Experts at a seminar on Friday called for strengthening of "priority lending" in South Asia through the development of alternative mechanism and improvement in credit risk assessment infrastructure.
Priority financing should increasingly be directed towards promoting inclusive growth in the SAARC region by improving infrastructure and financial services and by supporting the expansion of smaller enterprises, they said.
Their observations came at a regional seminar on "The Strategies of Lending for Priority Finance in the SAARC Region" held at a city hotel.
Governor of Royal Monetary Authority of Bhutan Dasho Penjore attended the seminar as the chief guest while Bangladesh Bank governor Fazle Kabir was present as the special guest.
"Given the importance that the SAARC governments play on financial inclusion, state directed priority sector lending will continue to play a large role in SAARC's future development agenda," said economist Mustafa K Mujeri.
"Many regulators' current reliance on universal loan quotas or interest rate subsidies runs the risk of weakening the system-wide asset quality," Mr Mujeri said delivering the keynote address.
"This is particularly true when lenders, lacking the specialised experience in priority sectors, face a lending mandate," he added.
"As a result, these lending requirements may discourage the market entry of new banks, particularly the foreign ones," said Mr Mujeir, a former chief economist of Bangladesh Bank.
In this context, he called for strengthening of priority lending along with the development of alternative mechanisms such as Priority Sector Lending Certificates (PSLC).
Referring to India, he said it is contemplating replacing strict quotas with the PSLCs in a system where qualified lenders, including micro finance institutions, would lend to priority sectors, earn a PSLC and then sell the certificate to another banking institution seeking to fulfill a priority sector lending quota.
The loans would remain on the books of the originating institution. Banks seeking to meet their quotas via PSLCs would not assume any risk but instead would subsidise lending by other institutions specialised in priority sectors, he explained.
Speaking on the occasion, Fazle Kabir called for promoting productive economic activities and creating decent job without affecting the environment.
"In Bangladesh, We have already introduced priority lending schemes for underserved sectors such as agriculture, agro-based industries, small and medium industries, women entrepreneurs, green banking and export-oriented industries,", the BB governor said.
Speaking on the occasion, Mr Penjore noted that Bangladesh is the second-largest export destination for Bhutan after India.
"In Bhutan, although the poverty level has come down substantially to 8.2 per cent, inequality remains a problem," he said.
"And one of the main reasons for this growing inequality is that we have a very poor tax regime," he added.
Bangladesh Bank deputy governor S M Moniruzzaman also spoke on the occasion.
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