INNOVATIONS IN MONETARY POLICY:

THE BANGLADESH EXPERIENCE

Dr. Atiur Rahman

Bangabandhu Chair Professor, Dhaka University
Former Governor, Bangladesh Bank

Special Lecture for Daffodil Business School, Dhaka

on Tuesday, 28 April 2020.
THE SHIFT IN PARADIGM

Financial inclusion is now being highlighted as a key aspect of financial sector

development and in turn development of the economy as a whole (Claessens, S. and Feijen,
E. (2007) From credit to crops. Finance and Development 44(1): 35–37.) .
SUSTAINABLE DEVELOPMENT CONCERNS
&
THE NEW ROLE OF FINANCIAL SECTOR
FIs
FIs Co
Co Cal
Cal

NEW PARAMETERS

NEW DEMANDS
CONVENTIONAL ROLE

pro nce l
vid pt for
ea of lar
ran sus ge-
tai sca
ge
na le
of
ble mo
ser bili
vic de
zati
e vel
on
to op
&
ho me
ma
us nt ins
has tre
eh
ref am
old
ra ing
s,
ent
me of
rep d en
ren the vir
eur con on
s, ve me
& nti nta
pu on l&
bli al soc
c rel ial
ati co
aut
ons nc
ho
hip ern
riti s
es s
NUDGING FINANCE BEYOND SHORT-
TERMISM TO SERVE GOALS OF
SUSTAINABLE DEVELOPMENT
• In developing countries financing is
generally- Conserving
Nature

• Short-term in nature
• With large presence of state- Financing
owned banks real
• And supervisory challenges economy
Poverty for
None

• Financial system or market alone is

not enough. Prosperity for
all

• “Markets have hands but not soul or

conscience”
Post-Paris Climate Agreement & UN mandate for
financing SDGs requires financing real economy
DEVELOPMENTAL ROLE OF BANGLADESH
BANK
EVOLUTION OF MONETARY POLICY
FRAMEWORK
2009 2010
Financial Inclusion to
Stakeholder
support real
consultation
economy before MPS

2000s 2006
Market-based interest
MPSand
introduced
exchange to
rates
anchor expectations

1970s –’80s 1990s

Direct control of rates Gradual
& credit liberalization
flow of interest rates
MONETARY POLICY MANDATE

Core Objectives:
Price stability while supporting output and employment.
Institutionalization of a new emphasis on the quality of monetary policy
implementation: Monetary and financial sector policies prioritized inclusive,
environmentally sustainable growth, thereby fostering medium- to long-term
macro-financial stability and widening economic base.

We focused on experimentation and implementation, while being mindful of what

monetary policy can and cannot do.
LINKING FINANCE WITH THE
SUSTAINABILITY AGENDA

COMBIN Short-term business fluctuation management with

E long-term sustainability agenda

INGRAI Socially & environmentally responsible financial

N ethos reflecting local context & global challenges

The bottom of the pyramid through financing

ENABLE sustainable entrepreneurial innovations
MPS: GOING BEYOND JUST SETTING
TARGETS
UPGRADING INFRASTRUCTURE

RAISING AWARENESS
Digital Infrastructure
- Online info. & reporting - Guidance circulars PRUDENT POLICY SUPPORT
- RTGS, BACH, NPS, EFT - Financial literacy
- Stakeholder consultation - CAMEL rating
- Electronic Bond Market - Differential equity margin
- MFS requirement
- Market development agenda
HUGGING THE BOTTOM OF THE PYRAMID:
INITIATIVES TAKEN
FINANCING REAL ECONOMY:
REACHING THE BOTTOM OF THE PYRAMID

Almost 18 million 10 Agro-credit increased by 433 million $ credit to

taka (0.12 $) bank 130% in ten years (over over 1.6 million
account for marginal 2.6 billion $ disbursed in sharecroppers who were
people FY 2017-18) previously unbanked
FINANCE FOR ALTERNATIVE IGAS:
PROMOTING SMES

4.5 million SMEs

Separate SME Dept. 0.6 million new
received 93. 5 billion
& Prudent SME SMEs received 12.5
$ in between 2010
Credit Guideline billion $
and 2017
ENSURING GENDER EQUALITY:
PROMOTING WOMEN ENTREPRENEURSHIP
0.42 million women SMEs received 3.3 billion $ between 2010 and 2017

Of the refinance scheme fund for CMSMEs, 15% is reserved for women

Each bank has ‘Women Entrepreneur Development Unit’

DIGITIZING FINANCE:
ICT FOR SERVING THE UNSERVED/UNDERSERVED

Digital solutions are

easily available Enhanced outreach
including `uberization’ of the financial Saves time and cost
of the economy. Omni service providers. of the service
present mobile Service at the door providers.
network is an added steps
advantage
DIGITIZING FINANCE: MFS & AGENT
BANKING

64 million MFS users are transacting 118 million $

per day (17 banks and their subsidiaries are
serving with the support of 0.84 million agents)

Through 5,351 agent banking outlets of 17 banks,

people in ‘hard to reach’ areas are being served
(18 million accounts opened)
GREEN FINANCE:
ENVIRONMENTALLY SUSTAINABLE PRODUCTION

Sustainable finance dept., Green

24 million $ refinance scheme for
Banking Unit, & Green Banking
environment-friendly endeavors
Guideline.

48 million $ refinance scheme for 200 million $ ‘Green Transformation

environment-friendly brick Fund’ for export oriented RMG and
production (ADB funded) Leather industries
OTHER FINANCIAL INCLUSION
INNOVATIONS
Bank-MFI linkage. Local banks are now the third largest external source of fund for MFIs.

24 million $ refinance scheme for no-frill account holders

1.5 million school banking accounts, 170 million $ deposited

No-frill accounts for street children (no. of accounts 4,684 , amount deposited 41 thousand $)
REWARDING OUTCOMES
SILENT REVOLUTION OF FINANCIAL
INCLUSION IN BANGLADESH

Increase in the number of commercial bank branches

7% per 100,000 adults since 2013 (from 8.02 to 8.58)

Increase in the number of ATM machines per

68% 100,000 adults since 2013 (from 4.81 to 8.07)

Source: Financial Access Survey (FAS) Report of 2018

SILENT REVOLUTION OF FINANCIAL
INCLUSION IN BANGLADESH

257% Increase in the number of mobile money agent outlets

per 100,000 adults since 2013 (from 186.56 to 666.76)

300% Increase in the number of active mobile money

accounts per 1,000 adults (from 44.67 to 178.15)

661% Increase in mobile money transactions per 1,000 adults

since 2013
Source: Financial Access Survey (FAS) Report of 2018
MACROECONOMIC STABILITY
Relative to the regional peers, Bangladesh maintained macroeconomic stability,
with lowest price and output volatility, weathering the post-2008 external shocks
well.

Growth Performance Price Stability

(In percent, 2000-2017) (In percent, 2000-2018)
Average Growth Volatility Average
8.2 Inflation Volatility
7.7
6.8
6.1 6.4 6.4
5.2 5.0
4.4 4.7

2.5 2.8
2.3
1.6 1.8
1.0

India Sri Lanka Pakistan Bangladesh India Sri Lanka Pakistan Bangladesh
COPING WITH THE CORONA PANDEMIC
FINANCIAL INITIATIVES TO SHIELD THE
ECONOMY
- BDT - -

CMSME
Industry & Service

Agriculture
30,00
0
Spe Refi
crore cial nan
subsi wor ce
dized kin
loan sch
(clien g em
t cap e
4.5%, ital
BB of
4.5%) faci BD
- BDT lity T
5,000 fun 5,0
crore
d
Refin 00
ance BDT
cro
sche 20,
me re
000
for at
per- cror
e. sub
ship
ment sidi
credit
- zed
(6% rat
client Loa
rate) n to e
- BDT be
5,000
pro -
crore
loans vid Clie
@ ed nt
2%
at wo
servi
ce sub uld
charg sidi pay
e (for zed
18
4%
mont rate and
hs). (cli BB
ent wo
4%, uld
BB fun
5%) d
1%
BB has also cleaved CRR by 150 basis points to 4%, slashed policy or repurchase agreement rate by
75 basis points to 5.25%, and has increased the loan-deposit ratio.
UTILIZING THE MFIS: A SMART MOVE

BB has initiated a BDT 3,000 crore Revolving Refinance Scheme to support low income
households, farmers, and marginal/small entrepreneurs via the MFIs.

Poor, extreme poor, disadvantaged groups will be prioritized under this initiative. Special focus
on those affected by the Pandemic.

Banks will receive fund from BB at 1% interest rate, and then channel those to MFIs at 3.5%
interest rate. Debtors will be paying 9% (maximum) interest rate (with a 3 month grace period).
CHALLENGES REMAIN

Role of the financial sector pivotal to materialize the stimulus packages. But BB moves are more reactive than pro-active.

Due to poor revenue collection GoB has already exceeded the annual target of taking loans from the banking sector.

Further utilize country-wide network of MFIs who can transfer funds to at least 30 million households.

Stimulus are essentially bank-based. GoB needs to re-organize the budget to enhance spending for the poor.
WHAT IS TO BE DONE:
FOLLOWING EXAMPLES SET BY RBI
Taking the Lead
RBI started planning to shield the economy soon after the
COVID-19 hit China, back in January 2020. It has taken steps
even before the Government declared it’s full financial
package.

Injecting Money - Reduction in CRR to release Rs 137,000 across the

banking system.
- Banks will be able to borrow 3% of SLR (instead of 2%)
from RBI till June (this will release Rs 1.37 lac crore).
- As a whole, RBI steps will result in injection of Rs 374,000
crore into the Indian financial system.
Ways Forward
 Focus should be on bottom up approaches (hugging the bottom of the pyramid
through financing real economy).

 Immediate attention should be on channelling money to those belonging to the

informal economy (available digital finance infrastructure will be helpful to this
end).

 In the medium- to long-term, finance should ensure creation of employment and

bolstering domestic demand.

 Re-organize public expenditure priorities and find ways to move the economy
selectively keeping in mind the health challenges.

 Macro-economic achievements over the last decade will ensure resilience to a

significant extent.
THANK YOU …