By Shama Shafiq and Fahriba Tasnuva Mahtab
In the past decade, the goal of financial inclusion— ensuring that every individual has access to quality, affordable financial services—has become an increasing priority and possibility worldwide. And as we enter the second decade of the century, the imperative conditions for meeting this goal are coming together. Unfortunately, our nation has not taken the same queue; ever 7 out ten persons are not registered in any financial institution. Financial inclusion aims at benefiting the world’s poor, the vast majority of whom do not use formal financial services of the sort provided by banks, insurers, or microfinance institutions (MFIs). As a result, they are unable to avail themselves of the fundamental tools of economic self-determination, including savings, credit, insurance, payments, money transfer, and financial education. Hence, measuring the development of a nation involves including the most marginalized.
The goal of financial inclusion appears to be within reach. But achieving it depends on scaling up innovation from across the private, public, and social sectors. While each country will follow its own particular path to achieving full financial inclusion, most solutions require considerable contributions from the three sectors. Private businesses must continue to innovate and scale business models that deliver quality and value to consumers without relying on penalty-based revenues—from late fees or similar charges, for example—to generate sustainable returns. Governments must establish appropriate regulations and oversight to protect consumers while enabling a range of providers to deliver services at sustainable cost levels. And social-sector institutions should continue to contribute ideas, talent, and seed funding; use their convening power to create effective partnerships, and provide services to the hardest-to-reach consumers.
Cash in Everyone’s Hand?
Financial inclusion is on the rise globally, accelerated by mobile phones and the internet, but gains have been uneven across countries. For instance, in Bangladesh, after decades of microfinance, its various achievements and criticisms notwithstanding, we have clear evidence that there is demand for financial services among the underserved. While microfinance institutions constituted the drivers of financial inclusion in the past, it is evident that the ecosystem lacks complex and digitally oriented practices. Until now, most bank branches (or ATMs) are concentrated in urban areas, and high costs of setting up bank branches in rural areas have dissuaded banks from reaching the last-mile customer. However, digital financial services (DFS), which are currently almost exclusively, bank-owned and bank run, will allow banks to reach the last-mile customer. The newest entrants in the DFS space, with the widest potential for mass market penetration, are mobile financial services (MFS) and agent banking services.
MFS has had a noteworthy journey of growth thus far. Starting in 2011, with the establishment of a BRAC Bank subsidiary named bKash, a total of 18 banks are currently providing MFS services in Bangladesh while 28 are licensed to do so. BRAC Bank’s “bKash” and Dutch Bangla Bank’s “Rocket” are the leading players, although bKash accounts for more than 80% of total MFS transactions. The successes of MFS in Bangladesh and of bKash, in particular, have generated global attention. Bangladesh’s high mobile phone penetration (120.73 million) and low banking sector penetration (50 million) created the persuasive argument for DFS in order to close the inclusion gap. According to the Bangladesh Bank, as of August 2017, the average value of transactions per day reached Tk. 1,038 crore or $ 130 million.
Erasing the Lines that Create Exclusion
In order to promote financial inclusion, we need to address the issue of exclusion of people who are inadvertently denied access to financial services. A staggering number of 1.7 billion adults, globally, remain unbanked. Out of these 1.7 billion people, who do not have an account at a financial institution or with a mobile banking service, women and lower-income class people constitute to the majority. Half of this exclusion is comprised of the poorest 40% in the economy, while women make up about 56% of all unbanked people.
At the heart of this exclusion, there are two major reasons. The first, and the most common is having too little capital to create an account. The second is the cost and distance, associated with obtaining financial services. To resolve these complications, both the demand side and the supply side of financial services need to be refined in the context of the target group – the unbanked. A lack of awareness, low income, social inclusion, and illiteracy are the major barriers obstructing the demand for banking services. While, the distance from banks, timings, unavailability of branches in rural areas, bureaucratic documentation procedures, unsuitable products, and, are the common factors driving the inapt supply.
To reach a sustainable state of inclusive finance, the banking approaches to the financially excluded need to be changed. Banking measures, suited to women must be more comprehensive. Also, the concentration of financial inclusion programmes in districts with poor banking services is imperative to reaching sustainability in this sector. In the past few years, Bangladesh Bank has taken commendable initiatives to widen the coverage of banking services, especially by integrating the disadvantaged sector of the society into the formal financial system. These measures include opening bank accounts with the minimum deposit of Tk. 10 only and issuing branch licenses to all SME/Agriculture service centres. Along with more laxed regulations of loan repayment and providing facilities to natural calamity affected farmers. There is also more emphasis on Green Banking and financing female entrepreneurs.
The drawbacks of the financial sector, that limit access to banking services, is responsible for perpetuating inequality. In order to climb up the ladder of economic development, we need to rectify the issues of income and social inequalities that are hindering our growth. Creation and expansion of financial services targeted to poor and low-income population is an essential element in attaining this goal. Bangladesh has been successful in propelling the implementation of modern microfinance. And with the right devices, we can transition into a nation that thrives on equality and financial inclusivity.