Wednesday, April 10, 2013

Tackling 'financial exclusion' in Bangladesh

Tackling 'financial exclusion' in Bangladesh

Wednesday, 10 April 2013

Chowdhury Mohidul Haque

'Financial exclusion' is a dangerous symptom of wealth and opportunity discrimination. It is a deterrent to equitable economic growth and proper wealth distribution which creates opportunities for exploitation. It must be tackled for the benefit of equitable economic growth and harmony among different sections of the society. And before tackling 'financial exclusion' it is important to make a national assessment. Assessment is important to formulate strategy for tackling 'financial exclusion'.

Bangladesh is a country of large unbanked population, believed to be 60 per cent, who have no or limited access to banks or financial service providers. For this reason, they typically conduct all financial transaction in cash and physically store or carry their earnings or remittance in cash too.

'Financial exclusion' is a process that prevents the poor and disadvantaged social groups from gaining access to the financial system. The term connotes unavailability of banking services to people living in poverty. It is believed to be one factor preventing the poor people from managing their finances on a cash-only basis and restricting their access to equitable sources of credit.

'Financial exclusion' can make the poor people vulnerable to money lenders.

It is a complex and dynamic process. Some people experience short periods of exclusion, maybe more than once in their lives. For some other people, however, it can be long-term, perhaps even life-long. The majority of people without financial services are excluded by a combination of marketing, pricing and inappropriate product design by the banks.

An alternative agenda to help construct institutional alternatives to low-income communities especially people living in rural areas who are currently being excluded by the financial system is crucially important. Building of alternative financial infrastructure may significantly reduce exclusion. Microfinance is an approach used to reduce 'financial exclusion'.

The researchers conclude that possible solutions to 'financial exclusion' should focus on four main areas: reducing barriers of access to finance, unfavourable bank product design, speedy delivery of financial services and encouraging engagement. Tackling these will require action by the government and financial institutions through cooperation.

There is no single explanation for households being without financial services. Many of those who have never used financial services will almost certainly do so at some stage in their lives. Moreover, 'financial exclusion' is a dynamic process. Many more people move in and out of exclusion at any time. Further, large numbers of people are also on the margins of financial services provision and therefore potentially at risk of 'financial exclusion'.

In general, the factors that contribute to the process of 'financial exclusion' include the lack of a secure job, having parents not using financial services and living in marginalised communities. Financial institutions which are not keen to attract people with low incomes as customers contribute largely towards 'financial exclusion'.

Using intermediaries to deliver financial services can overcome the problems of physical access. Mobile phone and computer-based services, however, are important for tackling 'financial exclusion'.

For day-to-day money management, many people require a simple account which would allow them to retain tight control over their money. It should offer basic money transfer facilities, including a facility for spreading the cost of bills. It would offer no credit facilities but have a 'buffer zone' to allow flexibility. Ideally, such a service should also be designed so that access is not dependent on credit scoring.

People on the margins of financial services want to deal with banks which are financially secure, trustworthy and understand their needs. It is not, however, necessary for the same bank to provide the product and deliver it to the customers. New technology offers some opportunities for product delivery. ATM cards and electronic money transfers are likely to be the most acceptable. Mobile phone and computer can provide very easy solution to the customers at an affordable cost.

Knowledge of financial products is remarkably low among people who do not use them. This is compounded by marketing policies of some banks which think that financial services are 'not for the poor'. Specific measures should be taken to tackle mistrust about many banks. Use of trusted intermediaries could overcome these barriers. Targeted marketing and delivery of new services would also increase engagement for 'financial inclusion'.

'Financial exclusion' is influenced by government policy and practice in many ways. First, payment of government benefits in cash encourages recipients to operate a cash budget. Secondly, there is evidence that regulation of financial services can cause or enhance 'financial exclusion'. On a more positive note, the government policies can create a new market for financial services. The government may introduce all kinds of benefits through electronic means like mobile phone services of banks and 'mutho phone' of the postal department.

In the recent years, there have been a number of developments that signify willingness by private and public sector organisations to tackle the problem of 'financial exclusion'. The expectation is high at this moment to tackling the problem than at any time in the past.

'Financial exclusion' is a deterrent to money movement, savings and credit, investment and employment on one hand and social exclusion leading to political discrimination on the other. When this kind of scenario exists, the economy and the society are affected by unemployment, poverty and discontent.

Tackling 'financial exclusion' should therefore get national priority in a country like Bangladesh. The government or on its behalf the central bank must have a comprehensive understanding of the 'financial exclusion' and help formulate appropriate strategy for tackling exclusion or in other words, enhancing 'financial inclusion' within a targeted time frame. And for that matter, before formulating a 'strategy', an assessment about the spread and depth of the exclusion must be carried out.

'Financial exclusion' is due to the reason of supply side and demand side effects. As for the supply side, most of the banks and financial institutions are reluctant to serve the under-privileged people thereby refusing bank account opening. The minimum balance requirement in account opening and maintaining transaction amount, lengthy and complex data formalities are considered to be hindrances from the supply side. On the other hand, many people in our society are not inclined to cash transaction and they do consider going to a bank troublesome. They are also unwilling to pay various charges and fees which are very high.

In Bangladesh, it is believed that over 55 per cent of the adult population and 60 per cent of the rural households do not have bank accounts. This, however, is not supported by any survey or study. Microfinance institutions (over a thousand in numbers), including Grameen Bank, have been providing poor people, especially women, some kind of financial services through small credits and compulsory savings in rural areas. Banks and microfinance institutions/NGOs together achieved so far 35 per cent target for 'financial inclusion'. But so far no specific initiative has been taken by the government or the Bangladesh Bank or any other appropriate authority to make a national assessment of 'financial exclusion' and its reasons. It is important for the purpose of formulating a strategy to achieve 100 per cent inclusion within the target time.

Without a creditable survey, it is not possible to determine the number of households or population who are deprived of or denied financial services. The survey will reveal the reasons and depth of 'financial exclusion' as well. No study or survey, however, has been conducted to determine the financial exclusion situation in our society.

Nevertheless, during the last few decades, banks and financial service providers expanded their services gradually. New banks and new branches of existing banks have rapidly been established. At this moment, Bangladesh has over 8,000 bank branches, 3,500 ATMs, 15,000 POS and a good number of kiosks. We have more than 10 banks operating full-fledged mobile banking having more than 20,000 agents all over the country. In a country of 160 million people, the initiatives are not enough. A 'financial inclusion' strategy is required to be formulated and implemented so that 100 per cent exclusion can be tackled. The government or the central bank should give serious consideration to this issue of tackling 'financial exclusion' and expanding inclusion and frame national strategy with specific timeline and actions in order to achieve equitable financial growth and opportunity for all sections of the population targeting 2021.

The writer is former Executive Director & Project Director, RPP Project (UKAID), Bangladesh Bank. choudhurysh@gmail.com

Source:
 
Wednesday, 10 April 2013

No comments:

Post a Comment