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In Bangladesh, where a significant portion of the population still remains outside the formal banking system, financial inclusion is not just a lofty aspiration, but an essential requirement for the overall development of the society or the state.
Immediately after the end of the long rule of the previous government in the July mass upsurge, there was a demand for change in the entire financial sector of the country. In order to sustain the country’s economy in the changed circumstances, the current interim government took several prompt steps to prevent money laundering, including changes in leadership in various important positions. Huge changes are still expected in various fields, where the importance of financial inclusion activities has become very strong. In order to accelerate the overall development of Bangladesh, there is no alternative to removing the existing barriers of the unbanked population and integrating them into the formal banking system. It is absolutely true that several activities are underway at the government and private levels on financial inclusion. However, there is still a need to conduct sufficient public awareness activities and campaigns on the subject.
FINANCIAL INCLUSION IN BANGLADESH: Bangladesh has achieved commendable success in a major area such as poverty reduction in the country through microfinance projects. Despite this, 30 million people out of the total population of Bangladesh are still excluded from the financial system, while the total number of unbanked people in the world is about 1.4 billion. The unbanked people of Bangladesh, especially those living in rural areas, still face various obstacles in accessing basic financial services such as savings accounts, loans, insurance facilities and financial transaction systems.
According to the World Bank, about 45 per cent of adults in Bangladesh are still unbanked. This large population often has to rely on informal financial channels which are unreliable, insecure and costly. Therefore, financial inclusion is an essential tool for improving the quality of life and livelihood of the people, economic development and poverty alleviation. It has huge potential for empowering countless people, especially women, and creating small entrepreneurs. Financial inclusion undoubtedly accelerates the equitable distribution of the country’s economy, contributes to economic stability and encourages inclusive economic growth. However, due to various constraints, it is still not possible to bring the large population deprived of banking facilities under the ambit of formal financial services.
BARRIERS TO FINANCIAL INCLUSION: Bangladesh is predominantly a rural country, where more than 68.34 per cent of its total population lives in remote areas. Due to the lack of bank branches, sub-branches and agent outlets in these areas, many people cannot avail banking services. Moreover, infrastructural constraints such as lack of uninterrupted internet connectivity and communication facilities further compound their problems.
A significant barrier to financial inclusion is that the financial literacy rate in Bangladesh is only 28 per cent, meaning that about 72 per cent of the population is still not familiar with banking services, banking products, or how to use them. This lack of financial literacy leads many to distrust and uncertainty when using formal financial services, which can lead to financial fear and anxiety in one’s life. In addition, due to the prevailing social customs and gender discrimination in the country, women, especially in rural areas, are unable to access formal financial services due to cultural restrictions, barriers in movement, and financial incapacity.
In addition to the above, many of the unbanked population do not have the necessary property or other valuable assets that can be provided as collateral to obtain any financial benefits. Due to these constraints, in some cases, many have difficulty obtaining loans to start or grow a business. Not only that, due to lack of awareness about banking, many people do not want to follow the basic rules and regulations of the bank. Even ignoring the benefits, they will get from banking in the future, they stay away from banks even thinking about the minimum balance requirement in the bank account and the minimum cost of maintaining the account along with the small amount of transaction fees.
ROLE OF DIGITAL FINANCIAL SERVICES: In recent years, the rise of mobile banking and digital financial services has revolutionised financial inclusion efforts in Bangladesh. The increase in mobile phone penetration in the country, coupled with the innovation of digital payments, has enabled people in rural and underserved areas to access financial services without the need for a bank branch.
When it comes to the expansion of digital financial services, bKash, which is used by about 21.2 million customers, and Nagad, which is used by about 4.5 million customers, come first. Both platforms have proven how technology can be used to provide financial services to the unbanked. Through these platforms, customers are getting the opportunity to send money, receive money, pay bills, save and take out digital loans very easily using their mobile phones. This continuous advancement of digital banking has overcome geographical and infrastructural barriers, making the service more acceptable to the previously underbanked population.
Recently, mobile banking platforms have further paved the way for agent banking – a model where local agents, often located in rural areas, act as intermediaries between banks and customers. This is bringing financial services to rural communities without the need for banks to set up branches or sub-branches between them.
GOVERNMENT AND INSTITUTIONAL SUPPORT: The government of Bangladesh has recognised the importance of financial inclusion in its national development agenda. The country’s central bank has launched several initiatives to strengthen financial networks, reach out to underserved areas and unbanked populations, maintain financial stability, open up opportunities for the previously underserved, expand the customer base for financial products, and contribute to building a vibrant and stable financial sector in the country in an effort to contribute to the national goal of financial inclusion. These initiatives include setting up rules and regulations for opening mobile banking, agent banking, sub-branches and microfinance, as well as financial literacy programmes, school banking and agricultural banking initiatives etc.
The government is also encouraging the country’s commercial banks to engage in financial inclusion so that banks continue to provide government-announced subsidies and incentives to serve the underprivileged. In particular, the government has encouraged financial institutions to provide essential financial services to women, as women are often the most deprived of formal financial services. Moreover, the government is providing various incentives to migrants, the main source of foreign remittances in our country, to use formal banking channels. The point is that the government is quite serious about financial inclusion, but there is still a long way to go to reach the goal.
MICROFINANCE AND ITS IMPACT: Microfinance is one of the most important contributors to financial inclusion in Bangladesh. Institutions like Grameen Bank and BRAC have played a leading role in microfinance programs. Under the microfinance program, small loans are provided to low-income individuals and entrepreneurs without collateral. As a result, millions of people, especially women, have been able to start small businesses on their own initiative or improve their livelihoods and escape the cycle of poverty. As of June 30, 2023, about 40.86 million people in Bangladesh were members of microfinance institutions, of which 31.53 million were borrowers.
However, microfinance is not the only panacea. While it has empowered many financially, it has also been criticised by some for its interest rates and debt cycle. However, the big challenge for Bangladesh is to ensure that microfinance becomes a more sustainable and supportive tool for financial inclusion across the country taking into account some of the criticisms and initiating appropriate measures.
WAY FORWARD FOR FINANCIAL INCLUSION: Further investment in digital infrastructure is needed to reach every corner of the country. Uninterrupted internet connectivity and expansion of mobile network coverage in remote areas will help facilitate digital financial services and ensure their acceptance by all. Beyond digitalisation, increasing financial literacy is crucial for the success of financial inclusion, especially in rural areas where 68 per cent of the population is women. In addition, programmes and educational initiatives need to be taken according to the needs of different communities. The country’s most important workforce, the youth, who constitute 34 per cent of the total population comprising about 2.75 million students, need to be involved and encouraged to join the formal financial system through financial literacy programs.
At the same time, financial institutions need to innovate products that help meet the needs of the unbanked. Increasing the popularity of attractive savings accounts, microfinance facilities and insurance products designed for low-income individuals will go a long way in increasing financial inclusion across the country. On the other hand, it is also very important to properly promote gender-sensitive policies and initiatives that encourage women’s participation in the financial system. Encouraging the creation of women-centric financial products and services, as well as ensuring women’s participation in mobile banking, will eliminate gender disparities in financial inclusion.
M M Mahbub Hasan is a banker and development researcher
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