Financial inclusion: Identifying policy gaps and a way forward

Ensuring accessible, affordable and reliable financial services for all is one of the prerequisites of inclusive growth. The need for a comprehensive and focused public document for this purpose, outlining the vision, concrete targets and clearly defined implementation plan, had long been agreed upon by most financial policymakers worldwide.

Many countries have developed and adopted financial inclusion strategies in the past decade, either as a standalone policy document or as an integrated part of financial sector strategy. Bangladesh joined the club in 2021 by introducing the National Financial Inclusion Strategy 2021-26.

Bangladesh made progress in the past few years in putting financial services directly into the hands of the poor and disadvantaged through the development of mobile financial service (MFS) and agent banking, empowering the people to take charge of their money and financial decisions.

Bangladesh, however, still remains behind the comparator countries in terms of financial inclusion, with almost half of our adult population still unbanked.

The Economist Intelligence Unit's Global Microscope 2020 report sheds the light on the need for special attention to financial infrastructure, governance and policy support, and consumer protection. Bangladesh ranked 44 out of the 55 countries in terms of the overall financial inclusion index.

Closing the gender gap in financial inclusion is also a major concern for Bangladesh as 65 per cent of the unbanked adults were found to be women in the Global Findex 2017 report by the World Bank.

To achieve the goal of "financial services for all" and address the challenges of financial inclusion, the national financial inclusion strategy was developed to provide a clear roadmap and milestones to achieve in the next five crucial years.

Globally, the first official commitments for greater financial inclusion were introduced in the Maya Declaration in 2011. Launched in the Global Policy Forum in Riviera Maya, Mexico, the Maya Declaration is an initiative by the Alliance for Financial Inclusion (AFI) to expand and improve financial inclusion in developing and emerging countries. A public commitment to this declaration by the government denotes political willingness and accountability to ensure inclusive development and financial services.

Consequently, throughout the past decade, countries embraced national financial inclusion policies: 38 countries formulated national financial inclusion strategies, 12 countries incorporated financial inclusion guidelines in overall financial sector strategy, and two countries formulated financial inclusion laws.

Bangladesh became a signatory to the declaration in 2012 and later in 2014 committed to developing a national financial inclusion strategy. Having a national financial inclusion policy serves the purpose of affirming the national commitment towards ensuring affordable, safe and available financial services for everyone, bringing public and private stakeholders to a consensus regarding common definition and vision for financial inclusion, measurable targets and milestones, as well as coordination and cooperation for implementation.

The demand for financial services in Bangladesh has grown in parallel with our development trajectory. As Bangladesh sets its sights on "double transition"- LDC graduation and becoming an upper-middle-income country within the next decade, the demand for financial infrastructures, different and innovative products and services, and a regulatory framework matching the pace of technological advancement will continue to grow larger with time.

National commitment and policy attention to the existing and emerging challenges is very much necessary to cater to this mounting need. Improving the financial and digital literacy of the adult population lacking primary education is a key challenge we need to address to accelerate financial inclusion.

The National Financial Inclusion Strategy (NFIS) has set 12 strategic goals and 69 targets. However, the targets need to be translated into measurable indicators for implementation and monitoring purposes. Specific and measurable targets and timelines to reach these targets also need to be determined against the baseline indicator statistics to ensure accountability and assessment of progress and achievements.

Ensuring reliable, disaggregated, and periodic data of the financial inclusion indicators is one of the major challenges obstructing accountability and adjustment of policy and regulatory frameworks.

A gap analysis of Bangladesh's current position in financial inclusion status and that of comparator countries is necessary to determine justifiable annual targets to achieve under the strategic objectives of the NFIS. Moreover, an analysis of global and East Asian best practices can help provide a clear guideline for the implementation roadmap. It will also enable cross-country learning and knowledge exchange and help us identify interventions and approaches that worked in similar country contexts.

Given the very dynamic and innovative fields of global financial services and fintech, a gap analysis of existing policy and regulatory framework and financial infrastructure development needs is also necessary to achieve the goals set in the strategy.

The relevant SDG targets on which greater financial inclusion will have a positive impact have been identified in the NFIS. To facilitate SDG progress monitoring and reporting, the 69 targets of NFIS and respective indicators can be aligned with the identified SDG targets and their indicators. This will also help foster coordination and cooperation among the relevant government agencies working on the implementation of SDGs and NFIS, and promote transparency in governing actions.

While the NFIS is a testament of political will and national commitment to greater financial inclusion, its proper implementation depends on the establishment, operationalisation, and efficiency of the three-tier coordination structure involving an NFIS National Council (The finance minister will be the chair), an NFIS Steering Committee (The governor of Bangladesh Bank will be chair), and an NFIS administrative unit (will be established as a separate department in Bangladesh Bank). The structures of these three tiers bring all relevant key government and private stakeholders. The challenge is to ensure the fast establishment of these units and ensure their effective operation. The lack of a well-defined timeline for this purpose remains a concerning issue.

The central authority to lead the national financial inclusion policy implementation has been determined in different countries. The central bank assumed the leadership role in implementing financial inclusion policies in the majority of the countries, especially in Asia and the Pacific. However, successful examples of ministries of finance taking the lead also exist in East Asian countries such as Indonesia and Thailand.

For Bangladesh's financial inclusion strategy, the Financial Institutions Division of the finance ministry will be the line ministry and Bangladesh Bank will be the key implementing agency. The precarious state of the financial sector begs immediate policy attention to strengthen the economic and financial sector governance by promoting transparency and efficiency in enforcing laws and regulations.

The global financial sector is fast-growing and dynamic in changes and innovations. Bangladesh needs to match the global pace in terms of commitment, fast actions, infrastructure and human capital development and policy adjustments, or risks leaving behind the marginalised and disadvantaged population from benefiting from growth and development.

The authors are, respectively, a project manager at the Policy Research Institute of Bangladesh and a professor at the Department of Economics, University of Dhaka.