One key policy concern related to sustainable finance is financial exclusion, which must be addressed at the individual and macro level.
It is recognised that access to finance can economically and socially empower individuals, in particular poor people, allowing them to better integrate themselves into the economy, to contribute to development, and to be protected against economic shocks.
Financial inclusion is key to reducing inequality. There is evidence that even a small loan, a savings account, or a micro insurance policy can make a great difference to a low-income individual or a family’s life. In addition, access to financial services is often viewed as essential factors like access to safe water, health services, and primary education -- in order to ensure participation of people in the economy.
Financial inclusion issues are clearly associated with the social and economic inclusion issues of women as well. In most instances, the progression of agriculture and micro enterprise-sectors are associated with the socio-economic advancement of the vulnerable and low-income sections of society.
It is crucial that we design more effective delivery channels and financial products to attain better outcomes in these endeavours. In this context, the use of technology and digital financial services can bring remarkable returns.
In regard to global initiatives, a number of standard-setting bodies have accepted that the issues relating to financial inclusion need to be incorporated in the international regulatory framework. And, the creation of the Alliance for Financial Inclusion (AFI) as a global platform for sharing financial inclusion insights is a clear sign of this new vision.
These initiatives have offered common grounds for international cooperation on the issue of financial inclusion. On the way to attain the goals allied with inclusive finance, policymakers of several developed and developing countries have undertaken different actions by introducing different innovative financing products and pioneered many smart approaches.
A technology driven-approach is much more effective in bringing the un-banked poor under the coverage of financial services
These approaches, policy support, and products vary from country to country -- and their outcomes also vary significantly. In the context of developing countries, sustainable financing models and actions commonly satisfy certain generic criteria such as: Wider outreach or coverage, addressing the needs of the vulnerable sections of society, energy sustainability, cost effectiveness, and financial viability. Recently, technology-based platforms have taken the spotlight by offering tremendous benefits in terms of smooth and quick transaction and processing, efficient use of renewable resources, gender neutrality, youth friendliness, higher coverage, and lower cost.
Around the world
In the area of mobile banking, South Africa is among the pioneering countries to have introduced innovative financial inclusion models by using mobile technology; and Mzansi and Wizzit are their two representative products. They aimed at reducing high financial service cost by introducing “no-frill” bank accounts. M-PESA and M-KESHO are cited as two successful financial inclusion products to come from Kenya that use mobile phone technology to enable financial transactions.
Kenya has successfully used the technology platform that has the lowest cost, but the highest coverage. A successful example of a mobile operator driven model can be found in Philippines named G-cash. Various financial services like mobile wallets, non-bank accounts, cash transfers, etc, are offered.
In India, developments in mobile banking and the overall banking system are noticeable. The Indian central bank -- RBI -- was the main driver behind these initiatives.
In China, Uniopay introduced card services in rural areas as a part of the Chinese drive to promote inclusive finance.
Brazil, Mexico, Columbia, and Peru have experimented Agent banking models in the form of banking correspondents to address the challenges of financial exclusion. They used post offices and lottery points as a delivery mechanism and operated on the concept of “branch-less banking.”
These models helped to double the number of active bank account holders in several countries of Latin America.
Today, it has become evident that a technology-driven approach is much more effective in bringing the un-banked poor under the coverage of financial services.
There is no doubt that an extensive drive is required to achieve financial inclusion in a developing country like Bangladesh -- where a big section of the population remains excluded because their needs are are not being adequately addressed; a big chunk of small and micro enterprises also do not get access to the formal banking sector. But our rural economy demands greater attention from the financial sector for its socio-economic development.
To achieve greater efficiency in this sector, the Bangladesh Bank has introduced a paradigm shift with multiple approaches of inclusive financing, green banking, women empowerment financing, corporate social responsibility, poverty alleviation, and consumer protection measures to attain sustainable finance in the country through the banking industry. In regards to promoting digital financial services, policy makers are responding to the market requirements.
Challenges and solutions
The use of mobile banking is reasonably high, but availability of internet facility along with required devices at an affordable cost, supply of uninterrupted electricity, are our primary challenges. Managing operational risk including fraud risk is another critical barrier.
Improving services, arrangement for external evaluation, compensation for fraud, and reduction of costs could contribute to the expansion of technology-based banking sector. Agent banking activities with the existing products may not bring expected outcome, because banks need demand based products targeting rural, low-income customers. And, digital financial services can contribute remarkably in this regard.
It is recognised that limited knowledge, awareness, and capacity of digital finance interventions and products are critical challenges. To overcome these challenges, bankers, (especially those who are engaged at the branch/field level) and the intermediaries/suppliers must be motivated and need exposure to the use, benefits, and technical aspects of inclusive products. It is likely that customers are not familiar with the products -- and it is even possible that they haven’t heard of such a product at all.
The financial industry also needs support from researchers and academics who are engaged in the process of supporting inclusive and digital banking in the country. To overcome the challenge, it is important to invest more resources in outreach, demonstrations, training and awareness, and information and knowledge sharing platforms.
BIBM initiated the two day-long gathering “Annual Banking Conference 2017” aimed at bringing together experts, academics, and researchers to exchange and share knowledge, experience, and research outputs on banking and related issues.
The second day is designed to concentrate solely on the issues related to financial incision and digital financial services. There are international speakers to present their views and eight selected papers to be presented.
BIBM gratefully recognises the support of the SHIFT project of UNCDF in organising the second day academic events. In the process of organising the event, BIBM appreciates the cooperation of other supporting organisations: Q Cash, Enroute, and ammra network; and the media partners -- Banik Barta, Channel 24, and Dhaka Tribune. The conference will end with a cultural program organised by the BIBM team and a formal dinner today.
Shah Md Ahsan Habib is Professor, Director (Training) & Coordinator, BIBM-Frankfurt School Joint Certification Program, Bangladesh Institute of Bank Management (BIBM).