinforcing objectives:
1. Reduce the amount of time and money that the poor people spend to conduct financial transactions;
2. Increase capacity of the poor people to weather financial shocks and avail income-generating opportunities;
3. Generate macro-level efficiency by digitally connecting the poor people, financial institutions, government service providers, businesses, private sector and other stakeholders.
The Bangladesh Bank as a regulating body has always motivated and directed financial institutions towards Inclusive Banking policies. The number of banks in the economy is not the only indicator of financial inclusion, rather how well the economic actors can access the range of diversified financial services at a reasonable cost also defines economic inclusion. Bangladesh Bank has dedicated its policies to encourage innovation and reach out to different segments of population with diverse products.
The writer is Managing Director & CEO of EXIM Bank, Dhaka
A vehicle of financial literacy
Mohammed Haider Ali Miah | Published: November 28, 2015 00:00:00 | Updated: November 30, 2024 06:01:00
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