Regulations and Policy Supports for Sustainable Banking in Bangladesh
(Published in the Financial Express in November 2019)
Dr. Shah Md Ahsan Habib
The Perspective Plan of Bangladesh 2010-2021 has provided the road map for materialization of the national goals of attaining the sustainable development agenda in the Vision 2021. The approved 7th Five Year Plan has embedded most of the Sustainable Development Goals (SDGs) and targets. The development approach underlying the Seventh Five Year Plan (7th FYP) is consistent with the global agenda for higher growth in developing countries with appropriate measures for protection of the vulnerable and environment. Relevant major focus of the 7th FYP introduced in 2015 was the development of women entrepreneurship, agriculture sector, financial inclusion, renewable energy, etc. Certain government policy and strategic documents contained provisions relevant for acceleration of sustainable banking activities in the country.
Considering agriculture as one of the driving sectors of sustainable development, government of Bangladesh introduced an appropriate institutional system of providing credit to ensure the availability of agricultural credit in time. Besides, the Ministry of Agriculture has prepared an outline of an institution titled ‘Agricultural Credit Foundation’ to strengthen the agricultural credit system. Considering the need of supporting small enterprises, government formulated and adopted 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 Government’s initiatives to foster small enterprises in the country have been complimented by the positive responses of donor agencies.
In a recent initiative, the government is working to implement National Financial Inclusion Strategy (NFIS) which is clearly aligned with the goals of sustainable banking. Bangladesh is a member of Alliance for Financial Inclusion (AFI), and being an active member of this alliance signed the Maya Declaration in 2012 and committed to develop its NFIS for Bangladesh’ in 2014. The final document is expected to get nod from the government by the end of 2019.
Bangladesh Bank has brought in a paradigm shift with multiple approaches of inclusive financing, green banking, women empowerment financing, 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 of Bangladesh Bank are clearly associated with the broad definition of ‘sustainable finance’. These include Agricultural credit department, Financial Inclusion Department, SME and special Program 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’ a ‘Customer Interest Protection Centre’ (CIPC) was established in the head office and regional offices of BB in March 2012. Since the inception of the CIPC, complaints have been coming to this center everyday through telephones, mobile phones, e-mail and by post. All these destined to efficient corporate governance and expected level of transparency in banks.
The most remarkable step of BB on the way to promoting and implementing green banking is the comprehensive circular of BB on ‘Policy Guidelines for Green Banking’, issued in February 2011. BB prepared and circulated a Guideline on Environmental Risk Management (ERM) on January 30, 2011 to streamline solutions for managing the environmental risks in the financial sector. In 2017, BB has 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.
Promoting special accounts and encouraging information technology by BB for financial inclusion have been contributory. Especially, BB has been boosting innovation 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 regulations titled ‘Bangladesh Mobile Financial Services (MFS) Regulations, 2018’ in July 2018. By the time over 50 percent banks were permitted to offer MFS services through bank-agents countrywide. MFS has created an opportunity of fast and cost- effective transaction even to the remotest corner of the village as well as it has 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 a financial inclusion policy for school-going students under the name of school banking in 2010. Then policy guidelines for school banking were circulated by the BB that suggested 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 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 facilitation agricultural financing in Bangladesh, there are two state owned agricultural lending specialized banks to offer credit services to the agricultural 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 sharecropper farmers and some other agricultural products, BB has refinance schemes. In 2015, BB has given 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 programs on SME credit. BB, with the help of 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 simple terms and conditions. To ensure loan facility for the women entrepreneurs, at least 15 percent of total BB refinance fund for SME sector has been allocated for them at a reduced interest rate.
Sustainable banking efforts are part of 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 and engaging borrowers with environmental and social impacts. BB has also initiated its own CSR activities and initiatives for the rehabilitation of cyclone and other natural disaster affected people of the country time to time. In 2014, Bangladesh Bank published an indicative CRS guideline, where the sectors are mentioned as 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.