Daffodil International University
Faculties and Departments => Business Administration => Business & Entrepreneurship => BBA Discussion Forum => Topic started by: Rozina Akter on August 03, 2015, 05:09:23 PM
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Financial inclusion targets access to the finance system for all the people of a country, including the poor and underprivileged group such as farmers, landless labourers, small enterprises, urban slum dwellers, migrants, women etc. as it is important for removal of their poverty and ensuring their economic emancipation. Financial inclusion also denotes the ability of individuals to access appropriate financial products and services. It is inevitable for a country like Bangladesh to provide financial opportunities to financially-excluded people as they are almost half the country's total population. We have to consider all the people, because development cannot be possible excluding half the total population. Even providing access to finance is some sort of enabling the underprivileged people to make contribution to development. And there is a positive correlation that exists between financial development and economic growth. The financial inclusion ensures people's access to different types of financial services including loans, deposits, insurance, investment, products for small and medium enterprises (SMEs), payments, financial awareness and remittance facilities. Thus, financial inclusion should be one of the priority policy tools for a country, if it wants to ensure stable and equitable economic growth. In Bangladesh the agriculture sector (20.29 per cent of gross domestic product-GDP, 2010) and SMEs can play the central role in achieving a high growth in financial inclusion as many poor people are involved with the agriculture sector and small businesses. There is a low level of financial inclusion in some districts of the country. The reasons are given below:
Problems of financial inclusion in Bangladesh
* Despite rapid growth of banks, microfinance institutions (MFIs) and cooperatives, the financial inclusion in Bangladesh has a long way to go to cover all the population, including those in the rural and urban areas. Most of the banks are focusing on solvent farmers rather than landless and illiterate ones while offering crop loans. So, these people (landless and illiterate) remain excluded. The cooperative societies also do not target the poorest people of society owning nothing or little in assets, as these cooperatives are run by the elite people of society. Similarly, banks also are not interested in providing collateral-free (mortgage-free loan) to the people in need.
* Most of the people are not involved with the finance system. Even they do not think of opening a bank account. Financial education may be one of the most important factors that can motivate the people to have an account. Banks and non-bank financial institutions (NBFIs) should set up credit-counselling centre to advise the people on access to the financial system.
* As most of the people are not involved in the financial system because of extreme poverty, development cannot be possible excluding those people. Only Dhaka division has shown a good level of financial inclusion, but it is very low in six other divisions. Moreover, if the people are linked with the banking system, then they will be able to deposit or take loans, which can give them safety and extra financial benefit (interest/profit). Even with inclusion in the formal financial system people will get access to different products like credit, savings and insurance facilities at lower cost on flexible conditions.
* Poor infrastructure is one of the causes of the lower financial inclusion, because infrastructure like transportation system, telecommunication system, availability of electricity and roads and highways help the business, entrepreneurs and the people in the agriculture sector to take credit from the banks. So, the lack of adequate infrastructure is one of the causes of slow financial inclusion in the rural sector.
* Other problems with taking credit from banks are documentations, inadequate financial knowledge and high cost of banking products. These factors keep people away from the banking services. It is true that the number of loan defaulters may increase, if more loans are offered to the rural poor people as they have little or no knowledge about the business strategy, risk minimisation and the investment policy.
* Low income of the people is another reason for the financial exclusion. As inflation and the unemployment rate are high, people cannot but spend all the earnings. They can save little for depositing in any bank accounts. The increasing cost of living lower deposits and the amount of credit from banks. It can have a negative impact, in the long run, on the people's habit of banking.
* Banking involves high operating cost. So, the people are not interested in opening any bank accounts for any short-term credit purpose. For this reason, the farmers and small business owners are not interested in taking credit from a bank. The high account maintenance cost deters the people from opening a bank account as what the poor people deposit is very low.
Prospects of financial inclusion in Bangladesh
* Microfinance is a new tool for combating poverty and a new way to ensure people's access to finance. Bangladesh has different microfinance institutions working as a strong tool for financial inclusion. Some of the leading micro-finance institutions are Grameen Bank, ASA, BRAC, Micro-finance Foundation. Besides, micro-finance loans are offered by banks. So, there is a certain prospect for financial inclusion in Bangladesh. As Bangladesh has a large population and each division or district has good number of people, offering an attractive interest rate on deposit and lending small amounts of credit can increase the number of accounts, deposits and credit and thus help increase financial inclusion.
* Technology can be one of the most important tools for reaching out to the excluded section of people. It can help expand services like mobile banking, Internet banking or electronic payment. Technology can be a new phenomenon for expansion of financial inclusion by reducing costs of small amounts of credit, transaction costs of credit and account fees. The use of technology can be a cost-effective strategy to deliver the financial services in remote areas. In the rural areas where there are a small number of bank branches, mobile phones can be converted into a virtual bank-a bank on van or microbus, for increasing the banking outreach in rural areas. Only less than four people per 1000 use credit cards. Still the introduction of ATM, bKash, phone banking, Internet banking, debit card, credit card and point of sale (POS) are advancing financial inclusion one step ahead.
* The Grameen Bank and MFIs brought about a major breakthrough in reaching out to the rural poor people. For example, MFIs act as partner agents of insurance companies. They are extending financial services like micro insurance, small life insurance, health insurance, accident insurance and property insurance at minimum premium rates. The insurance for farmers can protect them from credit uncertainty, rainfall variability, market price fluctuations and it can take place because of technology.
* Financing in the agriculture sector can be an effective way for bringing farmers and landless people under the finance and banking services. If farmers are interested in taking credit for cultivation, buying seeds or equipment for cultivation, then the production as well as GDP will also increase. Easy access to finance at lower costs will prevent the poor farmers from falling victims to moneylenders. Banks and financial institutions are instructed by the Bangladesh Bank to increase banking services for the underserved or un-served people, to provide credit facilities for SMEs and disburse 2.50 per cent of the total credit disbursement a year for the agriculture or rural sector.
* The banking for women can be a new window for financial inclusion. Basically most of the Bangladeshi women do not have the ability or intension to go for banking. Maybe, they lack financial knowledge or insufficient money in hand. So, a separate counter for women, extra credit facilities for them and their education about finance can help take more interest in banking.
* The SMEs have been growing rapidly in Bangladesh over the last few years and they are mainly focusing on agriculture, small business, grocery, small service sector, light engineering workshop, garment exports, transportation, construction and entrepreneurs. Building several strong micro-finance institutions and an SME platform can be a simple solution to ensuring better financial inclusion and economic development. As most of the people of our country are poor, they may be interested in small amounts of credit.
* Bangladesh Bank (BB) and the government of Bangladesh (GOB) have devised different strategies to promote financial inclusion among the poor rural and urban people. A special refinance facility has been made available to SMEs. SME service counters or booths in banks and financial institutions, special services for women entrepreneurs and credit for environment-friendly investment in solar energy, building biogas plants and effluent treatment plants have been made available. Different development projects of the government like Grihayan and one house-one farm are also aiding the financial inclusion. The Postal Department is helping the people receive remittance easily.
The government can launch a Financial Inclusion Fund (FIF) as in India and the United Kingdom to promote financial inclusion. The fund can be utilised to financially support poor farmers, patronise entrepreneurs, help skilled labourers, train the personnel of banks and financial institutions, ensure easy access to finance (mortgage-free loan), introduce new banking technology etc.
The banks should be motivated to establish branches in remote areas, provide credit at low interest rates and bank with the poor people without any operating fees. The BB can simplify some rules and regulations on establishment of new branches, allow financial institutions to provide micro-insurance services and expand the horizon of non-government organisations (NGOs) and micro-finance institutions (MFIs).