In the lingering global growth slowdown, domestic output and domestic demand in Bangladesh have remained well supported by inclusive financing. For well over a decade now, the Bangladesh economy is in a sustained spell of stable six-plus per cent annual average real gross domestic product (GDP) growth, amid global slowdown and domestic disruptions related to election cycle-driven political unrest.
Sustainable development processes are those that are broad-based and environmentally benign and equitably benefiting all population segments of the society.
Access to financing for output initiatives of the disadvantaged people is a key requisite for equitable development. This widens their advancement opportunities. Access to adequate financing is a key requisite also for transition from traditional polluting output practices and lifestyles to the low emission energy-efficient 'green' options.
Inclusive, environmentally responsible financing is of particularly high urgency for developing economies like Bangladesh that are aspiring for rapid poverty eradication and sustainable growth on path towards prosperity.
This perceived urgency has led Bangladesh Bank (BB), the country's central bank, to pursue mainstreaming of inclusive and environmentally benign 'green' financing in the financial sector, under the rubric of 'socially responsible' financing. The BB's initiatives to this end includen, inter alia, motivation, creation of necessary enabling environment, and policy support.
MOTIVATION CAMPAIGNS FOR INCLUSIVE AND GREEN FINANCING: The BB's motivation initiatives include frequent consultative engagements with the banks, non-banking financial institutions (NBFIs) and other stakeholders; guidance circulars on modalities and options; cross-country road shows, fairs, other mass communication events showcasing progress in inclusive and green financing; financial literacy and consumer education programmes, etc.
The motivation campaigns have already succeeded in sensitising and enthusing the entire financial sector into initiatives of reaching out with financial services to hitherto un-served and underserved population segments. Both the banks and NBFIs have begun sensing growing appeal of the socially responsible financing credential in their clientele bases.
INITIATIVES FOR FACILITATION OF INCLUSIVE FINANCING: A BB-led massive modernisation programme of the countrywide payments system and financial sector has been undertaken. IT (information technology) infrastructure has been instrumental in creating the necessary enabling environment, making possible the advent and rapid growth of cost-efficient mobile phone/smart card based off branch delivery of financial services.
Guidelines have been issued by the central bank on mobile phone-based financial services and on agent banking to facilitate orderly expansion of inclusive financing based on off service delivery.
The BB earlier issued guidelines on mobile phone-based financial services (MFS) and on agent banking to facilitate orderly expansion of inclusive financing based on off service delivery.
According to the guidelines, the bank-led model is offering an alternative to conventional branch-based banking to un-banked population through appointed agents facilitated by the Mobile Phone Network Operators (MNOs) or solution providers.
The MFS enhances prompt delivery of financial services to anyone who is connected with mobile phone networks. To improve efficiency through interoperability among multiple platforms, these are being integrated into a national payments switch.
Until September 2014, out of the permitted 28 banks, 19 banks have provided mobile financial services to more than 20 million and 0.70 million beneficiaries through 477,000 agents across the country.
The banks and their partners will have to comply with the existing Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT)-related laws, regulations and guidelines issued by the central bank from time to time.
Under the guidelines, the banks will immediately report to the Anti-Money Laundering Department of the BB regarding any suspicious, unusual or doubtful transactions likely to be related to money laundering or terrorist financing activities.
GREEN FINANCING: Environmental risk assessment guidelines issued by the BB are serving similar purposes facilitating green financing.
Multiple BB-led inclusion drives like those of no-frills bank account opening for landless peasants, itinerant wage labourers and other individuals of meagre means, for street children, for school children are steadily drawing in new customer bases for inclusive financial services.
"10-Taka account" facility for the farmers launched in 2010 numbered more than fourteen million no-frills accounts until June 2014.
A total of 3.6 million accounts have been opened to distribute financial aid to different social security programme beneficiaries, unemployed young, both men and women, hardcore poor, freedom fighters, destitute beneficiaries under Hindu Welfare Trust, small life insurance policy holders and school students.
SAFEGUARDING OF CONSUMER INTERESTS: Financial literacy and consumer education programmes are being strengthened towards safeguarding of consumer interests. A hotline open all hours at the Financial Integrity and Customer Service Department in the BB receives and addresses complaints about financial services from customers.
POLICY SUPPORTS FOR INCLUSIVE AND GREEN FINANCING: The agriculture sector in Bangladesh has less than six per cent share in total bank loans though it contributes nearly one-fifth of the GDP. Given the importance of this sector for food security, the central bank of Bangladesh has set mandatory lending targets in this sector for individual banks at 2.5 per cent of their total annual lending. The state-owned specialised agricultural banks receive refinance from the BB against their agricultural lending, subject to the refinance being backed by government guarantee.
In 2001, the BB introduced a refinance scheme of BDT 4.0 billion for the development of agro product processing industries across the country. Until 2014, BDT 5.42 billion were disbursed among 1939 entrepreneurs under this scheme.
The government provides interest subsidy against promotional lending for growing some specified crops including lentils, oilseeds, high value spices etc.
The financial sector already having substantial engagement in SME (small and medium entrepreneurs) financing, lending targets in this sector are indicative and incremental. The SME financing is supported by low-cost refinance lines funded partly by development partners, partly by the BB, and in case of Islamic banks, by those of them which have idle surpluses in their accounts with the central bank.
The BB has disbursed refinance facility of BDT 3.45 billion to 41,952 entrepreneurs where 21.86 per cent of credit was distributed among 9612 women entrepreneurs.
For the development of SME sector including women entrepreneurship, the central bank has established a refinance fund of BDT 21 billion from its own source along with International Development Association (IDA), the World Bank's fund for the poorest, Asian Development Bank (ADB) and Japan International Cooperation Agency (JICA). The Central Bank itself has established women-only unit for providing necessary regulatory services to the budding women entrepreneurs.
In August 2014, the central bank launched 'New Entrepreneurs Fund' and 'Jute Sector Fund' amounting to US$ 13 and $25 million respectively.
Levels of green financing not yet being substantial, indicative lending targets have been set at 4.0 to 5.0 per cent of total annual lending, depending on type of the bank or NBFI.
In order to promote renewable energy and green financing in the country, the BB has initiated a refinance scheme of BDT 2.0 billion in 2009.
As of September 2014, cumulative disbursement from the scheme was US$ 20 million covering 47 green products. Of late, BB has been providing refinance for green textile factories to improve the brand image of Bangladesh's textile sector, which is next to China in total exports.
The central bank has already directed most of the financial institutions to allocate at least 5.0 per cent of their loan portfolio to green finance in 2015 and it'll apply to all of the NBFIs in 2016.
The BB expects green financing to grow fairly fast over the coming years as output activities in agriculture, manufacturing and services increasingly embrace new low-emission green options. Low-cost refinance is available against green financing in specified sectors, funded partly by development partners and partly by the BB.
Macro prudential policy support for green financing include lower equity margin requirement for financing of the green option compared to their traditional alternatives.
The central bank has refinanced BDT 154.02 million against establishment of 4867 Solar Home System (SHS). The Infrastructure Development Company Limited (IDCOL) with the central bank has already installed about 3.0 million SHSs in the off-grid rural areas until April 2014.
Besides, BDT 68.27 million has been refinanced against 12 solar energy driven irrigation pumps while BDT 421.16 million has been funded against establishing three Solar PV Module Assembly Plants totaling capacity of 53 megawatt (MW) annually.
Moreover, the central bank has refinanced BDT 523.60 million against establishing 1578 number of bio-gas plants across the country.
The central bank is considering encouragement of differential loan pricing based on environmental risk grades of the financing proposals.
Overlooked pockets of financial exclusion are being searched out and attended to with appropriate policy support. For example, agricultural credit from a BB-funded window at BRAC, a renowned non-governmental organisation (NGO), is being offered to landless sharecroppers without collaterals. Since the launching of the programme in 2009, more than 0.9 million sharecroppers have been financed until September 2014.
To promote the outreach of rural people under the financial inclusion umbrella, banks are obliged to maintain ratio of 1:1 in rural and urban areas for opening new bank branch.
Better supervisory (CAMELS) rating for a high performer bank/NBFI in inclusive and green financing is another policy support dimension intended to promote such financing.
The lending targets in agricultural, SME, and green financing are set consultatively with the lending banks and financial institutions. The targets are intended to attain and uphold adequacy of lending in the supported sectors, not to create any credit surge in any sector. Monetary stability is not risked by these support initiatives, as these are conducted well within the overall monetary growth parameters set in the annual monetary programmes.
GROWTH AND STABILITY OUTCOMES OF INCLUSIVE AND GREEN FINANCING INITIATIVES: Attention to inclusiveness in financing has served Bangladesh well in maintaining real and financial sector stability during the global financial crisis and the lingering global growth slowdown in its aftermath. Policy-supported inclusive financing of SMEs helped uphold buoyancy of domestic output and domestic demand during the global financial crisis largely compensating for export demand in the traditional advanced economy markets.
Like this positive stability impact in the real sector, the financial sector also remained stable, well supported by inclusive financing bringing in large and diverse bases of small loans and small deposits, reducing the credit and liquidity risks from dependence on a few large borrowers and depositors.
Incremental domestic output supported by inclusive financing helped stabilise domestic prices, acting as buffer against shocks from price volatility in external markets.
SMEs supported by financing are creating new jobs in hundreds of thousands every year. Agricultural output activities in crops, horticulture, fishery, dairy and poultry sub-sectors supported by agricultural financing are likewise generating employment in hundreds of thousands, besides outputs for domestic consumption and exports.
Green financing in areas like manufacture, installation and maintenance of large and small solar PV units, low-energy lamps, biomass-based energy units etc., are creating jobs in large numbers besides transforming lifestyles to sustainable options.
Financial inclusion initiatives on their own are also creating jobs in hundreds of thousands in mobile phone-based, agent banking-based financial service outlets. Rural and urban labour markets have tightened significantly in consequence, with sharp rise in real wages, contributing to the attainment of headcount poverty decline MDG (Millennium Development Goal) well ahead of timeline.
Bangladesh's approach of internalising inclusive, green financing within the framework of traditional stability-focused monetary and financial policies have started attracting external attention. BB has received supportive findings and very useful suggestions from a couple of such external studies. The ADB (Asian development Bank) is already with the BB in a refinance line for financing of green option in baking of clay bricks.
Dr. Atiur Rahman is Governor of Bangladesh Bank. The article is based on the presentation he gave at the Asian Development Bank (ADB)'s headquarters on
November 26, 2014 in Manila.
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