Dr. Atiur Rahman Governor,
Bangladesh Bank :
In this era of rapidly changing global financial environment, people’s demand and society’s needs are changing at a faster pace. Technological breakthrough also changes everything from customer relationships to business models. As elsewhere, banking in Bangladesh faces a multitude of challenges on the way forward, inter alia including adjusting to rapid technological changes in the ways banking services are delivered, risk management and stability challenges posed by increasing financial globalization, and challenges of harnessing creative energies of all population segments reaching out with environmentally responsible inclusive financing. There are ample sources of guidance on evolving regulatory discipline and best practice standards in shaping the future path for banking, but usefulness of all these depends crucially on the underpinnings of ethically driven high quality corporate governance involving the boards and senior managements. Lapses and slippages in ethical standards in bank boards and senior managements had much to do with causing the last global financial crisis, just as in recent local episodes of banking scams and loan fraudulences. As senior management the ABB members are fiduciaries safeguarding interests of depositors and other creditors; I would expect and urge the ABB seminar participant today to bear this especially in mind while envisioning their way forward in socially and environmentally responsible banking in Bangladesh over the years to come.
Distinguished audience, let me now recount a brief anecdote of banking, with accompanied challenges, and my views on reshaping future path of banking in Bangladesh.
The banking sector in Bangladesh has grown several fold since independence in 1971, in tandem with the uninterrupted spell of steady, stable growth of the country’s economy over the last two decades. Beginning as almost wholly state-owned sector making directed loans at prescribed interest rates, our banking sector has undergone successive rounds of major structural and regulatory reforms; transforming it to a vibrant private sector led market based banking system, largely shaking off the legacy of heavy default culture from the years of directed lending regime.
A major part of the cost of default had to be borne by both the state and entrepreneurs not to speak of customers at large. But thanks to swiping reforms in the financial sector, Bangladesh economy has been continuing on sustained spell of six-plus percent real annual average GDP growth for more than a decade now with the latest score of 6.12 percent in FY14. Steady and incessant drive of inclusive growth is causing poverty to recede fast; GNI per capita has risen to USD 1190 in FY14, with a continual uptrend. Bangladesh has impressive bank account access with low gender and income gaps relative to other South Asian countries. The share in the population above 15 years with a deposit account expanded from 26.7% to 41.3% over the last five years (2009-2013). In comparison the average share of the population above 15 years holding an account in 2011 was 33% in South Asian countries, 23.7% in low income countries and 28.4% in lower middle income countries. The participation of bottom 40% population (income) in access to finance is also higher in Bangladesh (35%) than that of India (27%), Pakistan (4%) and South Asian nations (26%). Banking sector’s assets in Bangladesh has also grown faster than any other South Asian nations. London-based research firm Business Monitor International (2014) found that total banking assets in Bangladesh witnessed a 19.1 percent compound average growth in the past five years followed by 18 percent in Sri Lanka, 17.2 percent in Pakistan and 16.7 percent in India. Banking assets as a share of GDP is second highest in Bangladesh (80%) after India (85%) but much higher than Pakistan (50%) and Sri Lanka (50%). If you add asset held by mobile financial services (20 million) and low end 14 million 10 taka accounts. Bangladesh may as well come out as number one.
BB has steered this transformation by continually promoting market development in a broadly stable monetary and inflation environment. Recognizing early on that the conventional short term business cycle focused monetary and financial policy approaches are failing to address globally the longer term needs of inclusivity and environmental sustainability, mandated by its charter to support output and employment growth besides protecting monetary and financial stability, BB stepped in with initiatives of imparting a deliberate directional bias in financing flows away from speculative and sustainability harming uses towards IT enabled inclusive financing of ‘green’ output initiatives. For that to happen BB was successful in enthusing socially responsible motivational ethos amongst the captains of the industry.
The motivational thrust of ingraining a socially responsible financing ethos continuing since 2008 has sensitized and activated our financial sector in reaching out to the underserved and excluded poorer population segments with the financial services they need. BB-led events like the financial inclusion road-shows have drawn banks and financial institutions into closer contact with their existing and potential new client bases in the poorer communities. This transformation of the mindset of our bankers was led by not only corporate social responsibility by also motivation to capture business at the lower segment of the customer base.
There is as yet no comprehensive impact evaluation of these initiatives in Bangladesh, but anecdotal evidences indicate that policy support for SME financing and development of mobile phone based financial services delivered through hundreds of thousands of local area agents are creating around four hundred thousand new employments every year. Green financing initiatives are likewise spawning new jobs in thousands, in manufacture/assembly, installation and maintenance of solar PV home systems and irrigation systems, energy saving lamps, bio gas units and so forth. Inclusive financing has upheld real sector output and employment growth momentum while also at the same time enhancing financial stability, reducing credit and liquidity risk exposures of lenders by diversifying and broadening their asset and deposit bases. BB guidance in this respect will soon extend further towards differential loan pricing and perhaps also differential equity margin according to environmental risk grading; entailing lower financing costs of borrowing proposals with low environmental risk grading and encouraging risk mitigating modifications in the higher risk rated proposals.
The multifaceted financial inclusion initiatives of Bangladesh Bank are enhancing the intermediate target of reducing financial inequality with an ultimate objective of slimming income inequality down with job creation among the un-served and under-served population segments steadying the inclusive growth trajectory. Bangladesh’s sustained spell of steady real GDP growth, and her pioneering promotion of socially responsible inclusive, green financing is attracting widespread attention and interest of other countries and supra-nationals like the UN agencies, IMF and WB. Its my immense pleasure to recall in front of you that recently, Bangladesh Bank was awarded ‘the Alliance for Financial Inclusion (AFI) Policy Award’ for its contribution in substantial expansion of Mobile Financial Services (MFS) in Bangladesh. Indeed, this credit goes to you all. The recently held Global Green Growth Forum (3GF) in Copenhagen also recognized Bangladesh’s pioneering broad-based green banking initiatives.
A countrywide massive modernization of the financial sector IT infrastructure including fully automated online settlement of paper based and electronic fund transfers, online credit information and supervisory reporting etc. have spawned exponential growth of mobile phone banking, vastly benefitting the underserved poor.
(To be continued)
