[The third of a four-part series on Sustainability in banking]
The Perspective Plan of Bangladesh 2010-2021 has provided the roadmap for materialising the national goals of attaining the sustainable development agenda in the Vision 2021. The 7th Five Year Plan (7th FYP) has embedded most of the Sustainable Development Goals (SDGs) and targets. The development approach underlying the 7th FYP is consistent with the global agenda for higher growth in developing countries. The major focus of the 7th FYP introduced in 2015 was on the development of women entrepreneurship, agriculture sector, financial inclusion, renewable energy etc. Certain government policy and strategic documents contained provisions relevant to acceleration of sustainable banking activities in the country.
Considering agriculture as one of the driving forces of sustainable development, the government of Bangladesh introduced an appropriate institutional system for ensuring availability of agricultural credit on time. Besides, the Ministry of Agriculture has prepared the outline of an institution titled 'Agricultural Credit Foundation' to strengthen agricultural credit system. Considering the need of supporting small enterprises, the government formulated and adopted the country's first separate policy for SMEs in 2005. Subsequently, the government also established the 'SME Foundation' in 2006 as an apex institution for SME sector. Very recently, SME Policy 2019 was approved by the government to foster small enterprises in the country.
In a recent initiative, the government is working to implement the National Financial Inclusion Strategy (NFIS) which is clearly aligned with the goals of sustainable banking. Bangladesh is a member of the Alliance for Financial Inclusion (AFI), and as an active member of this alliance signed the Maya Declaration in 2012 and committed to develop its NFIS in 2014. The final document is expected to get government's nod by the end of 2019.
Bangladesh Bank (BB) has brought in a paradigm shift with multiple approaches of inclusive financing, green banking, financing women entrepreneurs, corporate social responsibility, small enterprise financing, and consumer protection measures to attain certain marks through banking channel. Especially, involvement of BB to support the goals related to inclusive growth and poverty reduction of the government can clearly be linked with sustainable banking activities of the country.
Though Bangladesh Bank has a specific department 'Sustainable Finance' to take care of the key relevant areas of sustainable finance -- Green Banking and CSR, activities of certain other departments are clearly related with 'sustainable finance'. These include Agricultural Credit Department, Financial Inclusion Department, SME and special Programme Department, Banking Regulation and Policy Department, Financial Stability Department, Department of Off-site Supervision, Financial Integrity and Customer Service Department, Payment Systems Department etc.
To ensure improved customer service, a key area of addressing sustainable finance 'Customer Interest Protection Centre' (CIPC) was established in the head office and regional offices of BB in March 2012.
One of the most remarkable steps of BB has been in the area of promoting Green Banking. 'Policy Guidelines for Green Banking', issued in February 2011 has been crucial to a host of activities in this regard. BB prepared and circulated a Guideline on Environmental Risk Management (ERM) on January 30, 2011 to streamline solutions for managing environmental risks in the financial sector. In 2017, BB redesigned ERM and named The Environment and Social Risk Management Guideline (ESRM) which covered both social and environmental risk issues in bank's investment. BB introduced Taka 2.0 billion revolving refinance scheme in 2010 to encourage banks for financing solar energy, bio-gas plant, ETP and HHK in brick field. As of now, 51 products are included under the refinancing scheme. BB segregated these products into 8 categories which are: renewable energy, energy efficiency, waste management, alternative energy, environment friendly brick kiln, recycling & recyclable product, green establishment and others.
BB has been constantly at work to bring the vast unbanked/under-banked population under the umbrella of formal financial service though bank-led mobile financial services (MFS). To make MFS service more effective, 'Guidelines for Mobile Financial Services' was issued in September 2012 which was replaced by the 'Bangladesh Mobile Financial Services (MFS) Regulations, 2018' in July 2018. By the time over 50 per cent banks were permitted to offer MFS services through bank agents countrywide. MFS has created an opportunity of fast and cost-effective transactions even to the remotest corner of the country as well as given access to modern banking services to the rural poor including the social safety net beneficiaries. Following the issuance of agent banking guidelines, BB attempted greater access to banking services. Permission of setting up banking booth is another initiative by the BB to bring unbanked and underprivileged people under the banking network.
BB directed all the scheduled banks to start financial inclusion policy for school students under the name of school banking in 2010. Then policy guidelines for school banking were circulated that advised participating banks to provide educational insurance facility to account holders. BB has been very active in supporting commercial banks in undertaking financial literacy events. Currently the central bank is working to formulate a Financial Literacy Guideline for banks and financial institutions.
In response to the BB efforts, comprehensive enforcement and wider use of e-KYC (Electronic-Know Your Customer) might bring notable improvement in the financial inclusion efforts of the banking industry. It is really inspiring that banks are now allowed to verify the national identity card of their clients through using the NID data base.
For facilitating agricultural financing in Bangladesh, there are two state-owned specialised agricultural lending banks to offer credit services to agriculture sector. Alongside this, all commercial banks operating in Bangladesh are now extending agricultural credit, directly through regulated MFls or through intermediaries in value chain. Agricultural credit at concessional interest rate is being extended by banks to farmers. Banks get interest subsidy from government through BB against these loans. To support sharecroppers and some other agricultural activities, BB has introduced refinance schemes. In 2015, BB gave a firm push to ensure private banks including foreign banks to meet agriculture financing targets. These banks have been told to deposit the undisbursed funds meant for agriculture financing with Bangladesh Bank.
Considering SME development as one of the important development agenda of the country, BB has developed comprehensive policies, strategies and programmes on SME credit. BB, with the help of the government and different development partners, is now implementing several refinance schemes for banks and financial institutions against their disbursed SME credit. With a view to mainstreaming SME credit, banks and financial institutions are advised to adopt cluster development policy. For mainstreaming women in economic activities, BB has undertaken a number of initiatives to ensure women entrepreneurs to have access to financial facilities on easy terms and conditions. To ensure loan facility for women entrepreneurs, at least 15 per cent of the total BB refinance fund for SME sector has been allocated for them at a reduced interest rate.
Sustainable banking efforts are part of the Corporate Social Responsibility (CSR) of banks. The central bank asked banks to concentrate hard on linking CSR at their highest corporate level for ingraining environmentally and socially responsible practices. BB has also initiated its own CSR activities and initiatives for rehabilitation of cyclone and other natural disasters affected people from time to time. In 2014, BB published an indicative CRS guideline, where the sectors mentioned include: education, health, disaster and relief, environment, culture, infrastructure development, income generation and others. Using CSR funds as subsidy for certain socially desirable banking activities might be encouraging for banks.
Dr. Shah Md Ahsan Habib is Professor and Director (Training), Bangladesh Institute of Bank Management (BIBM).
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