MICROCAPITAL STORY: Bank of Bangladesh Says Only 13% of Population has Access to Banking System
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Tuesday, September 2, 2008

MICROCAPITAL STORY: Bank of Bangladesh Says Only 13% of Population has Access to Banking System

» Posted by in Category: Regulation,South Asia, East Asia and Pacific at 12:30 am

The Governor of the Bangladesh Bank, the country’s central bank, recently made stated that only 13 percent of the country utilizes banking services, comprising a total of 19 million bank accounts. The New Nation, a Bangladeshi newspaper, in an article covering the new figures, argued that a lack of savings and a focus by banks on rich clients were the main causes of the problem.

According to the article, commercial banks in Bangladesh have begun to focus only on “rich clients” and have reduced attention on rural areas, leading to a “gradual decline” in credit to those areas of the country. The article also cites “exploitation of the poor loan-seekers from a section of micro-credit providers” and a lack of incentives for “small savers” as hindrances to expanding financial services.

This information is especially relevant to the ongoing debate surrounding commercial microfinance. Those in favor of for-profit microfinance institutions (MFIs) argue that only profitable institutions will be able to attract enough investment to expand services to all of those in need of financial services. Those opposed to for-profit institutions generally argue that MFIs seeking to maximize profit will focus only on richer clients or end up exploiting the poor. Supporters of non-profit MFIs often contend that the organizations should aim to be self-sufficient without maximizing profit. To learn more about this debate, please read this previous MicroCapital story.

Bangladesh is home to the Nobel Prize winning Grameen Bank, an extremely successful self-sufficient non-profit institution, which is often held up as the model for other MFIs. Supporters of commercial institutions would argue that despite the success of the Grameen Bank and other non-profit Bangladeshi MFIs, the fact that Bangladesh’s poor are still without basic financial services points to a need for quicker expansion fueled by profitable organizations. Those opposed to for-profit organizations would contend that commercial institutions ignore the poor and that Bangladesh requires an expansion of non-profit lending in order to benefit the poor.

The Bangladesh Bank recently attributed growth in both savings and agricultural credit to “private commercial Banks” in the economic date section of its website. According to the bank, these commercial institutions helped push Bangladesh to a 62 percent increase in disbursements of agricultural credit from the previous year. While these numbers do not necessarily imply that more loans are being extended to poor farmers, it does disagree with the New Nation’s arguments that capital flow to rural areas is decreasing. Funneling money to rural Bangladesh is crucial for poverty alleviation because 80 percent of the countries poor live in these areas and 54 percent of the country is employed in the agricultural center. In fact, the World Bank is calling for an “increase [in] number of commercial bank branches in the rural areas” as part of its vision for agricultural and rural development in Bangladesh.

The Bangladesh Bank data also shows a 12.87 percent increase in savings deposit amounts from last year. The relationship of this data to improved financial access for poor citizens is more ambiguous because it is unclear whether the increased amounts come from a higher number of savers or larger individual accounts, possibly implying that banks are increasing focus on wealthier clients.

By Greg Casey

Additional Resources:

MicroCapital Story, August 1, 2008: Nobel Laureate Muhammad Yunus Speaks Out Against For-Profit Microfinance from Asia-Pacific Microcredit Summit

The New Nation: Issue of banking coverage

Bangladesh Bank: Home (quantitative data available in the monthly report section)

MIX Market: Profile for Grameen Bank

World Bank: Bangladesh: Priorities for Agriculture and Rural Development

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