BB brings in a paradigm shift in banking

writes Shah Md Ahsan Habib writes in the first of a two-part article on the Bangladesh Bank | Published: October 15, 2015 00:00:00 | Updated: November 30, 2024 06:01:00

Alongside supporting and guiding the regular banking activities of the country, the Bangladesh Bank has in recentÂ years brought in a paradigm shift in banking with multiple approaches of inclusive financing, women empowerment, corporate social responsibility and poverty alleviation. This has given the whole financial sector a unique humanitarian look and helped to maintain macroeconomic stability.
The initiatives of the Central Bank have already received recognition and accolades both locally and internationally. The most recent recognition came from the Emerging Markets, a London-based financial information provider. It declared the Bangladesh Bank (BB) Governor Dr. Atiur Rahman as the 'Central Bank Governor of the Year 2015 for Asia' for his contribution to the successful maintenance of macroeconomic stability in the country. It is the recognition of his role in promoting socially responsible financing, financing inclusiveness and green banking. He has also been very active in promoting such activities on the global front. The BB governor received the prestigious 'Indira Gandhi Gold Plaque for 2011' for his contribution to international cooperation towards human progress.
Developmental central banking received tremendous impetus in recent years in several developing countries, including Bangladesh. Advocates of a developmental role for central banks argue that central banks that use a variety of tools such as credit allocation policies, regulated interest rates, direct lending to priority sectors, and so on, can play a more effective role. The evolution in the role of central bankers from pure monetary policy and financial stability to a greater role in propelling and sustaining inclusive economic growth is being driven by several trends. Many central banks in developing economies share this vision and have already pioneered the adoption of methods to support new technologies, increase financial literacy and boost financial inclusion. This new focus of central banks on financial inclusion is observed in the vision of the majority of policy-makers in the developing world. It is because of the fact that access to formal financial sector can economically and socially empower individuals, particularly the poor people, allowing them to better integrate themselves into the economy, contribute to development and protect themselves against economic shocks.
The Bangladesh Bank (BB) has been focusing on achieving its inflation targets while providing sufficient space in its monetary programme for lending to activities which support broad-based investment and inclusive growth objectives. It has been using both monetary and financial sector policy instruments to achieve these goals. A number of steps have been undertaken over the years to ensure the stability of the financial system. For promoting economic development and economic stability, BB adopted two broad approaches:Â One, its financial inclusion and developmental finance campaign tries to engage the private financial sector to help reach underserved households and businesses with both banking services and credit to help generate employment, investment and growth. Two, it tries to promote financial stability by helping to channel credit away from destabilising activities to productive investments. BB has been working to engage financial sector in its 'social responsibility' and 'financial inclusion' drives to promote financial and economic stability. Society and common customers are receiving due attention to the central bank's initiatives. In response to the BB's initiatives, total CSR expenditure of banks increased by more than eight times in last five years.
Adoption of greater transparency and democratic approach in policy making and strategies is a notable change in the approach of the central bank. The Bangladesh Bank collects opinions from the academicians, experts and other stakeholders in undertaking major policy decisions, like formulation of monetary policy. By publishing 'Financial Stability' report each year BBs gives information regarding the financial market to the stakeholders. In this connection, BB targets to adopt up-to-date policy approach with a view to improving mass people's progress through maintaining high economic growth and financial stability.
Adoption of innovative technology has injected a new impetus in the financial inclusion drive of the Bangladesh Bank. BB proved itself as an advanced organisation in the race for technological development. Using technology has been contributing to the improvement of efficiency of the banks, and financial inclusion.
In connection with the regulatory environment, the Bangladesh Bank has been playing a laudable role to maintain smooth and secured e-banking operations. Online access to Credit Information Bureau (CIB) has been successfully started by the initiative of the central bank. Installation of Bangladesh Automated Clearing House (BACH), Bangladesh Electronic Fund Transfer Network (BEFTN) and National Payment Switch (NPS) are other remarkable events in the history of our financial sector.
Technology has brought efficiency in the supervisory arrangement of the Bangladesh Bank. With the initiative of the Bill and Melinda Gates Foundation, and joint participation of the Bangladesh Bank and Microcredit Regulatory Authority (MRA), an interactive website, FSPMaps.com, was opened in October 2013 with the aim of expanding the reach of financial inclusion, specifically bringing financial services to the doorsteps of the marginalised segments of the society. BB received 'Alliance for Financial Inclusion Award' in 2014 for undertaking remarkable initiatives on financial inclusion.
To promote its developmental goals, BB has upgraded the country's financial market infrastructure by setting up fully automated nationwide online clearing system and hastening automation in banks. Notable initiates have been taken up to ensure appropriate regulatory and supervisory regimes for effective oversight of risk management, internal controls and customer interest protections. Several incentives like refinance lines from BB and limited interest subsidies have been made available to promote lending to the farmers, small enterprises and poor households.Â Along with moral suasion, a number of policy measures covering opening of bank branches, deposit and credit products, some of which are very innovative for our banking system, have been taken in this regard. Because of the remarkable pro-poor initiatives of the central bank, a recent article in China Daily (May 2014) termed the Bangladesh Bank governor as 'Poor Man's Governor'. Moreover, in November last year, Dr. Rahman received the 'GUSI Peace Prize International 2014' award for his contribution to establishing peace by reducing poverty in Bangladesh.
Dr. Shah Md Ahsan Habib is Professor and Director (Training), Bangladesh Institute of Bank Management (BIBM).