Global slowdown looming, financial inclusion way out: Ex-chief of Bangla central bank

After the one in 2008,yet another global financial crisis (GFC) is “knocking at the door”, according to Dr Atiur Rahman, former Governor of Bangladesh’s central bank, Bangladesh Bank (BB). “The way out is extensive financial inclusion to build up aggregate demand from below” he said while speaking at a special lecture at the Indian Statistical Institute, Kolkata on August 14, 2019.

Presenting a paper on “Leadership development & financial inclusion: The Bangladesh experience”, Dr Rahman, currently Honorary Professor, Dhaka University, and formerly Governor of Bangladesh Bank from May, 2009 to March, 2016, spoke on how under his leadership the central bank played an innovative and pro-active role to fight the global crisis and helped Bangladesh to emerge as one of the fastest growing economies in the world today.

“While others ‘helicoptered’ money to large corporations, Bangladesh Bank (BB) took money on ‘bullock carts’ to ensure finance for the farmers, SMEs, women and others who used to be excluded. BB’s ‘quantitative easing’ resulted in macroeconomic stability,” Dr Rahman told the gathering of economists, statisticians and students.

“There is good finance, bad finance and ugly finance”, Dr Rahman said quoting from a recent speech by the World Bank Vice President Ceyla Pazarbasioglu who had emphasized the role of financial inclusion to eradicate poverty and the need to serve citizens, SMEs, and “not just the banker or the wealthy, or the chosen few”.

A leader of a financial services institution must be compassionate and do “good” business and provide “good” finance by ensuring that money flows into the hands of those who need it most. “Tela mathay tel diye labh nei”, Dr Rahman said in Bengali which translated means “no point oiling an already oily head”. “The financial system or market alone is not enough. Markets may have hidden hands but they do not have a soul or conscience”, the former central bank governor said. “So I decided to nudge Bangladesh Bank to go beyond short-termism and ensure funding to the real economy – the productive sectors – rather than bubbles. This is also needed to serve the goals of sustainable development such as prosperity for all, poverty for none and conservation of Nature”, he said.

“Under my leadership BB came out of the conventional narrow path that most central banks across the world follow. We introduced policies that ensured environmentally sustainable, socially responsible and inclusive banking,” he said. Giving examples of such policies, he said regulations were introduced that required a bank to open at least one rural branch for every new urban branch thereby giving priority to both financial inclusion as well as priority to the agriculture sector to ensure funding to both farm as well as non-farm activity. Another regulation required all banks to ensure that at least 5 percent of their total lending goes to the agriculture sector, both farm and non-farm included. The result was an astounding 130 percent growth in agro-credit between 2009 and 2016. Another innovation was to allow individuals to open bank accounts with just 10 Bangladesh Taka (about 1.1 cent in American dollars). This led to 18 million new accounts.

Similarly, a regulation that required each bank branch to finance at least one woman entrepreneur has now led to emergence of more than 10,000 women entrepreneurs in just seven years of Dr Rahman’s tenure as the central bank Governor. Regulations ensuring finance to SMEs including women SMEs as alternative income generating activities led to $93.5 billion funding going to 4.5 million SMEs between 2009 and 2016. The emphasis on digitization in the banking and financial sector during his tenure enhanced financial inclusion to unprecedented levels with the emergence of 64 million users of mobile financial services and 18 million agent banking accounts.

Other regulations or policies to promote green financing, for example, making Corporate Social Responsibility (CSR) activities mandatory for banks with minimum spending of 10 percent of the bank’s previous year’s net income on CSR, $24 million refinance scheme for small green enterprises, $48 million refinance scheme funded by ADB for green bricks and a $200 million green transformation fund, were some of the major initiatives in the area of sustainable finance.

Some of the other innovations included linking micro finance institutions (MFIs) to banks which has now made local banks the third largest external source of funds for MFIs and creating a $24 million refinance scheme for no-frill accounts. A school banking scheme has helped create 1.5 million new accounts with deposits of $170 million. A scheme for street children opening accounts with just 10 Bangladesh Taka has attracted $41,000 deposits in 4,684 accounts.

“All of these measures helped to boost aggregate demand through ensuring fund flow to the bottom of the pyramid and helped us to fight the global financial crisis. Today, together with other innovative economic policies, Bangladesh has undergone a complete economic transformation and with economic growth at over 8 percent a year, the country is one of the fastest growing in the world,” Dr Rahman concluded.

No wonder that among Dr Rahman’s many awards and achievements there is a certificate of world record from the Hong Kong based World Record Association as the central bank governor undertaking the highest number of pro-poor and financial inclusive programmes.

———————- Arjun Sen

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