Banking sector and MDG goals

Financial services can play a significant role in attaining the Millennium Development Goals (MDGs). Financial and banking services like credit and deposit activities, financing for small enterprises, women and underprivileged, trade services by banks, corporate social responsibility (CSR) and green banking activities can clearly be linked to attainment of the MDG targets.

Banks and financial institutions create money through their credit and deposit activities. These operations impact poverty, education and health. Practically, the MDG themes of poverty, education, health, and gender equality are highly related. Credit facilities to small and micro enterprises, agriculture and underprivileged people enable the poor people to generate employment and earnings.

In the context of Bangladesh, MDG indicators (female employment, literacy rate, poverty gap ratio, and mortality rates) have correlation with financial indicators (money supply and private credit), as revealed in a BIBM study. There are established links of deposits, savings and investment- the essential inputs for growth. And growth in its turn has an impact on poverty.

Agriculture is the major source of livelihood of the rural people of Bangladesh and is directly related to their employment and income. Credit flow to the agricultural sector is crucial for raising GDP, generating employment and alleviating poverty. These in turn influence education and health of the rural people.

Before introduction of financing facility to the sharecroppers, only the large and medium-sized farmers were under the coverage of formal credit sectors in Bangladesh. To bring landless sharecroppers under banking credit facility, the Bangladesh Bank (BB) for the first time introduced loan facility. In a major attempt to develop an inclusive financial sector, the BB has introduced a new scheme of low-cost deposit accounts for farmers. Under this scheme, any farmer can open a deposit account in a bank by depositing a minimum amount of Tk 10.

Under the regulations of the BB, all commercial banks and specialised banks including private and foreign commercial banks are required to disburse agricultural credit. Agricultural credit and other financial services are also related to financial inclusion. Greater flow of credit to agricultural and rural sector can go a long way in promoting literacy and other related sectors, thus having impact on attainment of the MGD goals.

To increase access to finance and SME development, the BB has formulated a number of policies and programmes and introduced refinancing schemes. Banks are also offering micro loans at a limited scale. These credit facilities may have notable impact on poverty, health, education and gender equality. Some of the credit programmes especially target these issues. These are nothing but MDG targets.

Supporting women by offering financial services is expected to contribute to their employment and income. An increase in income is expected to contribute to their employment and reduction of poverty. These in turn ensure gender equity, education and health. Women entrepreneurs in Bangladesh face a wide range of challenges, including social and economic barriers and networking and management constraints. The BB has undertaken remarkable initiatives in this regard. It operates refinancing programmes and other support services for women entrepreneurs. In response to the BB's directions, dedicated desks have been set up by banks and non-banking financial institutions (NBFIs) for women clients to ensure that they can get loans more easily and on better terms.

In Bangladesh, remittance has a notable impact on rural consumption and investment that are directly related to poverty, education and health. Mostly, official remittances flow into Bangladesh through banks. In recent years, only banks have increasingly started relying on technology. Some banks, by virtue of their bigger branch networks, are getting advantage. However, currently some private sector banks have adopted ICT-based strategies for serving migrants and improved their market shares.

In order to provide banking services at lower cost and at short time to remote areas, banks have adopted various modern technologies. Mobile banking is the potent instrument for increasing outreach. Mobile phone is an ideal platform to increase financial services to the rural population as their penetration is already large and growing. Online banking can also be an effective tool for access to finance.

Some recent initiatives of the BB in the field of corporate social responsibility (CSR) and Green Banking are praiseworthy. CSR initiatives of banks in the country have mainly been focusing on financial inclusion of less privileged population segments and underserved economic sectors. These are related to a number of MDG goals directly and indirectly. In the area of environmental or green banking, the BB's 'Policy Guidelines for Green Banking' is a remarkable step. The Guidelines offer solutions for managing environmental risks in the financial sector. A large number of banks are responding positively to the BB's initiatives by undertaking green banking and environmental risk management practices. Green banking activities are expected to have positive impact on the environment-related MDG targets.

 ahsan@bibm.org.bd