Bangladesh needs to adopt more digital financial services in supply chains covering business-to-consumer and business-to-business channels, apart from government-to-person and person-to-person transactions, with a view to accelerating financial inclusion, Rajeev Kumar Gupta, programme management specialist for inclusive finance under the United Nations Capital Development Fund (UNCDF), tells the Dhaka Tribune’s Shariful Islam in an exclusive interview
Is there any difference between microfinance and inclusive finance?
Microfinance has been successful in Bangladesh, targeting specific segments with specific products, and making tools available for access to small amounts by the poor people who require those small amounts. Bangladesh has been a leader in terms of microcredit and microfinance covers small savings and micro insurance apart from credit.
But, inclusive finance means each and every individual, household or enterprise, they all need to be included to the formal financial sector.
How financial inclusion can play role in alleviating poverty?
Inclusive finance is very important to really address individual and specifically poor livelihoods, families and households. There are different financial needs across the life cycle of businesses. If these needs are not met at the right time, in affordable and responsible manner, the income and employment enhancement aspects get lost, or there is a high risk of people falling back into the poverty trap. With the right kind of financial products for specific segments like youth, women, elderly, farmers, merchants, wage labourers. coupled with adequate infrastructure availability, finance becomes one of the important rails on which poverty alleviation can be achieved.
Is financial inclusion good for all the stakeholders?
Yes. It does. As, financial inclusion, that is very inclusive, that means irrespective of the background, income, geographical or demographical profile, everybody needs to be formally included in the financial sector, because everyone needs financing. Individuals and businesses once included will be able to leverage further financing at affordable and competitive rates, this does not mean only credit, but also includes savings, insurance, payments and supporting services like literacy. The need at stakeholder level for these services differs in the level of financing or the type of financial products required.
Is the present growth or status of financial inclusion in Bangladesh in line with the Sustainable Development Goals?
Bangladesh has been progressing well in this place, not only in financial sector but also in overall economic growth. But one has to also see that Bangladesh is not a homogenous group. So, one has to take care of those differential aspects to see that inequality gap is minimized.
Bangladesh Bank data shows financial inclusion in rural area is far behind that of urban areas. What measures could be taken to reduce the discrimination?
Yes, financial inclusions in urban areas tend to be higher than in rural areas. There are different factors behind this. One is the densification factor, infrastructure factor, awareness factor and cost factor that drives greater access to financial services in urban areas compared to in rural areas. But with the kind of digitalization of the whole financial services happening now, leapfrogging can happen. Beyond payments taking place through mobiles, we need to expand credit, savings and insurance services too. With prices of smartphones and digital technologies existing for small and micro businesses, coupled with financial literacy and business development services, the rural population will see more accelerated financial inclusion taking place.
Can you talk about the importance of digital financial services?
Bangladesh has been doing well in digital financial services space, with mobile financial services leading in this space. This is the age of digital. The next generation will operate within a digital ecosystem. Of course there is always scope to improve or accelerate things. Digital financial services is a one sided agent banking model that needs further expansion and are being taken up by a lot of banks in Bangladesh. The digital rails need to be further built and much more user cases needs to be implemented to go beyond just person to person payment space. So, the country needs to have more of interventions and services in the supply-chain like business to consumer space, business to business space, and government to person space. And as more sectors and people are able to digitize their operations and digitalize the system, the more inclusion will happen.
In Bangladesh, there is a rising challenge to digital financial services called, “Digital Hundi”. So, how could the country address the challenge?
With increased digital technologies and digitalization, the eco-system also requires increased customer protection, increased cyber security and increased monitoring of transactions and providers. Regtech needs to be widely implemented at Bangladesh Bank , mobile and at digital financial services provider levels, so that monitoring and information sharing can be done on a frequent basis. Investments in improving and installing digital monitoring applications and sharing of data needs to be undertaken.
What kind of work is UNCDF doing in Bangladesh aiming at financial inclusion?
UNCDF’s work in Bangladesh is in the area of Financial Inclusion and Local development. Under Local development we have been working on decentralized and municipal financing mechanism, promoting alternate and climate resilient livelihoods and promoting guarantee funds for women enterprises.
Specific to our financial inclusion practice area – We are working on one side to see how the enabling environment can be created and supported in terms of improved policies and regulations, that can drive digital financial services. On the other side, we are looking at digital innovations in the market that can accelerate financial inclusion for micro-merchants, women enterprises and supply chains.
UNCDF is undertaking this work under financial inclusion through the support from the Bill and Melinda Gates Foundation and the European Union. We work closely with our partners in designing and implementing our activities: a2i, BIBM, INM, Dnet, FBCCI and BDMS.