Bangabandhu’s inclusive approach might have resulted in a better status and quality of financial inclusion

Dr. Shah Md Ahsan Habib:

'Financial Inclusion' is a crucial prerequisite for 'Inclusive Development'. In recent years, Mobile financial services (MFS) have made a significant impact on increasing the number of banking users Specifically, MFS facilitated by Bkash, Rocket, Nagad have been playing remarkable roles in promoting payment inclusion.

Remarkable policy efforts and responses on the part of banks facilitated opening of no-frill accounts for a big portion of the vulnerable population in recent times . In line with the industrial and CMSME policies of Bangladesh, the Central Bank has been actively promoting CMSME financing through a separate department and several refinancing schemes.

Banks and NBFIs have also been offering financing services by setting up separate SME units, and separate SME desks for women in their head offices and branches. Increasing branch, agent, booth banking in the rural area, and MFI linkages, brought in improvement in rural and agricultural credit. In addition to this , green banking initiatives have remarkable implications for financial inclusion, alongside environmental risk management in financing.

Despite these notable improvements, the disparity between developed and emerging nations in terms of 'financial inclusion status' and 'inclusive development index' remains visible. A lot is to be achieved to pull Bangladesh to the level of developed economies in terms of financial inclusion.

It is also time to assign due focus on the quality aspects of financial inclusion for an optimum and sustainable outcome. There is no doubt that 'payment inclusion' is a remarkable force for socio-economic enhancement and sustainable growth. It would also be possible to come up with a very high numerical figure of financial inclusion with the expansion of the MFS and technology-driven payment services in near future.

However, to optimize benefits, it is not only about payment, it is also about deposit inclusion, and access to finance. Enhancements of savings by the low-income population are stable deposits or 'core deposits' that are valuable resources for the financing process of the banking system. Access to credit is a key ingredient to economic development in developing countries that allows raising capital.

Especially, the 'core sector' of the economy must have adequate access to finance. Though the contribution of the agriculture sector to growth decelerated in terms of numerical figures, it remained the source of employment and livelihood of more than half of the country's population.

While identifying the 'core sector' of an economy, it is less about numbers and more about human beings. And the country cannot move sustainably without addressing the financing needs of agriculture and the rural economy of the country adequately.

There is no doubt that agricultural and rural financing has received policy attention since independence, and there is strong evidence of the contraction of credit operations in the informal sector over the years. However, the agricultural sector is yet to have the desired level of access to formal sector financing, and bank financing remains heavily skewed to urban Bangladesh.

While starting very strongly to support our agriculture and rural economy with adequate financing under the First Five Year Plan, we have not been able to be consistent with our policy and operational efforts. We keep losing momentum to ensure adequate rural and agricultural financing that had rightly been put forward in the country's first planning document by the Father of the Nation, Bangabandhu Sheikh Mujibur Rahman.

Bangabandhu's dream of building a sustainable and inclusive economy was embodied in the First Five Year Plan (1973-1978) of the country. Its targets are to reduce poverty, expand the output of essential consumption items, arrest inflation, and attain self-sufficiency in food-grain production along with others.

It is evident that Bangabandhu rightly prioritized agriculture and industrialization as the forces to move on the country's growth path. This was not only done to supply food to feed the people, but agriculture was also prioritized as the main source of income for the majority of the people and supplier of raw materials for the industrial sector.

The planning and policy documents during the First Five-Year Plan reflect Bangabandhu's understanding that agricultural development was the most important prerequisite for sustainable and inclusive development of the country.

In line with the broad policy and planning objectives for the newly independent Bangladesh, restructuring and development of the financial sector in terms of both geographical and operational expansion started side by side, rebuilding the post-war Bangladesh economy.

To ensure social justice and equity, the general nationalization program was also applied to the banking industry, and the banks were restructured into six nationalized banks (Sonali, Agrani, Janata, Rupali, Pubali, and Uttara Bank) to offer credit facilities to the industry and agriculture sector.

The government later established three specialized institutions - 'Bangladesh Shilpa Bank', 'Bangladesh Shilpa Rin Shangstha' and the 'Bangladesh Krishi Bank' to strengthen its efforts. The expansion of branches of those government-owned banks was very rapid mainly in the rural areas in the early years after the independence of the country.

Practically, the First Five Year Plan (1973 – 1978) of Bangladesh had its major focus on the country's rural economy and the associated financing activities but the focus was shifted towards urban Bangladesh in the following period. Interventions and financial support by the government and non-governmental organizations continued on a fairly large scale in rural areas, enabling the rural population to make increasing deposits in banks.

Indeed, the proportion of rural deposits increased remarkably during the last ten years from 13 percent in 2010 to 22 percent in 2020. However , only 10 percent of the total outstanding credit was in rural areas and the proportion remained almost at the same level during this period. This means money is flowing from rural to urban areas through the banking system.

Branch and credit allocation to the rural economy have been important channels for the inclusion of the rural population in the formal financial sector. There is no doubt that things have improved, but at a much slower pace. Some banks have attempted to reach rural areas and remote areas in Bangladesh with their agent banking operations in recent years.

The government and the central bank have been consistently pushing banks to allocate a greater proportion of their loan funds to the rural economy and agriculture sector. However, the proportion of credit to the agriculture and rural economy remained low. As of September 2019, only around 10 percent credit was disbursed to the rural areas, and the proportion of agricultural credit by banks to the total credit was below 7 percent in 2019.

There is no doubt that Bangladesh has made significant progress in the agriculture, fisheries, poultry and cattle sectors, and attaining food security is a remarkable achievement by the country.

The success of the agriculture sector is well recognized in terms of production expansion and as a reliable food supplier. However, what about agriculture as a sustainable and stable source of income for the farmers?

Despite development, agricultural marketing remained one of the weakest links of the country's rural economy. A lot can be achieved towards the commercialization of agriculture. This means creating an efficient value chain and taking agricultural products efficiently from the primary level to the national and international markets.

Efficient and sustainable agricultural financing is associated with commercialization and agricultural market development. The presence of an agricultural commodity market would ensure expansion of formal sector financing commercially at different stages of the supply chain, and would contribute to developing efficient warehousing and associated financing such as 'Loan against Warehouse Receipt'.

Promoting agriculture and rural economy with adequate financing is also associated with the achievement of several SDG goals and targets.

Bangladesh has achieved several remarkable milestones in the development of manufacturing and service sectors over the years. Agriculture and the rural economy boomed with the improved production of agricultural produce, and now certain areas need immediate attention.

It is high time to allocate adequate impetus to the development of agricultural marketing and financing to strengthen the country's sustainable and inclusive growth efforts. Complementarity and having a due balance of industrial and agricultural development are crucial for safeguarding 'Sustainable Growth'- the inclusive approach of the Father of the Nation, Bangabandhu Sheikh Mujibur Rahman.