The importance of inclusiveness for economic development has gained momentum as a result of findings about financial exclusion and its direct correlation to poverty. Microcredit as a concept and system had been an asymmetric evolution ahead of financial inclusion. Financial inclusion is often closely connected with the aggressive microcredit policies that were introduced without the appropriate regulations' oversight or consumer education policies.
The result was consumers becoming quickly over-indebted to the point of committing suicide in some countries. In India, lending institutions saw repayment rates collapse after politicians in one of India's largest states called on borrowers to stop paying back their loans, threatening the existence of the entire 4 billion a year Indian microcredit industry. This crisis has been compared to the mortgage lending crisis in the US.
In theory, 'financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable'.
Study shows a large section of working-age adults globally has no access to the formal financial services delivered by regulated financial institutions.
In Asian region alone only 30 per cent of adults have a bank account even though the formal financial sector of the region has grown in recent years. It is argued that 'as banking services are in the nature of public good, the availability of banking and payment services to the entire population without discrimination is the prime objective of financial inclusion public'.
The United Nations defines the goals of financial inclusion as follows:
l access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance;
l sound and safe institutions governed by clear regulation and industry performance standards;
l financial and institutional sustainability, to ensure continuity and certainty of investment; and
l competition to ensure choice and affordability for clients.
"The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance" observed former United Nations Secretary-General Kofi Annan. On December 29, 2003, he said, "the great challenge before us is to address the constraints that exclude people from full participation in the financial sector. Together, we can and must build inclusive financial sectors that help people improve their lives."
Inclusive financing thrusts of Bangladesh Bank are on output initiatives in agriculture supporting food security and food price stability, SME finance promoting output, employment and income generation and green finance supporting environmental sustainability to widen opportunities for the poorer population segments. Policy initiatives of ensuring adequate financing for agriculture include: (1) mandatory minimum 25 per cent agricultural lending target for all banks, (2) government interest subsidy on loans for specified higher value exotic crops and spices, (3) banks with inadequate rural branch presence can lend through local MFIs, (4) credit needs of tenant farmers supported by lending through a large reputed MFI, (5) bank accounts for farmers available at nominal deposits; 10 million accounts opened so far. For the small and medium enterprises (SMEs), which accounts for 22.5 per cent of GDP and 40 per cent of employment, financing is supported by refinance lines funded partly by development partners (IDA, ADB and JICA) and partly by Bangladesh Bank. BB disbursed Tk 3.45 billion from refinance window and 21.9 per cent of the SME credit are distributed to women entrepreneurs. For the purpose of helping SMEs, 'New Entrepreneurs Fund' and 'Jute Sector Fund' have been launched in 2014.
While financial inclusion is an important issue, it may also be interesting to assess whether such inclusion as earmarked in policies are actually reaching the common beneficiaries.
Since the 1990s, there has been serious efforts both in the government agencies and in the civil society to monitor the fund flow process and to track the outcome of public expenditure through budget tracking.
Organisations like International Budget Partnership (IBP) are undertaking global surveys in more than 100 countries to study the openness (transparency) in budget making process.
There are various tools used by different civil society groups to track public expenditure. Such tools may include performance monitoring of public services, social audit and public accountability surveys.
In India, the institutionalisation of Right to Information (RTI) has been a supporting the tool for activists and citizen groups for budget tracking and advocacy for social inclusion . In Bangladesh, citizen groups like Sushashon o Unnayanner jonnya Prochar Obhijan ( SUPRO), Action Aid, Unnayan Anneshon are also advocating for decentralisation of budget making process.
In this backdrop, the government has been championing the cause of financial inclusion in recent years, but paradoxically, it is progressively penalising those entering the formal banking channel.
In the proposed budget for fiscal 2017-18, a 60 per cent hike of excise duty on account balance between Tk 1.0 lakh and Tk 10 lakh has been prescribed -- a move that will leave savers with even negative returns from their deposits.
The additional levy on bank deposits will erode the real savings of the country's citizens. It is rather a discouraging tool to increase the government's revenue and will dampen the people's savings habit.
Meanwhile, the banking sector is badly in want of effective governance. And yet, instead of addressing the grave problem, the government is manoeuvring to extract more money for savers. In the budget speech there has not been a single mention of the steps the government is taking to deal with the problem of state owned banks, which have a capital shortfall of more than Tk 139.77 billion as of March 2017.
Since fiscal 2011-12, the government has injected a total of Tk 96.55 billion to shore up the state owned banks' capital base. In the upcoming fiscal year, Tk 20 billion has been set aside for state owned banks' recapitalisation.
The government's decision to impose both VAT and excise duty contradicts tax principles with discouraging implications for consumers and producers. The proposed taxes also have stimulated discussion on the widespread tax evasion culture in Bangladesh and arbitrary measures (exclusiveness) that the tax authority undertakes.
In the proposed Budget 10 per cent customs duty has been imposed on import of solar panel whereas the existing 10 per cent import duty from coal has been withdrawn which will be seen as a sheer exclusiveness of Bangladesh's inclusive policy stand for pollution-free environment.
Dr Muhammad Abdul Mazid, Former Secretary and Chairman, NBR
[email protected]
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