Policy makers of the most developing countries have been very active in promoting some forms of sustainable banking activities. Likewise, policy makers and banks in Bangladesh have been pursuing sustainable banking activities and development agendas. In spite of some remarkable achievements, the banking industry is in a financial environment where a big section of population is excluded from the formal mode of financing. As a result, financing requirements of large vulnerable groups are not adequately addressed; a big chunk of small and micro enterprises are not getting access to the formal sector finance; environmental risks are yet to receive due attention in bank financing; and rural economy demands greater attention of banks for its socio-economic advancement. Alongside supporting and guiding the banking sector to achieve greater soundness and efficiency, Bangladesh Bank (BB) has brought in a paradigm shift with multiple approaches of inclusive financing, agricultural and rural financing, green banking, women empowerment financing, corporate social responsibility, small enterprise financing etc., to attain certain marks through banking channel. The government has also been supportive in promoting sustainable banking and financing activities in the country. Especially, government's efforts on the way to attain SDGs are very much allied with the sustainable banking ventures. Policy and market expectations from the banking industry are particularly high in the country as the financial sector of Bangladesh is mainly bank-based; and practically banks have been playing the roles of other vital pillars of the financial system: non-bank financial institutions and market components. However, transforming the policy targets into realisation by addressing the barriers and streamlining the policy supports is a key challenge. Covid-19 brought further difficulties for the government, the regulator and the market players.
The government is in the process of implementation of the National Financial Inclusion Strategy (NFIS) that has been approved by the Cabinet in July 2019. 'Financial Inclusion Department (FID)' of BB has actively been engaged in handling policy and regulatory issues of the central bank associated with financial inclusion. No Frill Accounts (NFAs) and refinancing activities targeting vulnerable sections of the society facilitated by the FID has been expanding. Adoption of technology brought changes in the policy and regulatory approach of the BB in the areas of technology driven services like mobile banking and agent banking. 'Payment Services Department (PSD)' has been playing an important role in this regard. In addition, Know Your Customer (KYC) issues to facilitate smooth inclusive drives are handled by the Bangladesh Financial Intelligence Unit (BFIU). In January 2020, BFIU issued an electronic Know Your Customer (e-KYC) guideline to open accounts in the financial sector without filling up any paper-based documents. Based on a pilot programme at 52 locations in 33 districts involving 19 banks, a non-bank financial institution (NBFI) and a mobile financial service (MFS) provider, e-KYC accounts have been allowed ranging from BDT 20 thousand to BDT 5 lakh. As per the BB guideline, e-KYC came into force in January 2020, but the countrywide lockdown due to coronavirus impeded banks to implement e-KYC fully with some other related barriers like vendor selection for the e-KYC implementation project, lack of customers' awareness, number of smart phone users, and integrating risk division with e-KYC systems. The enforcement of guideline is expected to help opening accounts by those who are illiterate, as traditional paper-based documentation for account opening requires applicants' signatures.
Policy initiatives and responses by the banks have been contributing in financial inclusion through different avenues. Expansion of branches has been an important channel of financial inclusion. However, technology driven modes like mobile financial services (MFS) and agent banking are contributing a lot in offering access to the financial services. Technology adoption and policy support help promote mobile banking, agent banking and other digital payment and financing services. Covid-19 situation prompted policymakers of the country to give a big push to technology driven financial services, and banks of the country are also responding to the policy interventions.
Agent banking is a relatively recent initiative, and has received notable boost during last two years. As of June 2020, 28 banks were licensed for agent banking and 24 banks were already in operation. Growth of the number of accounts was remarkable, especially, increase in the number of women account holders is encouraging. Inward remittance growth received notable boost. Successful technology adoption would bring further improvements. Sustaining agent banking model might prove to be a remarkable force for reaching the rural vulnerable at reasonable cost in near future. However, shadow banking elements of the technology driven banking should be handled appropriately. Alongside policy support, this financial model must be under dedicated care and monitoring for its sustained journey.
From the policy and regulatory perspective, agricultural financing has been a part of priority interventions in the country. However, several operational difficulties of agricultural financing remain challenging. Considering the necessity and implications of agricultural and rural financing, credit operations in certain food and crop sector demand continuous policy and financial support. Cooperative models and group guarantee arrangement might work as alternative to the collateral requirements. In line with global development, it is important to work on developing price discovery mechanism for fair pricing, and introducing products like warrant receipt system and micro insurance tagged agricultural product targeting small farmers.
CMSME sectors have traditional challenges associated with collateral, documentation and financial literacy. A real clustering approach might work as an effective alternative to the collateral related challenges and for that, identification of the clusters and their levels of development is the need of the time. CMSME women enterprises need support to be bankable. Small, micro and cottage enterprises should also be under regular training and awareness programmes.
Green banking improved in recent years both in terms of green financing and in-house efforts of environmental risk management, and despite challenges, there are policy and regulatory interventions supportive to the banks and financial institutions during 2020. The role of the stainable finance department (SFD) is laudable in this context. Especially, changes in the calculation process of the total exposure of green financing would be soothing for the bankers. Regarding benefits, financial inclusion impact of the green banking is increasingly evident. However, lack of demand for bankable green projects and enforcement of environmental risk management framework for smaller enterprises remain challenging. Demand side needs more information, technical support, and training for enhancing demand for the green fund. Considering the long term economic, social and environmental benefits of the green agricultural and rural projects, there should be more policy initiatives to allocate subsidised funds to these sectors, and incentivise banks to do so. Adopting newer approach of identifying environmentally harmful banking activities of banks might be the upcoming job to pursue. To handle future Covid-19 related challenges, banking has to be environment friendly. The conversion might slow the rate of commercial profitability and growth. In the context of the Covid-19 crisis, green banking indicators need to be included at the core to estimate financial stability of the banking sector.
Finally, it is important to note that a significant change in sustainable banking might be the real force for economic recovery. Greater resource allocation for promoting sustainable banking activities at this critical time might be a true investment on the part of a bank for enhancing the required reputation and trust.
Dr Shah Md Ahsan Habib is Professor, Bangladesh Institute of Bank Management (BIBM).
