Abstract
Bangladesh: Selected Issues
Financial Inclusion in Bangladesh1
The Bangladesh authorities have taken a number of measures to enhance access to financial services to those excluded from the mainstream financial sector. These measures have supported a rapid expansion of financial inclusion over the past decade. This note describes some of the initiatives put forth and takes stock of progress in financial inclusion and how Bangladesh compares to other countries.
1. Financial Inclusion (FI) is defined as the degree of access to and use of formal financial services by households and firms.2 Greater FI allows for financially marginalized groups to increase their income, reduce its volatility, and build assets, thereby providing resilience to economic shocks and helping create jobs and promote business activities. FI is measured in three dimensions – access, usage, and quality of financial services and products. This note focuses on the first two, describes the efforts taken by the authorities in these dimensions, and takes stock of Bangladesh’s record on FI over time and from a cross-country perspective.3
2. The Bangladesh authorities have implemented several policies targeting groups that had previously little or no access to financial services. FI is not new to Bangladesh: since the 1970s microcredit has aimed to provide financial services to sections of society where the reach of formal finance was limited (Box 1). However, in more recent times, FI has become a high-priority goal of the government and deliberate FI policies have been ramped up. The various policies target specific sectors (agriculture and related sectors), firms (small and medium enterprises, SME) and population segments (marginal farmers, landless laborers, urban slum dwellers, senior citizens, and women).
Existing policies
3. FI policies address both access and usage. Policies include the introduction of mobile financial services; the requirement that banks open at least fifty percent of their branches in rural areas; the introduction of agent based banking to provide banking services in the remotest areas; floors on credit to the agricultural and rural sectors backed by credit refinancing lines on concessional terms; support to SMEs and women entrepreneurs; schemes aimed at rehabilitating slum dwellers to the rural areas; and no frill accounts, including the Taka 10 accounts (Box 2).4
Microcredit in Bangladesh1
Limitations of the formal financial market to cater to the needs of the poor led to the emergence of the MFIs in the 1970s, especially in the rural areas. Over the years, the microcredit programs have been taken up by micro-finance institutions (MFIs, the top five of which are Grameen Bank, BRAC, ASA, Proshika, TMSS and Buro Bangladesh), nongovernment organizations (NGOs), commercial banks, and specialized programs of different ministries. Credit provided by the MFIs is broadly classified into (i) small-scale self employment based activities; (ii) microenterprise loans; (iii) credit for the ultra poor; (iv) agricultural loans; (v) seasonal loans; and (vi) loans for disaster management. Loan amounts up to Taka 50,000 (approximately US$ 642.70) are generally considered as microcredit; loans above this amount are considered as microenterprise loans. Innovative models of microcredit delivery have also been developed including those for the extreme poor and other marginalized groups. The government set up a regulatory body (Microcredit Regulatory Authority) in 2006 to enhance transparency, accountability and efficiency of MFI operations. As of June 2014, there were 676 NGO-MFIs catering to over 25 million clients of which around 20 million were borrowers. Outstanding disbursements by the top five MFIs amounted to about nine percent of private sector credit extended by the banking system as of June 2015.
Bangladesh: Disbursements from the Top Five Microcredit Institutions
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: Bangladesh Bank; and IMF staff calculations.Bangladesh: Disbursements from the Top Five Microcredit Institutions
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: Bangladesh Bank; and IMF staff calculations.Bangladesh: Disbursements from the Top Five Microcredit Institutions
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: Bangladesh Bank; and IMF staff calculations.Bangladesh: Taka 10 accounts
The Taka 10 no frills accounts were introduced by Bangladesh Bank (BB) in 2010. They were targeted towards farmers for directly receiving government subsidies and transfers with the intention of increasing processing speeds and reducing corruption and administrative costs. State owned commercial banks and specialized banks administer these accounts without any fees or minimum balance requirements to encourage participation from previously unbanked groups, especially from the low income socioeconomic strata. These accounts also enable these groups to perform other financial operations such as receiving remittances and seeking credit via formal finance rather than informal sources, thereby reducing their financial costs, and may help increase financial literacy. The number of Taka 10 accounts has increased by 50 percent in the period since their inception to June 2015.1
Bangladesh:Total Number of Taka 10 Accounts
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: Bangladesh Bank.Bangladesh:Total Number of Taka 10 Accounts
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: Bangladesh Bank.Bangladesh:Total Number of Taka 10 Accounts
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: Bangladesh Bank.Progress over time
4. Bangladesh has made steady progress on FI over time. For instance, the ratio of bank deposit accounts in the adult population, credit provided to SMEs run by women, the actual number of women entrepreneurs, and the number of active mobile money accounts have all increased strongly, while geographic and demographic access to automated teller machines (ATMs) and bank branches has widened.5
Bangladesh: Deposit Accounts
(Percent of adult population)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: Bangladesh Bank; and IMF staff calculations.Bangladesh: Deposit Accounts
(Percent of adult population)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: Bangladesh Bank; and IMF staff calculations.Bangladesh: Deposit Accounts
(Percent of adult population)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: Bangladesh Bank; and IMF staff calculations.
Bangladesh: Credit to Women Entrepreneurs
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: Bangladesh authorities; and IMF staff calculations.Bangladesh: Credit to Women Entrepreneurs
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: Bangladesh authorities; and IMF staff calculations.Bangladesh: Credit to Women Entrepreneurs
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: Bangladesh authorities; and IMF staff calculations.
Bangladesh: Number of Active Mobile Money Accounts 1/
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: IMF, Financial Access Survery database.1/ Active mobile money account refers to a mobile account that has been used to conduct a money transaction over the past 90 days.Bangladesh: Number of Active Mobile Money Accounts 1/
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: IMF, Financial Access Survery database.1/ Active mobile money account refers to a mobile account that has been used to conduct a money transaction over the past 90 days.Bangladesh: Number of Active Mobile Money Accounts 1/
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: IMF, Financial Access Survery database.1/ Active mobile money account refers to a mobile account that has been used to conduct a money transaction over the past 90 days.
Bangladesh: Number of Commercial Bank Branches and ATMs
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: IMF, Financial Access Survey Database.Bangladesh: Number of Commercial Bank Branches and ATMs
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: IMF, Financial Access Survey Database.Bangladesh: Number of Commercial Bank Branches and ATMs
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: IMF, Financial Access Survey Database.Cross-country analysis
5. Bangladesh compares favorably with other low income countries in a broad range of FI indicators.6 It performs well for the two important indicators–accounts held at and access to credit from a financial institution–across all four sections of selected population groups (rural, youth, female and poor).
Additionally, Bangladesh does very well in two other important measures of FI: the number of bank branches and the number of ATMs, if measured in terms of area (per 1,000 sq km). However, with Bangladesh’s high population density, these indicators are pulled down when measured per 100,000 adults.
Account at a Financial Institution
(In percent of population, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: World Bank, Findex database.Account at a Financial Institution
(In percent of population, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: World Bank, Findex database.Account at a Financial Institution
(In percent of population, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: World Bank, Findex database.
Borrowed from a Financial Institution
(In percent of population, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: World Bank, Findex database.Borrowed from a Financial Institution
(In percent of population, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: World Bank, Findex database.Borrowed from a Financial Institution
(In percent of population, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: World Bank, Findex database.
Commercial Bank Branches and ATMs
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: Bangladesh Bank; and IMF, Financial Access Survey database.Commercial Bank Branches and ATMs
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: Bangladesh Bank; and IMF, Financial Access Survey database.Commercial Bank Branches and ATMs
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: Bangladesh Bank; and IMF, Financial Access Survey database.6. Performance in other measures of access to formal finance is not as good. In particular, the data indicates that usage of debit and credit card usage is still low, as is the practice of saving at a financial institution.
7. Resort to informal finance is high in Bangladesh. The use of informal finance is lower, as a percent of the adult population, than for the median LIDC, but it is still high when compared to EMs, and is particularly high in the case of store-based credit.
Access to Formal Finance
(In percent of population, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: World Bank, Findex database.Access to Formal Finance
(In percent of population, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: World Bank, Findex database.Access to Formal Finance
(In percent of population, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: World Bank, Findex database.
Access to Informal Finance
(In percent of adult population, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: World Bank, Findex database.Access to Informal Finance
(In percent of adult population, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: World Bank, Findex database.Access to Informal Finance
(In percent of adult population, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Source: World Bank, Findex database.8. The use of mobile banking is also very high. Mobile financial services were introduced in 2011, and though still at early stages of development, they have grown very rapidly.7 Between 2012 and 2015, the number of active mobile money accounts increased from 0.5 million to over 4 million (IMF, Financial Access Survey database), while the number of agents providing mobile banking services grew from around 51,000 (2012) to close to 540,000 (authorities’ data). Mobile financial services are mostly used to receive domestic remittances (cash transactions) but do not involve a formal account at a financial institution. Thus, these services are being used mostly through informal financial channels.
Mobile Banking
(In percent of recipients, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: World Bank, Findex database; and IMF, World Economic Outlook database.Mobile Banking
(In percent of recipients, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: World Bank, Findex database; and IMF, World Economic Outlook database.Mobile Banking
(In percent of recipients, aged 15 and above)
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: World Bank, Findex database; and IMF, World Economic Outlook database.9. The results of the cross-country analysis are robust to different types of aggregation. For instance, if country observations are weighted by population, Bangladesh scores better than emerging markets in providing formal credit to the rural, female, and, especially, the poor segments of the population.
FI Indicators Weighted by Population
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: World Bank, Findex database; and IMF, World Economic Outlook database.FI Indicators Weighted by Population
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: World Bank, Findex database; and IMF, World Economic Outlook database.FI Indicators Weighted by Population
Citation: IMF Staff Country Reports 2016, 028; 10.5089/9781498353748.002.A003
Sources: World Bank, Findex database; and IMF, World Economic Outlook database.Implications
10. Policies should continue to focus on further promoting the use of formal finance. Although access to informal finance (credit from friends, family, or a store) is easier, it typically can be more expensive and less reliable than formal channels. In addition, the use of formal finance helps build credit history and inculcates a relationship between debtor and creditor for repeated use of credit. The growing use of the no frill accounts is helpful in this respect. Strengthening financial literacy programs and conducting surveys to understand the needs of minority groups and their constraints and costs when using formal channels would also help.
References
Bangladesh Bank, 2015, “Annual Report (2013–14)”
Bangladesh Bank, 2015, “Special Publication–Financial Inclusion”
Bangladesh Microcredit Regulatory Authority, 2015, “An Overview of Microcredit in Bangladesh”
Karpowicz, Izacela, 2014, “Financial Inclusion, Growth and Inequality: A Model Application to Colombia”, IMF.
Sahay, R, M. Cihak, P. N’Diaye, A. Barajas, D. A. Pena, R. Bi, Y. Gao, A. Kyobe, L. Nguyen, C. Saborowski, K. Svirydzenka, and R. Yousefi, 2015, “Rethinking Financial Deepening: Stability and Growth in Emerging Markets”, IMF.
Prepared by Jayendu De (APD) and Md. Abul Quasem (Resident Representative Office).
See Karpowicz (2014) and IMF (2015)
A total of 24 key categories endorsed by G20 leaders measure the three dimensions of financial inclusion. More information on this is available on http://www.gpfi.org/featured/g20-basic-set-financial-inclusion-indicators
The agricultural and credit refinancing facility is facilitated by BRAC Bank, one of the country’s leading microfinance institutions. Bangladesh Bank and Bangladesh Krishi Bank are executing the “Ghore Fera Kormo Suchi” (Come Back Home) project which aims at rehabilitating slum dwellers to the rural areas from cities and towns.
Active mobile money account refers to a mobile account that has been used to conduct a money transaction over the past 90 days.
This analysis compares the median and weighted averages (weighted by population) of two comparator groups (i) low-income developing countries (LIDCs); and (ii) emerging markets (EMs) against Bangladesh for various FI indicators. Country definitions are based on the IMF’s World Economic Outlook.
bKash (a subsidiary of BRAC Bank) and Dutch Bangla Mobile are the more popular mobile banking services currently in use in Bangladesh.
