research monograph 008 - bangladesh institute of bank...

RESEARCH MONOGRAPH 008

Millennium Development Goal and Financial Sector Development

Dr. Bandana Saha Supernumerary Professor, BIBM Dr. Shah Md. Ahsan Habib

Professor and Director (Training), BIBM Mahmood-ur-Rahman Assistant Professor, BIBM

Antara Zareen Lecturer, BIBM

BANGLADESH INSTITUTE OF BANK MANAGEMENT Mirpur, Dhaka


Dr. Bandana Saha Dr. Shah Md. Ahsan Habib Mahmud-ur-Rahman Antara Zareen Published: April, 2014 Published by Bangladesh Institute of Bank Management (BIBM) Plot No. 4, Main Road No. 1 (South), Section No. 2 Mirpur, Dhaka-1216, Bangladesh PABX : 9003031-5, 9003051-2 Fax : 88-02-9006756 E-mail : [email protected]

[email protected] Web : www.bibm.org.bd

Printed by Nahida Art Press, 64/F, R.K. Mission Road, Dhaka, Bangladesh.

The views in this publication are those of authors only and do not necessarily reflect the views of the institution where they work.

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Forewords

s part of the ongoing dissemination of BIBM research outputs, the present research monograph contains the findings of the research project: “Millennium Development Goal and Financial Sector Development”. Now

efficient financial services and financial development could be among the significant policy options to achieve the MDGs. This publication examines the linkages between the financial sector development and MDG targets as well as the implications of the financial and banking development for the MDGs in Bangladesh. It gives me great pleasure, on behalf of BIBM, to offer this important resource to the practitioners of the financial institutions, as well as to the academics and common readers. I hope this monograph will be a useful reference point for financial institutions involved in providing financial services in Bangladesh. We do encourage feedback from our esteemed readers on this issue which certainly would help us to improve upon our research activities in the years to come. Dr. Toufic Ahmad Choudhury Director General

A

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Acknowledgements

his research project has been completed with great support from many persons and organizations.

We would like to specially thank Dr. Toufic Ahmad Choudhury, honorable Director General, BIBM for his valuable advice, comments and innovative ideas to improve our work throughout the year.

For the precious help of Dr. Prashanta Kumar Banerjee, Professor and Director (Research, Development & Consultancy), BIBM, we really want to give cordial thanks to him. We really want to thank Mr. Abed Ali, faculty member, BIBM, for his cordial support in every step. We are also very grateful to all of our faculty colleagues for their valuable observations and constructive suggestions which helped us in completing the report. Bangladesh Bank, different financial institutions, and many other organizations extended their support for completing the report. We do highly recognize their contribution in fulfilling our objectives.

We are also thankful to Ms. Papon Tabassum, Research Officer & Publication-cum-Public Relation Officer (in-charge); Mr. Md. Morshadur Rahman, Proof Reader; Inner make-up by Mr. Md. Awalad Hossain and cover design by Mr. Md. Nasir Uddin, BIBM for their support.

Finally, we would like to extend our gratitude to those who, directly and indirectly, extended their cooperation in our endeavor. Dr. Bandana Saha Dr. Shah Md. Ahsan Habib Mahmud-ur-Rahman Antara Zareen

T

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RESEARCH MONOGRAPH 008

Millennium Development Goal and Financial

Sector Development

Contents

Abbreviations Executive Summary

ix x

1 Introduction 1 2 Linking Financial Sector Development and MDGs-

Literature Review 4

3 Methodology and Choosing Right Variables 9 4 Relevance and Implications of Financial/Banking

Activities for MDGs: Bangladesh Perspective 11

5 Concluding Remarks 31 References 32 Appendix Table 36

Tables

Table-1 Agricultural Advances by Banks 15 Table-2 Share of SME Loan to Total Loan in the Banking Sector 18

Figures

Figure-1 Linking Credit and Deposit Operation with MDG Targets 13

Figure-2 Linking Agricultural and Rural Financial Services with MDG Targets

14

Figure-3 Linking Micro and Small Credit and MDG Targets 17 Figure-4 Linking Financial Services to Women and MDG Targets 19 Figure-5 Linking Financial Services to Women and MDG Targets 21 Figure-6 Linking Remittance Services and MDG Targets 23 Figure-7 Linking Online Banking and MDG Targets 25 Figure-8 Linking CSR/ Green Banking and MDG Targets 28

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Boxes

Box-1 Trends in Agricultural Advances and Employment in the Agricultural Sector

16

Box-2 Correlating Trade and Poverty/ Employment 21 Box-3 Correlating Worker Remittances and MDG Indicators 23 Box-4 ICT Based Banking Services by Banks 25 Box-5 Progress Made in Green Banking in Bangladesh 29 Box-6 Selected Efficiency Indicators of Banks 30 Box-7 Expenditure/ Income Ratio of Banking Sector 30

Appendices

Appendix -1 Broad Themes, Goals and Major Targets 36 Appendix -2 Millennium Development Goals: Bangladesh at a glance 37 Appendix -3 Bangladesh Bank’s Initiatives related to MDGs 41 Appendix -4 Status of Micro-Credit Disbursement and Number of

Beneficiaries by the State-Controlled Banks [Crore BDT] over 2003-2012

43

Appendix -5

5A Major Poverty Alleviation Programs of Sonali Bank Limited 43

5B- Some Notable Poverty Alleviation Programs ofAgrani Bank

5C: Major Poverty Alleviation Programs of Janata Bank Limited

5D: Poverty Alleviation Programs of Bangladesh Krishi Bank (BKB)

5E:Poverty Alleviation Programs of Rajshahi Krishi Unnayan Bank

Appendix -6 Loan Outstanding for Poverty Alleviation Programs by Banks 47 Appendix -7 Correlating Money Supply and MDG Indicators 48 Appendix -8 Correlating Private Credit and MDG Indicators 49 Appendix -9 Correlating Deposits and MDG Indicators 50

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Abbreviations

ADB Asian Development Bank AIDS Acquired Immune Deficiency Syndrome ATM Automated Teller Machine BB Bangladesh Bank BMET Bureau of Manpower, Employment and Training BRAC Bangladesh Rural Advancement Committee BRPD Banking Regulation and Policy Department CIB Credit Information Bureau CIPC Customers' Interests Protection Centre’ CDF Credit and Development Forum CPD Center for Policy Dialogue CSR Corporate Social Responsibility DD Demand Draft DFID The Department for International Development ERM Environment Risk Management ETP Effluent Treatment Plant GDP Gross Domestic Product HIV Human Immune Deficiency Virus Infection ICT Information and Communications Technology IFAD International Fund for Agricultural Development IMF International Monetary Fund MDG Millennium Development Goal MFI Micro Finance Institute MMR Maternal Mortality Rate MOF Ministry of Finance NBFI Non-Banking Financial Institute NGO Non-Government Organization NORAD North American Aerospace Defense Command OECD Organization for Economic Co-operation and Development ODA Official Development Assistance SME Small and Medium Enterprise UN United Nation

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Executive Summary

The role of financial development and financial services in attaining the Millennium Development Goals (MDGs) is well recognized. The linkages between the financial sector development and MDG targets may not be direct; however, there are evidences according to which financial development indirectly help to achieve the MDGs by stimulating growth. Research activities have also shown that financial development directly reduces poverty without increasing income inequality. It has been argued that finance facilitates transactions and reduces vulnerability to shocks, creates equal opportunities for everybody, and leads to economic growth. And financial services and development can be linked with the broad thematic areas of the MDGs that include poverty, education, gender equality, health, environment and global partnership. Therefore, efficient financial services and financial development could be among the significant policy options to achieve the MDGs.

The MDGs that are time-bound and quantifiable targets are basic human right as find place in the Universal Declaration of Human Rights. The MDGs are not very different from the policy goals of most of the developing countries. So attaining MDGs in a sense means attaining the domestic development objectives of low-income global economies like Bangladesh. Basically, the MDGs are the most widely supported, comprehensive, and specific poverty reduction targets the world has ever established and their importance are manifold.

Though some countries are not in the track of achieving the MDGs, many countries are on track to reach at least some of the MDGs by the appointed year, 2015. Sub-Saharan Africa, most dramatically, has been in a downward spiral of falling food output per person, deteriorating shelter conditions, and environmental degradation. Climate change could worsen the situation by increasing food insecurity, and increasing the likelihood of natural disasters. For some Goals, such as reducing maternal mortality and reversing the loss of environmental resources, most of the world is off track. The target for gender parity in primary and secondary education will be missed in many countries. However, some developing countries including Bangladesh have performed expectedly and is moving towards attaining most of the goals of MDGs. And as recognition these have already been awarded. Bangladesh received the UN award1 for its remarkable achievements in attaining the Millennium Development Goals (MDGs) particularly in reducing child mortality.

But how the financial sector is linked with the achievement of MDGs? Financial and banking services like credit and deposit activities; financing to small enterprises, women and underprivileged; trade services by banks; and Corporate Social Responsibility (CSR) 1Six countries including Bangladesh received the MDG Awards for their significant achievements towards attaining the goal. Three of these countries are from Asia and three from Africa. Other than Bangladesh, Nepal, Sierra Leone, Liberia, Rwanda and Cambodia received MDG awards in 2010.

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and green banking activities can clearly be linked with the MDG targets. Banks and financial institutions create money through their credit and deposit activities and are related to the money supply and GDP growth. These operations affect poverty, education and health. Practically, the MDG themes of poverty, education, health, and gender equality are highly related. Thus, consistent with the development approach pursued by most countries, the prime focus has been on income poverty since it plays a central role in attaining the other MDGs. In addition, credit to small and micro enterprises, agriculture and underprivileged people ensure greater access to finance that enables poor people to plan for the future and invest in land and shelter, and utilize productivity-enhancing assets. More investment and higher productivity translate into more income and better nutrition and health; and enables parents to send their children to school instead of merely to regard them as a source of labor. Moreover, access to financial services helps women in determining their own economic destiny and increases their confidence. CSR activities of banks and financial institutions have also been contributing in a country’s education, health, and environment. Green banking activities have clear linkages with the environment related targets of MDGs. Thus it appears that financial development and financial services can play a remarkable role in attaining the MDGs.

In the context of Bangladesh, all relevant indicators of MDGs show improvement; however, their performances have been uneven. According to the GOB, Bangladesh MDG Progress Report 2011 (2012), Bangladesh has achieved remarkable progress in the areas of girls’ education, immunization, female economic participation, birth control, and infant and maternal mortality rate. Available data indicate that incidence of poverty has declined significantly. Different economic sectors must have contributed in achieving the progress. The country’s financial development and banking services must also have contributed in this connection. The report has also indicated some challenges of achieving MDGs in several key areas. For example, the education sector and the issues of gender parities are facing major challenges. In spite of the progress some issues like maternal health should get additional attention to attain the target in time. There is no doubt that the support from financial and other economic sectors would contribute in handling the challenges in achieving the goals.

From the above basic, the study tries to answer some research questions. They are: How are the financial services and financial sector development of Bangladesh related to the targets of MDGs? How might financial development reduce poverty in Bangladesh? How might financial development improve education, gender equality, health, and environment? In finding answers of the research questions, the study identifies the following specific objectives for the study: one, to discuss conceptual issues related to the relationship of financial sector development and MDG goals; two, to identify the financial and banking sector activities in Bangladesh and their relevance for the MDG targets; three, to examine the implications of the financial and banking development for the MDGs in Bangladesh.

To attain these objectives, the paper basically attempts to find implications of financial development and banking sector activities of Bangladesh for MDGs of the country. It is based on secondary information. The study does not quantify the implications of financial development and financial services for the variables related to

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MDG targets. The study mainly attempts to find relationship between financial development/ activities and MDG targets that are not generally unidirectional. Though data on variables related to financial development and activities are mostly available, times series data on MDG target variables are hardly available for Bangladesh.

The available information indicates that Bangladesh has attained successes in six MDGs, but it has weaknesses in others. According to the outcome of a recently organized Expert Group Meeting2, the areas where Bangladesh achieved the targets include Goal 1- eradicating extreme poverty and hunger, Goal 2 - achieving universal primary education, Goal 3 - promoting gender equality and empowering women, Goal 4 - reducing child mortality rate and Goal 5 - combating HIV/AIDS, malaria and other diseases. Experts found that Bangladesh has some weaknesses in Goal 6 - improving maternal health, specifically maternal mortality rate, and does not have any control on Goal 7 - ensuring environmental sustainability, and Goal 8 - developing a global partnership for development. In the context of Bangladesh, some activities of banks and financial institutions are directly related to these several MDG targets.

It is obvious that financial sector development and MDGs are indirectly related. Practically, financial sector development as a macro variable affect growth of a country and that results positive outcome with regard to poverty, health, education, gender equality and environmental sustainability- the MDGs. However, the financial and banking sector activities like CSR and inclusive finance may directly affect MDG targets of a country. The paper demonstrates that the financial deepening of the country and banking sector activities of Bangladesh are contributing in attaining MDG goals. In most cases, the impact appears to be indirect, though some banking activities can directly be linked.

The financial development indicators and related MDG indicators, identified in the paper, may work as a monitoring tool for the policy maker of the country. These may help determining the influential and stimulating financial sector activities to promote MDG targets based on the financial efficiency and MDG indicators. The influential and stimulating financial activities are expected to receive due emphasis of the policy maker to achieve relevant MDG targets. No doubt, Bangladesh Bank has been working to promote banking sector in undertaking financial inclusive and other development initiatives. A number of banks are also positively responding to central bank’s call. These policy and operational activities might be tagged with MDG targets and designed accordingly with strategic planning. Individual bank may undertake research while designing their financial inclusion, green banking, poverty alleviation activities and may tag their strategic goals with that of the national development agenda like MDG goals. This would also enhance the credibility of the development agenda of banking and financial sector and may be part of their marketing strategy.

2 The observations came at the 'Southern Voice on Post-MDG-Dhaka Expert Group Meeting' organized at CPD auditorium at Dhaka in January 2013.

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1. Introduction

It is well recognized that financial development and financial services can play a large role in attaining the Millennium Development Goals (MDGs)1. Different studies2 reveal that financial development improves the financial sector in a country which facilitates efficient allocation of capital between lenders and borrowers and promoted greater growth. The linkages between the financial sector development and MDG targets may not be direct; however, there are evidences according to which financial development indirectly help to achieve the MDGs by stimulating growth. Research activities3 have also shown that financial development directly reduces poverty without increasing income inequality. It has been argued that finance facilitates transactions and reduces vulnerability to shocks, creates equal opportunities for everybody, and leads to economic growth. And financial services and development can be linked with the broad thematic areas of the MDGs that include poverty, education, gender equality, health, environment and global partnership. Therefore efficient financial services and financial development could be among the significant policy options to achieve the MDGs.

The MDGs are the most widely supported, comprehensive, and specific poverty reduction targets the world has ever established and their importance’s are manifold. The MDGs that are time-bound and quantifiable targets are basic human right as find place in the Universal Declaration of Human Rights. It is estimated4 that if the goals are achieved then more than 500 million people would be lifted out of extreme poverty and more than 300 million would no longer suffer from hunger. There would also be dramatic progress in child health and achieving the goals would mean 350 million fewer people would be without safe drinking water and 650 million fewer people would live without the benefits of basic sanitation. Hundreds of millions more women and girls would go to school, have 1MDGs are eight international development goals that all 193 United Nations member states and at least 23 international organizations have agreed to achieve by the year 2015 with the aim to encourage development by improving social and economic conditions in the world's poorest countries. They derive from earlier international development targets and were officially established following the Millennium Summit in 2000, where all world leaders present adopted the United Nations Millennium Declaration. Under six themes, eight specific goals have to be met (appendix-1). 2Levine 2004; Beck et al. 2004; Rosner 2010; Rosner 2011, etc. 3Beck et al. 2004; Rosner 2010, etc. 4http://www.unmillenniumproject.org/reports/why2.htm.

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access to economic and political opportunity, and greater security and safety. The MDGs are not very different from the policy goals of most of the developing countries. So attaining MDGs in a sense means attaining the domestic development objectives of low-income global economies like Banagldesh having per capita income of around USD 818 in 2011 with around 30 percent people live below the poverty level5.

Many countries are on track to achieve at least some of the MDGs by the appointed year, 2015. Yet some countries and broad regions are far off track. Sub-Saharan Africa, most dramatically, has been in a downward spiral of falling food output per person, deteriorating shelter conditions, and environmental degradation. Climate change could worsen the situation by increasing food insecurity, and increasing the likelihood of natural disasters. For some Goals, such as reducing maternal mortality and reversing the loss of environmental resources, most of the world is off track. The target for gender parity in primary and secondary education will be missed in many countries. However, some developing countries including Bangladesh have performed expectedly and is moving towards attaining most of the goals of MDGs. And as recognition these have already been awarded. Bangladesh received the UN award6 for its remarkable achievements in attaining the Millennium Development Goals (MDGs) particularly in reducing child mortality.

Financial and banking services like credit and deposit activities; financing to small enterprises, women and underprivileged; trade services by banks; and Corporate Social Responsibility (CSR) and green banking activities can clearly be linked with the MDG targets. Banks and financial institutions create money through their credit and deposit activities and are related to the money supply and GDP growth. These operations affect poverty, education and health. Practically, the MDG themes of poverty, education, health, and gender equality are highly related. Thus, consistent with the development approach pursued by most countries, the prime focus has been on income poverty since it plays a central role in attaining the other MDGs. In addition, credit to small and micro enterprises, agriculture and underprivileged people ensure greater access to finance that enables poor people to plan for the future and invest in land and shelter, and utilize productivity-enhancing assets. More investment and higher productivity translate into more income and better nutrition and health; and enables parents to send their children to

5Ministry of Finance 2011. 6Six countries including Bangladesh received the MDG Awards for their significant achievements towards attaining the goal. Three of these countries are from Asia and three from Africa. Other than Bangladesh, Nepal, Sierra Leone, Liberia, Rwanda and Cambodia received MDG awards in 2010.


school instead of merely to regard them as a source of labor. Moreover, access to financial services help women in determining their own economic destiny and increases their confidence. CSR activities of banks and financial institutions have also been contributing in a country’s education, health, and environment. Green banking activities have clear linkages with the environment related targets of MDGs. Thus it appears that financial development and financial services can play a remarkable role in attaining the MDGs.

In the context of Bangladesh, all relevant indicators of MDGs show improvement; however, their performances have been uneven. According to the GOB, Bangladesh MDG Progress Report 2011 (2012), Bangladesh has achieved remarkable progress in the areas of girls’ education, immunization, female economic participation, birth control, and infant and maternal mortality rate. Available data indicate that incidence of poverty has declined significantly. Different economic sectors must have contributed in achieving the progress. The country’s financial development and banking services must also have contributed in this connection. The report has also indicated some challenges of achieving MDGs in several key areas. For example, the education sector and the issues of gender parities are facing major challenges. In spite of the progress some issues like maternal health should get additional attention to attain the target in time. There is no doubt that the support from financial and other economic sectors would contribute in handling the challenges in achieving the goals.

On the above background, the study tries to find answers of the following research questions: How are the financial services and financial sector development of Bangladesh related to the targets of MDGs? How might financial development reduce poverty in Bangladesh? How might financial development improve education, gender equality, health, and environment? In finding answers of the research questions, the study identifies the following specific objectives for the study: one, to discuss conceptual issues related to the relationship of financial sector development and MDG goals; two, to identify the financial and banking sector activities in Bangladesh, and their relevance for the MDG targets; three, to examine the implications of the financial and banking development for the MDGs in Bangladesh.

On the way, to attain the objectives, the paper is organized into five sections. After a discussion on the background of the paper in introduction, conceptual issues on the relationship between financial sector development and MDGs are reviewed. Methodological issues and relevant variables that heavily depend upon literature review


are covered in Section-3. Section-4 is about the relevance of financial and banking sector activities for the MDG targets. And Section-5 concludes with concluding remarks.

2. Linking Financial Sector Development and MDGs- Literature Review

There is a growing body of robust empirical in-depth country studies and cross-country statistical evidences that financial sector development and financial services can significantly contribute to reaching the MDGs. The reviewed literature and cases in sum show that financial development and greater access to financial services lead to income growth, reduce poverty and undernourishment, and are associated with better health, education, and gender equality. It is widely accepted that growth contributes in reducing poverty. However, to understand how financial development may improve education, gender equality, and health, it is important to first consider how it may reduce poverty. Although the MDGs are formulated separately, they closely relate to each other. Higher household income, for example, enables children to go to school, and improves a household’s access to health care services. In turn, better health and education make people more financially productive, raising their incomes. Better health and education and higher income of women have a higher effect on household welfare compared to the improvements in these same indicators for men, suggesting that gender inequality affects health and education impacts on overall economic outcomes (Claessens and Feijen 2006).

There are Distinct Evidences of Linkages between Financial Development and Growth

The linkage between finance and economic development has been resurrected over the past decade by the endogenous growth theory. The cross-country literature on the relationship between financial development and economic growth is vast – and most studies show that financial development unambiguously and positively impacts on economic growth (Aghion and Bolton 1997, Levine 1997). Levine (1997) notes, financial development can lead to economic growth in the following five ways: by facilitating the trading, hedging, diversifying, and pooling of risk; by allocating resources to the most productive uses; by monitoring managers and exerting corporate; by mobilizing savings, and by facilitating the exchange of goods and services. Khan and Senhadji (2000) argue, the degree of financial development can have a positive effect on economic growth both by increasing the volume of investment and its efficiency.


Linkages of Financial Deepening and Growth is also Evident in Bangladesh

Limited studies are available linking financial development and growth of Bangladesh. Using time series data, a study by Habib et al. (2011) attempts to find the relationship between financial deepening and growth of Bangladesh. The estimated regression results of the deepening-investment relationship revealed statistically significant positive effects of savings and financial deepening on the Bangladesh’s long-term investment and growth. Cointegration analyses suggest a stable and long run relationship among growth, long-term investment, and productivity variable over 1970-1999 for Bangladesh. As expected, the error correction model came up with the results according to which the change in long-term domestic investments and change in productivity of domestic capital have positive effects on the countries’ economic growth (Habib et al. 2011). Another study by Salauddin and Liton (2009) failed to identify any long-term causal relationship between growth and financial development (as measured by the money supply and private credit). The study attempted to identify the direction of causality among international trade, financial development and economic growth using time series econometric techniques for the period 1975-2005. The study however found one-way causality between export growth to the real GDP growth of Bangladesh, and found impacts of private credit of banks to the trade growth of the country. Thus domestic credit of the banking sector is assumed to have positive impact on economic growth of Bangladesh (Salauddin and Liton 2009).

Financial Development and Growth Contribute in Attaining MDG Targets

There is no doubt that the goal of attaining economic growth is clearly connected with the MDGs. The arguments and dimensions of financial development, economic growth and MDGs are different in many studies. Financial development, broadly defined to include not just financial sector deepening but also improvements in the efficiency of the financial sector, is vital for pro-poor growth (Mavrotas 2009). Through an empirical study, Beck et al. (2004) of the World Bank have studied the relationship between financial development and poverty and inequality. The study found that more private credit (the selected indicator for financial development) in the economy is related to larger decreases in poverty and income inequality.

Rosner (2010) performs a comprehensive study considering variables related to private credit, deposit and money supply. While Beck et al. (2004) found that financial development reduces poverty in countries by increasing the availability of private credit


in the economy, Rosner (2010) showed that financial development helps the poor in other ways. Specifically, increasing the availability of money and deposit opportunities, rather than private credit, reduces poverty. As explained in Rosner (2010), financial development can reduce poverty in three ways: one, it can enable more people to access credit and may help the poor by reducing market imperfections that constrain credit; two, financial development can reduce transaction costs in the economy by increasing the amount of money in the economy; three, financial development can enable more people to deposit their savings. McKinnon’s ‘conduit effect’ (1973) states that financial development may reduce poverty by enabling people to save their income in deposit accounts and thus help accumulation of wealth to invest in profitable projects. Claessens and Erik (2006) observed that financial development and financial services can play a large role in attaining the MDGs, due to one, finance facilitates transactions and reduces vulnerability to shocks. Financial sector development that facilitates better and cheaper payments and savings services can help firms and households cope with economic shocks and reduce their vulnerability to adverse situations, thus mitigating the risk of falling into poverty. Two, Financial development helps pulling investment and productivity, which lead to higher economic growth and higher per capita income. And three, more sophisticated financial markets discriminate less and reduces inequality as it broadens opportunities (Classens and Erik 2006).

Poverty, Education, Health and Gender Equality are Interrelated

Poverty cannot be delinked from social issues like education, gender equality, health etc. There are empirical evidences that financial development improves education, gender equality, and health by increasing the availability of private credit, money, and deposits in the economy. Increasing opportunities to deposit savings is the most significant way that financial development affects the MDGs. For example, Beck et al. (2004) of the World Bank empirically showed the relationship between financial development and poverty and inequality. An empirical cross country analysis by Claessens and Feijen (2006) reveals the relationship between financial development and education, gender equality, and health. Actually, education, gender equality, and health are all interconnected. Improving one of them may also have an impact on the others. As families become healthier, children are more able to participate in school. Parents who are more educated also place a greater value on health. Healthier and more educated women are more successful in owning assets and determining their own income (World Bank 1993). As financial development helps achieve one of the MDGs, it may consequently help achieve the


others. Claessens and Feijen (2006) notes, as financial development reduces poverty, people may also be able to pay health and education expenses. Thus, it can be said that financial development may enable more people to invest in their education and health and women to gain more influence in society. The empirical study (Claessens and Feijen 2006) on the relationship between financial development and education, gender equality, and health was the cross-country analysis (both for developed and developing countries) found that the ratio of private credit to GDP is positively associated with enrollment in primary and tertiary school, persistence to stay in school, female participation in the labor force, and growth in life expectancy.

Inclusive Finance Might help Attaining MDG Targets

Sen (2010) argues that the more relevant dimension of financial development that is important for the achievement of the MDGs is inclusiveness of the financial system. Inclusive financial sector development makes two complementary contributions to poverty alleviation: financial sector development is a driver of economic growth which indirectly reduces poverty and inequality; and appropriate, affordable, financial services for poor people can improve their welfare (Emirguc-Kunt et al. 2008). Now-a-days, inclusive finance or specifically access to finance is generally perceived as a right of the poor and it has been recognized that financial inclusion efforts do have multiplier effects on the economy as a whole through higher savings pooled from the vast segment of the bottom of the pyramid population by providing access to formal savings arrangements resulting in expansion in credit and investment by banks (Khan 2012). The study adds, financial inclusion creates enabling conditions for growth when there is access to safe, easy, and timely availability of required amount of credit and other financial services at an affordable rate by the poor, disadvantaged and the unbanked groups in society is recognized as a precondition for accelerating growth and reducing poverty and income disparities. It can be said that financial exclusion forms part of a much wider social exclusion faced by some groups who lack access to housing, education or health care as well as employment (European Commission 2009).

Micro and Small Credit may Reduce Poverty and Empower Women

Micro and small credit activities of banks and financial institutions have been linked with poverty reduction strategies of low-income countries and are important tools of financial inclusion. Dunford (2006) found that microfinance (and its attendant services, such as group formation, training and social capital-building) offers opportunities to contribute to


the achievement of MDGs, primarily through its direct impact on poverty, which can support improvements in schooling, gender equity, health and even resource conservation. Comprehensive impact studies (Mahbub 1988; Dunford 2006; DFID 2004; Khandker 1998 and 2005) have demonstrated that microfinance helps very poor households meet basic needs. The use of financial services by low-income households is associated with improvements in household economic welfare and enterprise stability or growth. By supporting women’s economic participation, microfinance helps to empower women, thus promoting gender-equity and improving household well-being. Several studies have been done in diverse countries indicate positive impacts on poverty. In the context of Bangladesh, the study by Mahbub (1988) showed that within 27 months borrowers tripled their business capital on an average and their livestock increased by 26 percent per year. It observed that about one-third of the unemployed became self-employed after joining the microcredit programs. An study undertaken by Khandker (1998) on the impact of microfinance by major MFIs found that as many as 5 percent of participants were be able to lift their families out of poverty every year by availing microcredit programs. There is also evidence that MFIs can generate indirect benefits by improving living standard, education, health, and women empowerment. However, different views are also available. Stiglitz and Weiss (1981) identified and predicted a number of problems related to microcredit by MFIs and did not consider microfinance by MFIs an effective way to reduce poverty.

Use of ICT Contributes in Growth, Poverty and Financial Inclusion

Use of ICT and technological development is another area through which financial services may contribute to growth, financial inclusion and poverty. The financial system affects resource allocation either by altering the savings rate or by reallocating savings among different capital producing technologies. With respect to technological innovation, the functions performed by the financial system affect economic growth by altering the rate of technological innovation. The explanations by Levine (1997) on channels of growth hold up above statement. It identifies two channels through which each financial function may affect growth ofcapital accumulation and technological innovation (Barro and Sala-i-Martin 1995; Barro 1997). Experiences show that the scope for further market-based extension and broadening of access to financial services is still considerable in many developing countries, especially when considering the new technology that has become available.


Relationship between Financial Development and MDGs may not be Straight forward

There are also opinions that the relationship between financial development and the achievement of the MDGs is not as straightforward as the relationship between financial development and the achievement of economic growth. While there is little doubt that financial development leads to higher economic growth which may then lead to poverty reduction, it is less clear that financial development in itself will allow developing countries to achieve the eight MDGs (Sen 2010). Holden and Propenko (2001) found while financial development can lead to higher economic growth, it is not obvious that it would lead to higher poverty reduction. Some supporting factors are crucial in this connection. For example, a high level of inequality may not only reduce the poverty reducing impact of economic growth, it may itself contribute to reducing the impact of financial development on economic growth (Partridge 1997; Aghion et al. 1999; Banerjee and Duflo 2001). Rioja and Valev (2003) show that financial development promotes more growth for countries with intermediate levels of financial development than for countries with high level of financial development. They also find that a more developed financial sector does not affect economic growth for countries with low levels of financial development. Hung (2009) explains that financial development promotes growth only when information asymmetries and costs are below a threshold level. Once past this threshold, financial development affects growth at a diminishing rate. Similar to its effect on economic growth, financial development may only improve education, gender equality, and health when a country’s financial development is above a certain level. Once past this level, the impact of financial development on the MDGs may diminish. In the study by Claessens and Feijen (2006) found that financial development may only improve education, gender equality, and health for countries with more developed financial sectors. Therefore the large number of developed countries in their sample may have skewed their results. It is possible that financial development does not help achieve the MDGs in countries with financial development below some threshold level.

3. Methodology and Choosing Right Variables

The paper basically attempts to find implications of financial development and banking sector activities of Bangladesh for MDGs of the country. It is based on secondary information. Considering the diverse and multidimensional relationships and different economic environment, selection of right variables is a crucial challenge to establish the contribution of financial development and banking sector activities in attaining MDGs. Identification of right indicators for measuring financial development should also vary


from country to country. The priorities of developed and developing countries vary and also the implications of financial development. Quantitative indicators based on monetary and credit aggregates are the traditional measures of financial development and deepening. They are proxy measures of savings and credit intermediation in an economy. A number of previous studies (Clarke et al. 1995; Partridge 1997; Aghion et al.1999; Beck et al. 2004, etc.) considered solely private credit to GDP as the indicator of financial development. Rosner (2010) notes, in addition to the ratio of private credit to GDP, ratios of Money Supply to GDP and deposits to GDP are crucial financial development variables. These variables have been used to test whether the poor benefit from increased access to money and savings. However, only these traditional measures of financial deepening, those based on monetary and credit aggregates, may not enable to assess accurately a country’s financial development. For example, China has a higher ratio of broad money to GDP than Australia, and around the same level as Japan. Yet no one would consider China’s financial system to be anywhere near as well developed as either of these two. Alternative measures are required to improve the evaluation of levels of financial development (Lynch 1996).

Alongside aggregate or macro indicators related to money supply, credit and deposits, a complete set of financial development variables should also include some micro or sector specific indicators related to access to banking and financial services by the poor and underprivileged, environmental banking and financing activities, ICT based services and CSR activities of financial institutions. Access to finance or financial inclusion dampens output volatility at the industrial level due to countercyclical borrowing by financially constrained sectors (Larrain 2006). Evidence at the household level suggests that access to financial services allows for greater risk smoothing (i.e., deviations of realized income from mean income). Savings access may also facilitate asset purchases and other large expenses when credit is unavailable or too costly (Kaboski and Townsend 2005), and alleviate credit constraints in the long-run (IMF 2012). This is also directly connected with some MDGs.

In addition, financial pricing mechanisms and intermediation cost are also important to assess the development of the financial system and are related to the efficient operation of financial institutions (Lynch 1996). The net interest margin, measured as the difference between lending and deposit rates, is a commonly accepted measure of how costly banking intermediation services are for a society (Jayaratne and Strahan 1996; Rajan and Zingales 1998). Bank interest rate margins are often used to estimate the cost of


collecting savers’ deposits and transferring them to bank loan recipients (IMF 2012). Ideally, intermediation costs should take full account of interactions between bank operating costs and interest rate spreads, amongst other factors (Aghion et al. 2010).

There are issues like remittance and trade services that may not be formally recognized as indicators of financial development; however, these are crucial for the economy and relevant for both financial sector and MDGs. Manpower export and remittance is the major source of foreign exchange for a number of low-income countries like Bangladesh. The foreign remittance inflows have been playing a considerable role in the country by promoting income growth of low-income people, improving standard of living, health and education of mainly the rural economy of Bangladesh. Trade services offered by the financial institutions and banks have notable implications for exports and imports and thus for the growth. The remittance and trade services are related to the MDGs in the context of poverty and global partnership development.

Based on the above discussion the study identifies the financial development and activity related variables that are related to money supply, credit, deposit, small and micro finance activities, agricultural credit, trade and remittance services, green banking, CSR and ICT based activities. Monitoring indicators of MDGs have been used to identify the relationship between the financial development and MDG indicators. An important aspect of the growth process has been the type of the financial system that is most conducive to growth. At one extreme, banks play the dominant role and in other financial markets play important roles (Allen and Gale 1995). In Bangladesh, banking sector is clearly dominant. Though some financial sector issues in general are covered in the study, the paper concentrates on the issues related to banking sector development.

The study does not quantify the implications of financial development and financial services for the variables related to MDG targets. The study mainly attempts to find relationship between financial development/activities and MDG targets that are not generally unidirectional. Though data on variables related to financial development and activities are mostly available, times series data on MDG target variables are hardly available for Bangladesh.

4. Relevance and Implications of Financial/Banking Activities for MDGs: Bangladesh Perspective

Available information indicates that Bangladesh has attained successes in six MDGs, but it has weaknesses in others. According to the outcome of a recently organized Expert


Group Meeting7, the areas where Bangladesh achieved the targets include Goal 1- eradicating extreme poverty and hunger, Goal 2- achieving universal primary education, Goal 3- promoting gender equality and empowering women, Goal 4- reducing child mortality rate and Goal 6- combating HIV/AIDS, malaria and other diseases. Experts found that Bangladesh has some weaknesses in Goal 5- improving maternal health, specifically maternal mortality rate and does not have any control on Goal 7- ensuring environmental sustainability and Goal 8- developing a global partnership for development. There are evidences that alongside government, donor agencies and civil society, financial sector have been contributing in attaining MDG goals in different countries. Bangladesh specific studies have also revealed similar outcome (as discussed in section II). In the context of Bangladesh, some activities of banks and financial institutions are directly related to several MDG targets. The following subsections attempt to relate some macro and sector specific banking and financial indicators with selected MDG target indicators.

Credit and Deposit Activities of Banks and Monetary Aggregates

Banks and financial institutions create money through their deposit and credit operations. It is the banking and financial sector that channels fund into different economic sectors and central bank materializes its money supply objectives using regulatory mechanisms. Thus credit and deposit operations of banks are directly related to the money supply, savings, and credit operations of an Economy. The literature review (section-II) reveals clear linkages of these variables (money supply, credit and savings) with investment, GDP growth, employment, and poverty. GDP growth and employment further affect poverty, education, health, and gender equality. As indicators, money supply (M2) to GDP, private sector credit to GDP, and deposits to GDP are recognized financial deepening indicators. Relevant MDG monitoring indicators are selected to find correlation (Figure-1).

7 The observations came at the 'Southern Voice on Post-MDG-Dhaka Expert Group Meeting' organized at CPD auditorium at Dhaka in January 2013.


Figure 1: Linking Credit and Deposit Operation with MDG Targets

Financial & Banking

Sector Activity

Macro Economic Variables Impacted

Economic Variables/

Areas Directly Impacted

Economic Variables/

Areas Indirectly Impacted

Financial Development/

Sector Indicators

MDG Indicators

Poverty Gap Ratio

Growth Rate of GDP Per

Person Employed

Money Supply to

GDP

Employment to Population

Ratio

Private Credit to

GDP

Net Enrolment Ratio in Primary

Education

Deposit to GDP Literacy Rate

Under Five Mortality Rate

Maternal Mortality Rate

Share of

Women in Employment

As the graphs (Appendix-7, 8 and 9) indicate, MDG indicators (female employment, literacy rate, poverty gap ratio, and mortality rates) have expected correlation with financial depending indicators (money supply to GDP and private credit to GDP). No distinct correlation has been observed in case of employment rate and financial deepening of the country. Moreover, no visible correlation can be observed between deposit to GDP and MDG indicators. There is established links of deposits, savings and investment- the essential input for growth. And the growth in turn affects poverty. Practically positive impacts of the improvement of financial deepening can hardly be denied. As expected, all deepening indicators show smooth increasing trend other than the period during 1997-2000 (for money supply); and during 1991-94 and 1997-2000 (for private credit to GDP).

Employment

GDP Growth

Investment

Poverty

Education

Poverty

Health

GenderEquality

Credit

Money Supply

Savings

Credit and Deposit Services


Agricultural and Rural Financial Services and MDGs

Agriculture contributes more than 20 percent in GDP of Bangladesh and also account for the largest employment of around half of the total population. Agriculture is the major source of occupation of the rural people of Bangladesh and directly related to their income and employment. So, development of agriculture sector in the form of increasing productivity, agro processing industry and farmers’ income are necessary for sustainable development, poverty alleviation and rural development of the country. Thus credit flow to the agricultural sector is crucial for the GDP, employment and poverty of the country. These in turn affects education and health of the rural people (Figure-2).

Figure 2: Linking Agricultural and Rural Financial Services with MDG Targets

Financial & Banking Sector

Activity

Macro Economics Variables Impacted

Economic Variables/


Economic Variables/



Sector Indicators

MDG Indicators

Rural Poverty

Gap Ratio

Rural GDP Growth

Agricultural Credit

Growth

Growth of Agricultural

GDP

Agricultural Credit to

Total Credit

Net Enrollment

Ratio in Primary

Education in rural

Bangladesh Rural Credit

Growth

Literacy Rate in

Rural Areas

Rural Credit to Total Credit

Child Mortality

Rate in Rural Areas

Maternal Mortality

Rate in Rural Areas

Agricultural GDP

Agricultural & Rural

Employment

Poverty

Poverty

Health

Agricultural Credit

Agricultural Sector

Education


It can be seen (Table-1), share of agricultural advance is far less than its contribution in economy. Although in absolute amount advances in agricultural sector is increasing but if we look at the share in total then it gives a reverse picture. Its percentage shares in total advances declined from 14.23 percent to 5.12 percent during the period 2000-2011. Until recently, before the introduction of financing facility to the sharecroppers, only the large and medium sized farmers were under the coverage of formal credit sectors. To bring landless sharecroppers under banking credit facility BB for the first time introduced loan facility for the sharecroppers. In these major attempts to develop an inclusive financial sector, BB has introduced a new scheme of low cost deposit accounts for the farmers. Under this scheme any farmer can open a deposit account in a bank by depositing a minimum amount of Tk.10. Over 9.63 million farmers opened accounts until December 31, 2012. Among the active farmers' bank accounts in the period, 98,307 accounts were used for disbursing farm loans, 46,303 accounts for savings, 3,970 for receiving foreign remittance and 5,684 for receiving local remittance (BB Annual Report 2012). Seven banks8 operating the farmers’ accounts to disburse the loans and subsidies.Under the new regulations of BB, all commercial banks and specialized banks including private commercial banks and foreign commercial banks are required to disburse agricultural credit mandatorily.

Table 1: Agricultural Advances by Banks

Year No. of Accounts Amount [in lac taka] % of Total

2000 5009924 899019 14.23

2002 5296695 979129 11.79

2004 5694136 1048996 10.24

2006 5967475 1170933 8.4

2008 5963176 1349683 6.87

2010 5966775 1684348 5.69

2011 5750265 1796180 5.12 Source: Bangladesh Bank, Scheduled Bank Statistics, Various Issues.

8Sonali Bank Ltd., Janata Bank Ltd., Agrani Bank Ltd., Rupali Bank Ltd., BASIC Bank Ltd., and two specialized banks-Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank.


Box 1: Trends in Agricultural Advances and Employment in the Agricultural Sector

There is no doubt that the dependence on agriculture sector has gone down in recent years. Before 2000 more than 50 percent employment were offered by the agriculture sector that came down to the 47.5 percent in 2011 (BBS 2012). Still it is the most crucial sector considering development and poverty. However, credit flows to the agricultureand rural sector is low (only around 8 percent of total advances). In regard to the MDG related indicators, the rural poverty gap ratio decreased to 3.7 percent in 2010 from 5.3 percent in 2005; and the rural literacy rate in the year 2010 was 53.37 percent which was 34.6 percent in 1995. It is to be mentioned that though the Bangladesh is on track in regard to net enrollment in primary education (94.9% in 2010), however adult literacy needs attention to attain the related goal by 2015. Rural and agricultural credits and other financial services are also related to financial inclusion. Greater flow of credit to the agricultural and rural sector and financial inclusion as a whole might help attaining literacy and other related goals.

Microfinance and SME Credit and MDGs

The importance of micro and small enterprise financing is enormous in the context of developing country like Bangladesh. Development of SME business is useful because of its labor intensive production nature, uses of mainly locally available raw materials, high profit margin. To increase access to finance and SME development, Bangladesh Bank has formulated a number of policies and programs and introduced refinancing schemes. In Bangladesh, micro-credit and micro-finance have come into prominence for fighting povertymainly by the remarkable initiatives of MFIs. Now banks are also offering micro

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Agricultural Advances as a % of Total Credit

AgriculturalAdvances as a %of Total Credit

38

40

42

44

46

48

50

52

54

1986

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Agricultural Employment as a % of Total Employment

AgriculturalEmployment asa % of TotalEmployment


and poverty alleviation loans at a limited scale. These credit facilities may have notable impact on poverty, health, education and gender equality. Some of the credit programs especially targets these issues. These are nothing but MDG targets (Figure-3).

Figure 3: Linking Micro and Small Creditand MDG Targets

Financial & Banking

Sector Activity

Macro areas Impacted

Economic Variables/


Economic Variables/



Sector Indicator

MDG Related

Indicator

Rural Poverty

Gap Ratio

Growth Rural GDP

Growth of

Agricultural GDP

Micro and Small Credit

to Total Credit

Net Enrolment

Ratio in Primary

Education in rural

Bangladesh

Literacy Rate in

Rural Areas

Mortality

Rate in Rural Areas

According to the Ministry of Finance (2012) information, as of June 2011 the total distribution of microcredit was over BDT 2,38,000 crore; and the outstanding volume was over BDT 25,000 crore. Through the system, the total volume of savings was BDT12000 crore; and the recovery rate was around 95 percent. The picture clearly reveals the extensive coverage and successes of MFIs in the context of Bangladesh.

Poverty

Access to Finance

Employment

Poverty

Gender Equality

Micro & Small Credit

Micro and Small Enter.

Sector

Education

Health


Compared to the MFIs, the performances of commercial banks are not that extensive and praiseworthy in this sector. After having a severe setback in terms of poor repayment performance in agriculture and rural credit, the banks are found to be gradually penetrating into the provision of rural micro-financial services in a very cautious manner and mostly by availing the support of MFIs since late 1990s. As of December 2011, bank loan was the third (followed by members’ savings and own funds) most important sources of funds for the MFIs (CPD 2012). Though at limited scale, state controlled commercial banks have micro credit programs to support the underprivileged and rural people as part of their poverty alleviation loan facilities (as titled in MOF 2012). As of end 2011, of the total credit of the state controlled commercial banks, 1.76 percent was for poverty alleviation purposes (Appendix Table-5). In 2009-10, the number of beneficiaries of the microcredit programs of banks was six million. Different bank groups are offering reasonable volume of credit to the SME sector (Table-2).

Table-2: Share of SME Loan to Total Loan in the Banking Sector

Name of the Banks

2010 2011

Total Loans & Advances

Outstanding Balance of SME Loan

% of SME Outstanding

to Total Loans

Total Loans & Advances

Outstanding Balance of SME Loan

% of SME Outstanding

to Total Loans

SCB 68702.48 21839.54 31.79 81405.37 23244.50 28.55 SB 20578.15 4247.31 20.64 22994.08 4768.30 20.74

FCB 18486.44 1887.54 10.21 21165.99 2085.89 9.85 PCB 204442.22 39083.85 19.12 244335.67 48429.16 19.82

All Banks 312209.29 67058.24 21.48 369901.11 78527.85 21.23 Source: SME & Special Programs Department, Bangladesh Bank.

Financial Services to Women and MDGs

In Bangladesh, the women are primarily involved in the informal sector and contribute substantially to their households. In general, women participate more in those industries that can be conducted at home in breaks between household works, and less in those that require them to work outside the home. However, these opportunities are relatively less in urban areas. In the major cities of Bangladesh, a large number of women work in export-oriented garments, the main source of the country’s export earnings. Hardcore poor women workers are also found in certain activities traditionally falling within the male domain like earthwork, construction etc. A significant number of women also work


as teachers, lawyers, journalists, government employees, and in Non-government Organizations (NGOs). In spite of these, the majority of women in Bangladesh have yet to be empowered to participate actively in the social, cultural, economic, and political life of the country.Supporting women by offering financial services are expected to contribute to their income and employment. And increase in income is expected to contribute in women employment and poverty. These in turn affect gender equity, education and health (Figure-4).

Figure 4: Linking Financial Services to Women and MDG Targets


Activity

Macro Areas

Impacted

Economic Variables/


Economic Variables/



Sector Indicators

MDG Related

Indicators/ variables

Poverty Gap Ratio9

Maternal Mortality

Rate10 Credit to

Woman to Total Credit

Women Employment

Net Enrolment by girls in Primary

Education

Women entrepreneurs in Bangladesh face a range of challenges, including social and economic barriers, and networking and management constraints. As more women in Bangladesh launch their own businesses, they are frequently unable to access the financing needed to expand. Currently, BB operates a refinancing program for women offering interest rates of 10 percent on loans of up to BDT 2.5 million against a personal

9 The poverty gap ratio is the mean shortfall of the total population from the poverty line (counting the non-poor as having zero shortfall), expressed as a percentage of the poverty line. 10The Maternal Mortality Rate (MMR) is the annual number of female deaths per 100,000 live births from any cause related to or aggravated by pregnancy or its management (excluding accidental or incidental causes).

Poverty

Gender Equity

Employment

Education

Poverty

Financial Service to Women

Women Entrepreneurship &Empowerment

Health


guarantee. Nearly 2,600 women entrepreneurs took part in this program as of March 31, 2011, with approximately 1,800 bank loans and 800 loans from Non-Bank Financial Institutions (NBFIs). Over BDT 1.8 billion has been lent out under this program. Bangladesh bank has directed banks to set up dedicated desks for women clients to ensure that women can get loans more easily, and on better terms. Approximately 600 branches of various state-owned banks operate such desks, led by Janata Bank, which has desks at over 200 branches. At the same time, more than 800 branches of private banks have women entrepreneurs’ desks, including at 84 branches of Islami Bank. Some NBFIs and 74 specialized banks have such desks. MFIs of the country have been covering considerbale proportion of women through their micro finance operations. In 2011, of the total clients of MFIs, about 91 percent was women (CDF 2012). Financing to women have brought notable changes in the lives of women. Women poverty, women literacy, and women health are claosely related to any supportive activities of women. As the maternal health needs attention to attain the MDG targetted figure by 2015 (to be reduced to 143 per lac in 2015 from the 194 in 2010), women may require more support through this channel.

Trade Services by Banks and MDGs

Export and import payments are facilitated by the banking sector. Banks also provide financing facilities to the traders. There are proven relationships between trade (especially exports) and GDP growth. Garments is the main export component and thus promoting export in Bangldesh in oth sense promoting women employment alongside growth. Growth and employment affect poverty. Export-import is also the main channel of global partnership development in the context of Banagldesh (Figure 5).


Figure 5: Linking Financial Services to Women and MDG Targets

Financial & Banking

Sector Activity


Economic Variables/


Economic Variables/



Sector Indicators

MDG Indicators

Poverty Gap Ratio

Growth Rate of GDP per

Person Employed

Employment

to Population

Ratio

Net Enrolment

Ratio in Primary

Education Total Trade Volume to

GDP

Literacy Rate

Under Five Mortality

Rate

Maternal Mortality

Rate

Total Import and Export

by Developed Countries

The Box-2 shows notable growth of trade in Bangladesh over the years. Though correlation between trade and MDG indicators (related to poverty and employment) may not show smooth relationship, however, impact of trade on employment and poverty through GDP growth are more or less recognized. Banks have been facilitating trade payment and finance services and thus contributing to the development of overall trade and national income.

Global Partnership

Development

GDPGrowth

Trade

Exports and

Imports

Poverty


Box 2: Correlating Trade and Poverty/Employment

Remittance Services and MDGs

Overseas remittances have been one of the most remarkable aspects of Bangladeshi labour exports. Worker remittances have consistently increased over the years (Figure-5). From less than USD 25 million in mid 1970s, the volume of workers’ remittances surpasses USD 1000 million mark by early 1990s. The remittance flows received a speedier pace mainly since early 1990s and reached at the figure of USD 10720 million in the year 2009 (BMET Web, 2010). According to the World Bank (2010)11, Bangladesh was among the top ten recipients (number sixth) of migrants’ remittances during the year 2009. As percentage of GDP also the country was within top 20 countries. Despite the slowdown of overseas jobs in response to the 2008-9 global crises, inflow of remittances has maintained an upward trend in the country. In Bangladesh remittance has notable impact on rural consumption and investment that are directly related to poverty, education and health (Figure-6).

11World Bank (2010), Migration and Development Brief-12, Outlook for Remittance Flows 2010-11, April 23.

01020304050607080

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Trade (% of GDP)

Employment to population ratio, 15+, total (%)

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Trade (% of GDP) Poverty gap at national poverty line (%)


Figure 6: Linking Remittance Services and MDG Targets

Financial &

Banking Sector

Activity


Economic Variables/


Economic Variables/



Sector Indicators

MDG Indicators

Poverty Gap Ratio

Share of Poorest Quintile in National

Consumption

Growth Rate of GDP per Person

Employed Total

Remittance to GDP

Employment to Population Ratio

Proportion of Population Below Minimum Level

of Dietary Energy Consumption

Net Enrolment

Ratio in Primary Education

Literacy Rate

Under Five Mortality Rate


Service Market Access

Poverty

GDP Growth

Global Partnership

Development

Poverty

Health

Remittance

Consumption &

Investment

Education


Box 3: Correlating Worker Remittances and MDG Indicators

Mostly, official remittances flow into Bangladesh through banks. Traditionally DD had been the most popular mode of channelling remittances. In recent years only banks have increasingly started relying on technology. Public sector banks and some private sector banks are the major contributors in regard to remittance flow with their huge branch network in rural Bangladesh. Some banksby virtue of their bigger branch networks were getting advantage; however, currently some private sector banks adopted ICT based strategies for serving migrants and improved their market shares.

Technology Based Banking and MDGs

In order to provide banking service at lower cost and at shorter time to remote areas, banks have adopted various modern technology viz. installation of ATM, POS, introducing credit card and debit card, uses of mobile phone, internet banking, on line banking and tele-banking. It is observed that mobile banking is the potent instrument for increasing outreach and mobile phone is an ideal platform to increase the outreach of financial services to the rural population as their penetration is already large and growing (Mehrota, et. al 2009). Thus, online banking can be a great tool for access to finance and in turns poverty alleviation (Figure-7).

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Workers' remittances % of GDPLiteracy rate, adult total (% of people ages 15 and above)

0.002.004.006.008.00

10.0012.0014.0016.0018.0020.00

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2010

Workers' remittances % of GDP

Poverty gap at national poverty line (%)


Figure 7: Linking Online Banking and MDG Targets

Financial &

Banking Sector

Activity

Economic/ Banking Variables Impacted

Economic Variables/


Economic Variables/



Sector Variables

MDG Indicators

Poverty Gap Ratio

Credit Cards

Debit Cards

Employment to

Population Ratio

No of ATM

No of Online Banks

Literacy Rate

Tele Banking

Online Banking

Networking with Private

Sector Enterprise

Access to Finance

Global Partnership

Development

Poverty

Online Banking and ICT

Modern and Speedy Banking Services


Box 4: ICT Based Banking Services by Banks

Source: Khan et al. 2012

Recent survey datashow that adoption of modern technology in banking services is impressive. Number of ATM booth increased from 118 in 2005 to 2855 at end June 2011. Number of POS also increased immensely from 3121 in 2005 to 17183 in June 2011. Number of debit and credit card clients increased from 0.11 million and 0.15 million in 2005 to 6.0 million and 0.61 million in June 2011, respectively. Number of mobile banking clients grew by about 62.0 percent to 0.21 million in June 2011. Out of 47 banks, 38 banks use modern facilities i.e., internet banking, online banking and tele-banking. Recent trend of mobile banking indicates that financial inclusion is scaling up in Bangladesh especially in rural area where no bank branch is available. Under an approved guideline, Bangladesh Bank has granted permission to full Mobile Financial Services (MFS) to 15 commercial banks. Ten of them have started functioning. The MFS had 442,269 mobile accounts and 9,093 appointed agents up to December 2012. The total value of their transaction stood at Tk 20.7 million in 2012. The largest of this network is BRAC Bank/bKash. Dutch-Bangla Mobile Bank also has reasonable market share.


CSR/Green Banking and MDGs

Some of the CSR activities and recently undertaken green banking activities of banks can be directly linked with some MDG targets related to poverty, health, education, gender equality and environment. In recent years, expenditure on CSR activities by banks has increased remarkably. In this connection, some recent initiatives of BB are praiseworthy. A comprehensive guideline on Corporate Social Responsibility (CSR) has been issued by BB where banks have been asked to concentrate hard on linking CSR at their highest corporate level for ingraining environmentally and socially responsible practices12. CSR initiatives of banks in the country has mainly been focusing on financial inclusion of less privileged population segments and underserved economic sectors; emergency relief in humanitarian distresses; promotion of health, education and cultural/recreational activities for advancement and well being of underprivileged population segments; financing and promotion of environment friendly projects; adoption of energy efficient, carbon footprint reducing internal processes and practices in own offices and establishments.These are related to number of MDG goals directly and indirectly (Figure-8).

Total annual direct CSR expenditure of the banks appears to have stabilized in 2011 following sharp increase in 2010. In 2008 Tk. 410.70 million was spent as CSR expenditure. It rose to Tk. 553.80 million in 2009. It had a meteoric rise in 2010 and stood at Tk. 2.33 billion. But it declined to Tk. 2.19 billion in 2011. This phenomenon has been attributed to the less expenditure on humanitarian and disaster relief.

12 BB DOS Circular No-1, June 1, 2008.


Figure 8: Linking CSR/Green Banking and MDG Targets


Activity

Economic Variables/ areas Directly or

Indirectly Impacted


Sector Indicators

MDG Related Indicators

Poverty Gap Ratio

Growth Rate of GDP per Person Employed

Net Enrolment Ratio in Primary Education

CSR expenditure Literacy Rate

Green Banking

expenditure Under Five Mortality

Rate


CO2 Emission

Proportion of Population Using an Improved Drinking

Water Women

Empowerment

Actually, banks allocate funds for environmental reasons as a part of their CSR expenditure. According to a BIBM survey (Habib et al. 2010), only 11 percent banks have separate funds to support environmental activities. In the area of environmental or green banking, the comprehensive circular13 of BB on ‘Policy Guidelines for Green Banking’ is a remarkable step.BB has also circulated a Guideline on Environmental Risk Management14 on January 30, 2011 to streamlinesolutions for managing the

13 BB BRPD Circular No-2, February 27, 2011. 14 BB BRPD Circular No-1, January 30, 2011


Poverty

Gender Equality

CSR & Green

Banking

Environmental Sustainability

Health

Education

environmental risks in the financial sector. The ERM guideline prescribes a set of sector specific ‘Environmental Due-diligence Checklist’ for financing environmentally sensitive sectors15 by banks.Considering the adverse effects of climate change, banks have been advised by BB to be cautious about the adverse impact of natural calamities and to take necessary steps.Banks have been advised to finance in solar energy, bio-gas plant, ETP and Hybrid Hoffman Kiln (HHK) in brick field under refinance program of BB16. It is really encouraging that a good number of banks are responding positively to the BB’s initiatives by undertaking green banking and environmental risk management practices (Box-5). Green banking activities is expected to have positive impact on the environment related MDG targets.

Box-5: Progress Made in Green Banking in Bangladesh

45 banks have formulated policy for green banking 46 banks have formed a green banking unit 41 banks have introduced a green office guide Environment risk rating has been done for 13779 projects 13833 rated projects have been financed 1307479.64 million taka has been disbursed 212 branches and 150 SME unit/ ATM are powered by solar energy 37 banks are fully automated 3226 branches have been facilitated with online coverage 8 banks have utilized Taka 9.74 million for climate change (during July-

September, 2012) Banks have financed Taka 3273.69 million as green finance other than projects

having ETP (January- September 2012) At least two banks have created two trust funds for rewarding individuals and

corporate for their outstanding contributions towards raising consciousness and addressing issues related to climate change

Source: Bangladesh Bank 2012

15Agri-business, cement, chemicals, housing, engineering and basic metals, pulp and paper, tannery, Sugar and distilleries, textile and apparels, and ship-breaking. 16 BB ACSPD Circular No-9, July 08, 2010.


Financial Sector Efficiency and MDGs

Efficient banking system offers better services that may contribute better in GDP growth and financial inclusion. Net profit of the banking sector of Bangladesh improved remarkably over the years (Box-6) and expenditure/income ratio has declined (Box-7). Interest rate spread, the recognized efficiency indicator show declining trend in recent period. This is also beneficial for the clients. Currently BB is very active in maintaining interest rate spread within 5 percent.

Box 6: Selected Efficiency Indicators of Banks

Box 7: Expenditure/Income Ratio of Banking Sector

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Interest rate spread (lending rate minus deposit rate, %)

Interest ratespread(lending rateminus depositrate, %)

-4000.00

-2000.00

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Net Profit After Tax

Net Profit AfterTax

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2011

Expenditure as a % of Income

Expenditure as a % of Income


5. Concluding Remarks

It is obvious that financial sector development and MDGs are indirectly related. Practically, financial sector development as a macro variable affect growth of a country and that results positive outcome with regard to poverty, health, education, gender equality and environmental sustainability- the MDGs. However, the financial and banking sector activities like CSR and inclusive finance may directly affect MDG targets of a country. The paper demonstrates that the financial deepening of the country and banking sector activities of Bangladesh are contributing in attaining MDG goals. In most cases the impact appears to be indirect, though some banking activities can directly be linked.

The financial development indicators and related MDG indicators, identified in the paper, may work as a monitoring tool for the policy maker of the country. These may help determining the influential and stimulating financial sector activities to promote MDG targets based on the financial efficiency and MDG indicators. The influential and stimulating financial activities are expected to receive due emphasis of the policy maker to achieve relevant MDG targets.

There is no doubt that Bangladesh Bank has been working to promote banking sector in undertaking financial inclusive and other development initiatives. A number of banks are also positively responding to central bank’s call. These policy and operational activities might be tagged with MDG targets and designed accordingly with strategic planning. Individual bank may undertake research while designing their financial inclusion, green banking and poverty alleviation activities and may tag their strategic goals with that of the national development agenda like MDG goals. This would also enhance the credibility of the development agenda of banking and financial sector and may be part of their marketing strategy.


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APPENDICES

Appendix 1: Broad Themes, Goals and Major Targets

The Millennium Development Goals (MDGs) are eight international development goals that were officially established following the Millennium Summit of the United Nations in 2000, following the adoption of the United Nations Millennium Declaration. All 193 United Nations member states and at least 23 international organizations have agreed to achieve these goals by the year 2015. The aim of the MDGs is to encourage development by improving social and economic conditions in the world's poorest countries. The MDGs were developed out of the eight chapters of the Millennium Declaration, signed in September 2000. There are eight goals with 21 targets with a series of measurable indicators for each target and dates for achieving those targets.

Themes Goals Targets Poverty 1. Eradicate Extreme

Poverty and Hunger 1. Halve proportion of people who live on <$1 a day. 2. Halve proportion of people who suffer from hunger.

Education 2. Achieve Universal Primary Education

3. Complete Access to complete primary schooling.

Gender Equality

3. Promote Gender Equality and Empower Women

4. Access for all genders to primary and secondary schooling (2005) and all levels of education (2015).

Health 4. Reduce Child Mortality

5. Reduce by 2/3, the under-five mortality rate.

5. Improve Maternal Health

6. Reduce by 3/4, the maternal mortality ratio.

6. Combat HIV/AIDS, Malaria, and Other Diseases

7. Halt and begin to reverse the spread of HIV/AIDS. 8. Halt and begin to reverse the incidence of malaria and other diseases.

Environment 7. Ensure Environmental Stability

9. Integrate principles of sustainable development. 10. Access to safe drinking water and sanitation. 11. Improve lives of at least 100 million city dwellers.

Global Partnership

8. Develop a Global Partnership for Development

12. Develop trading and financial system. 13. Address needs of least developed countries. 14. Address needs of landlocked countries and islands. 15. Deal with debt problems and make sustainable. 16. Provide decent and productive work for youth. 17. Provide access to affordable and essential drugs. 18. Availability of new technology and ICTs.


Appendix 2: Millennium Development Goals: Bangladesh at a Glance

Goals, Targets and Indicators Base year 1990/1991

Current Status

Target by

2015

Status of Progress

Goal 1: Eradicate Extreme Poverty & Hunger Target 1.A: Halve between 1990 and 2015, the proportion of people below poverty line 1.1 Proportion of population below $1 (PPP) per day %

68.80 (1992)

49.60 34.40 On track

1.1a: Proportion of population below national upper poverty line (2122 kcal) %

56.6 (1992)

31.5 29.0 On track

1.2: Poverty gap ratio % 17 (1992)

6.5 8.0 Goal met

1.3 Share of poorest quintile in national consumption%

8.8 (2005)

8.85 (HIES 2010)

na -

1.3a Share of poorest quintile in national income%

6.5 (1992)

5.22 (HIES 2010)

- -

Target 1.B: Achieve full and productive employment and decent work for all, including women and young people 1.4: growth of GDP per person employed %

1.11 (1991)

3.76 (WB2008)

- Need attention

1.5 Employment to population ratio %

48.5 59.3 (LFS 2010)

For all Need attention

Target 1.C: Halve between 1990 and 2015, the proportion of people who suffer from hunger 1.8 Prevalence of underweight children under-five years of age

66.0 45 (BHFNSA

2009)

33 Need attention

1.9 Proportion of population below minimum level of dietary energy consumption (2122 kcal) %

48 40 (HIES 2005)

24 Need attention

Proportion of population below minimum level of dietary energy consumption (1805 kcal) %

28 19.5 ( HIES 2005)

14 Need Attention

Goal 2: Achieve Universal Primary Education Goal will partially be met

Target 2.A: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling 2.1 Net enrollment in primary education, %

60.5 94.9 (BANBEIS

2010)

100 On track

2.2 Proportion of pupils starting grade 1 who reach grade 5, %

43.0 67.2 (DPE 2010)

100 Need attention

2.3 Adult Literacy rate of 15-24 years old population, %

37.2 58.4 (SVRS-2009)

100 Need attention

Continued


Goal 3: Promote Gender Equality and Empower Women Goal will probably be met Target 3.A : Eliminate gender disparity in primary and secondary education preferably by 2005, and in all levels of education no later than 2015 3.1a Ratio of girls to boys in Primary education (Gender Parity Index=Girls/Boys)

0.83 1.02 (BANBEIS

2010)

1.0 Goal met

3.1b Ratio of girls to boys in secondary education (Gender Parity Index=Girls/Boys)

0.52 1.14 (BANBEIS

2010)

1.0 Goal met

3.1c Ratio of girls to boys in tertiary education (Gender Parity Index=Girls/Boys)

0.37 0.39 1 Need attention

3.2 Share of women in wage employment in the non-agricultural sector

19.1 19.87 (LFS 2010)

50 Need attention

3.3 Proportion of seats held by women in national parliament ,

12.7 19.71 (MOWCA

‘11)

33 Need attention

Goal 4: Reduce Child Mortality Goal will be met

Target 4.A: Reduce by two-third, between 1990 and 2015, the under-five mortality rate. 4.1 Under-five mortality rate (per 1000 live births)

146 50 (SVRS 2009)

48 On track

4.2 Infant mortality rate (per 1000 live births)

92 39 (SVRS 2009)

31 On track

4.3 Proportion of 1 year-old children immunized against measles, %

54 85.3 (UESD2010)

100 On track

Goal 5: Improve Maternal Health

Target 5.A: Reduce by three quarters, between 1990 and 2015, the maternal mortality ratio. 5.1 Maternal mortality rate , per 100, 000 live births

574 194 (BMMS 2010)

143 On track

5.2 Proportion of births attended by skilled health personnel, %

5.0 26.5 50 Need Attention

Target 5.B: Achieve by 2015, universal access to reproductive health.

5.3 Contraceptive prevalence rate , % 39.7 61.7 (USED2010)

72 On Track

5.4 Adolescent birth rate , per 1000 women

77 105 (BMMS2010)

- Need Attention

5.5a Antenatal care coverage (at least one visit), %

27.5 (1993)

71.2 (BMMS2010)

100 Need Attention

5.5b: Antenatal care coverage (at least four visits), %

5.5 (1993)

23.4 (BMMS2010)

100 Need Attention

5.6 Unmet need for family planning , %

19.4 (1993)

17.1 (BDHS2007)

7.6 Need Attention

Appendix 1: Continued

Continued


Goal 6: Combat HIV/AIDS, malaria and other diseases Target 6.A: Have halted by 2015 and begun to reverse the spread of HIV/AIDS 6.1: HIV prevalence among population (per 100, 000 population)

0.005 0.1 (MIS DGHS)

Halting On track

6.3: Proportion of population aged 15-24 years with comprehensive correct knowledge

- 17.7 (NASP,2009)

- Low

Target 6.C: Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases 6.6a prevalence of Malaria per 100,000 population

776.9 (2008)

512.6 (MIS DGHS

2010)

310.8 Need attention

6.6b Deaths of Malaria per 100,000 population

1.4 (2008)

0.32 (MIS DGHS

2010)

0.6 On track

6.7 Proportion of Children under-5 sleeping under insecticide treated bed nets [13 high risk malaria districts] %

81% (2008)

90% (MIS

DGHS2009)

90% On Track

6.9a Prevalence of TB per 100,000 population

639 79.4 (NTPS 2010)

320 Goal met

6.9b Deaths of TB per 100,000 population

76 43 (MIS DGHS

2010)

38 On track

6.10a: Detection rate of TB under DOTS, %

21 (1994)

70.5 (MIS DGHS 2010)

70 Goal Met

6.10b: Cure rate of TB under DOTS, %

73 (1994)

92 (MIS DGHS

2010)

>85 Goal met

Goal 7: Ensure Environmental Sustainability

Target 7.A: Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources Target 7.B: Reduce biodiversity loss, achieving, by 2010, a significant reduction in the rate of loss 7.1: Proportion of land area covered by forest (%)

9.0 19.33 (DoF 2011)

20 Need attention

7.2: CO2 emissions, metric tons per capita

0.14 0.27 (DoE 2005)

-

7.3: Consumption of ozone-depleting CFCs in metric tons per capita

195 128 (DoE 2009)

0 Need attention

7.4: Proportion of fish stocks within safe biological limits

54 inland & 16 marine

- Need Attention

7.5: Proportion of total water resources used

6.6% (2000) - Need attention

7.6: Proportion of terrestrial and marine areas protected

1.64 Terri: 1.82% &Meri: 0.47%

(Dof)

5.0 Need Attention


Continued


7.7: Proportion of species threatened with extinction

- 106 (2001)

- Need Attention

Target 7.C: Halve, by 2015, the proportion of people without sustainable access to safe drinking water and basic sanitation 7.8: Proportion of population using an improved drinking water sources

78 86 (MICS 2009)

100 Need Attention

7.9: Proportion of population using an improved sanitation facility

39 62.7 (SVRS 2009)

100 Need Attention

Target 7.D: Halve, by 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers. 7.10: Proportion of urban population living in slums

- 7.8 (BBS 2001)

- In sufficient

Data Goal 8: Develop a Global Partnership for Development Target 8.A: Developed further an open, rule-based, predictable, non discriminatory trading and financial system Target 8.B: Address the special needs of the least developed countries Target 8.C: Address the special needs of landlocked developing countries and small developing states Target 8.D: Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term 8.1a: Net ODA Total received by Bangladesh (million US$ )

1240 2228 (RED 2010)

- -

8.1b: Net ODA Total received by Bangladesh, as percentage of OECD/DAC donors

5.7 0.0022 (ERD 2010)

- -

8.2: Proportion of total bilateral sector-allocable ODA to basic social services, %

42 (2005)

56 (ERD 2010)

- -

8.3: Proportion of bilateral ODA of OECD/DAC donors that is untied (received by Bangladesh) ,

82 (2005)

100 (ERD 2010)

100 -

8.7: Average tariffs imposed by developed countries on agricultural products, textiles and clothing from developing country (Bangladesh) , %

12 (2005)

0-15.3 (2009) - -

8.12: Debt service as a percentage of exports of goods and services, %

20.9 5.7 (ERD 2010)

- -

Target 8.F in cooperation with the private sector: make available the benefits of new technologies, especially information and communication 8.14: Telephone lines per 100 population

0.2 0.69 - Low user

8.15: Cellular subscriber per 100 population

- 47.05 (BTRC 2011)

- Impressive

8.16: internet user per 100 population 0.0 10.33(BTRC 2011)

- Low users



Appendix 3: Bangladesh Bank’s Initiatives Related to MDGs

Banks were instructed, from FY 2011-2012, mandatorily to set the annual agri./rural credit disbursement target at a 2.5% of their total loans and advances which was largely achieved.

A farmer can open an account by depositing BDT 10 (equivalent 12 cents only) at any state owned commercial and specialized bank.

Several steps have been taken to boost up bank financing to the production of Pulse, Oil-seed, Spices and Maize at 4% interest concessional credit.

Bangladesh Bank, with the help of government and different development partners, is implementing 4 refinance facilities to banks and NBFIs against their disbursed SME credit.

Bangladesh Bank has introduced a BDT 5.0 billion (4.50 billion short term loan and 0.50 billion medium term loan) refinancing line against loans to sharecroppers in a group-based program of BRAC, the largest NGO in Bangladesh.

15% of BB refinance fund are allocated for women entrepreneurs.

Instructions were given to Banks and NBFIs to charge reduced interest rate at 10% (Bank rate+5%) to women entrepreneurs on refinance schemes.

Every Banks and NBFIs mandatorily have to have a separate ‘Women Entrepreneur’s Dedicated Desk’. Banks and NBFIs were instructed to employ competent officials in that dedicated desk and to train up the said officials on SME financing issues.

Banks and NBFIs may sanction loan of BDT 2.5 million (USD 31,250) to women entrepreneurs without collateral but against personal guarantee under refinance facilities by BB if the borrower is a women entrepreneur or if 51% shareholder of the borrowing enterprise are women.

In order to include large number of micro women entrepreneurs in the SME credit facilities, a policy of group based lending of up to BDT 50,000 (USD 625) or above has been instigated.

21 commercial banks got approval for mobile banking out of which 13 banks have already started their operation.

Continued


With a view to ensuring basic human rights and as a prerequisite for inclusive socio economic growth, banks have been instructed to include gender equality related performance indicators in the CSR reporting.

BB established a special desk known as ‘Customers' Interests Protection Centre’ (CIPC) in its Head Office and Branch Offices.

To foster green banking practices in the country, BB formulated the ‘Green Banking Policy and Strategy framework’ and ‘Environmental Risk Management Guidelines’ in a consultative manner. Many banks are now financing environmental friendly projects.

BB has introduced a refinance scheme worth BDT 2 billion (USD 25 million) to refinance loans to Effluent Treatment Plants (ETPs), solar panels, bio-gas plants and HHK technology in brick making industry at a 5% interest rate provided by banks and Non-Bank Financial Institutions.

BB started Automated Clearing House, Online CIB, e-Banking, e-Commerce, Mobile Banking, e-Tendering, e-Recruitment, e-Noting etc. in order to reduce unnecessary wastage of papers.

Preferential treatments for environmentally compliant banks have been taken into consideration. BB will award points to banks on the criteria of ‘management’ while computing CAMELS rating where there will ultimately be a positive impact on overall rating of a bank.

BB will declare the names of the top ten banks for their overall performance in green banking activities on the BB website.



Appendix 4: Status of Micro-Credit Disbursement and Number of Beneficiaries by the State-Controlled Banks [Crore BDT] over 2003-2012

Name of the Bank 2003-04 2007-08 2009-10 2010-11 2011-12 (Till Dec 11) Sonali Bank Ltd. Disbursement 460.18 557.08 755.57 676.23 391.22 No. of Beneficiary - 179188 251856 164906 118238 Agrani Bank Ltd. Disbursement 44.08 290.4 487.92 - 331.54 No. of Beneficiary 23099 115383 158978 - 7520 Janata Bank Ltd. Disbursement 227.47 497.93 631.63 722.36 350.26 No. of Beneficiary 129908 124483 130921 93030 57825 Bangladesh Krishi Bank

Disbursement 68.16 53.43 98.49 53.42 24.81 No. of Beneficiary 60987 47761 35044 31849 15070 Rajshahi Krishi Unnayan Bank

Disbursement 17.97 17.71 18.61 27.68 17.68 No. of Beneficiary 18597 15818 13779 12251 5686 Rupali Bank Ltd. Disbursement 5.17 16.97 22.69 21.78 9.46 No. of Beneficiary 2427 4242 5672 7520 7806 Total Disbursement 1050.5 1931.45 2646.54 1501.47 1124.97 No. of Beneficiary 235018 486875 601393 468534 279845

Source: MOF 2012

Appendix 5A: Major Poverty Alleviation Programs of Sonali Bank Limited Direct Lending by the Bank Programs Target Group Loan Size Interest Credit for Urban women Micro Enterprise Development- CUMED

Urban women Enterpreneurs

Highest - 5,00,000 11

DaridraBimochaneSahaytaRin Hard core poor Highest - 50,000 10 Small Farming Loan Small Enterpreneurs Highest - 50,000 11 Loans for SIDR affected Area SIDR affected People Highest - 20,000 08 Marginal and small Farms System Crop Intensification Pro.- MSFSCIP

Marginal,poor& small farmer

Hightest - 10,000 09

Herbal, Forestry, Medicinal and Nursery development Credit

Poor energetic youth Highest - 25,000 10

Loan to Salt Growers Actual Salt producer Highest - 44,000 per acre 4+6=10 Loan for disabled people Disabled people Highest - 50,000 08 JagoNariGrameenRinKarmachuchi Bittahin rural female Highest - 25,000 09 Women Development Program Co-operative poor

female member Highest 1,500-20,000 10

RLP (Rural Livelihood program) Small & Medium farmer

Highest 5,000-20,000 6.25

Source: http://www.sonalibank.com.bd/micro_credit.php


Appendix 5B: Some Notable Poverty Alleviation Programs of Agrani Bank Ltd.

Daridra Bimochon Karmasuchi (DABIK): This is the bank’s own finance program, undertaken in 1989 to help improve the living standards of the rural poor through self-employment and skill development.

Financing Unemployed Youth Seeking Foreign Employment: This is a unique programme introduced by the Bank in 1993 to finance the travel of unemployed youth offered jobs abroad.

Women Credit Program: This is the bank’s own program, undertaken in 1994 to set up small enterprises for women to help them attain self-reliance. Women anywhere in Bangladesh are entitled to maximum of Taka 50000 without collateral.

Small Enterprise Development Project (SEDP): This project was undertaken by the Bank in May 1995 in association with NORAD to extend credit facilities to improve the socio-economic conditions of project areas by creating employment opportunities.

Employment Generation Project for the Rural Poor: This is another joint Agrani-IFAD project to create employment opportunities for 70,000 skilled and unskilled labors in rural areas by financing agro-processing units such as paddy threshing, rice puffing, jute handicraft, pottery, metal works etc.

Source: Agrani Bank Ltd. Annual Reports and Web Source.

Appendix 5C: Major Poverty Alleviation Programs of Janata Bank Limited

Diversified Credit Program: The Janata Bank launched a Diversified Credit Program for poor people without land or assets in September 1992 to generate employment. It is collateral-free credit implemented through all branches.

Marginal and Small Farm System Crop intensification Project (MSFSCIP): The project objective is to prevent landlessness and marginalisation of farming households by increasing their income and nutritional status.

Co-operative Credit for the Rural Poor (Rural Poor Programme RPP): This credit program has been undertaken by Janata Bank in collaboration with Bangladesh Rural Development Board (BRDB) to generate self-employment.

Swanirvar Credit Scheme: The Janata Bank in collaboration with Swanirvar Bangladesh, implements this credit scheme. It extends credit to the landless rural poor, especially destitute women.

Aquaculture Extension Project: The Janata Bank has been participating in the Aquaculture Project from 1991-92 in collaboration with the Danish International Development Agency (DANIDA).

Source: Janata Bank Annual Reports and Web Source.


Appendix 5D: Poverty Alleviation Programs of Bangladesh Krishi Bank (BKB)

Credit Program for the Landless and Marginal Farmers: This program has been launched with BKB`s own fund in 1992-93 financial year through its all branches. Landless and marginal farmers get short term credit under this program.

Swanirvar Credit Program: The beneficiaries under the program are landless, rural poor & destitute having maximum 0.40 acres of cultivable land and maximum annual income is Tk. 20,000. BKB & Swanirvar Bangladesh is operating this program jointly.

Small Farmers & Landless Laborers Development Project (SFDP): This project is being implemented jointly by BARD & BKB from 1995. The objectives of the project are to increase production, employment creation and increase income of the small landless farmers &labourers through formation of small groups, generation of own capital and provision for capital support for undertaking various income generating activities.

South Asia Poverty Alleviation Program: This program was launched on the basis of Dhaka conference of SAARC countries in 1993. This is a joint venture program with UNDP. But it is banks own financed program.

Credit under National Poverty Alleviation Program through Goat Rearing: This program has been introduced in 2002 aiming to eradicate poverty through goat rearing. Directorate of livestock provides with extension service while BKB provides credit from its own fund for a period of 4 years term. This is a collateral free credit provided from all branches of BKB. Interest rate is 10%.

Milking Cow Credit Program for the Women: The program launched in the year 1997. The main objectives of the program were proper utilization of the unemployed women increasing milk production and helping the up-lift of the condition of the women folk. Under this program one village of a branch area is selected.

Special Micro Credit Program for the Disabled: This program has been introduced in 2002 aiming to income generation & development of socio-economic condition through employment creation for the disabled persons.

Monipuri Small Traders Credit Program: This program have been introduced in 2003 aiming to provide working capital to handloom industry operated by the Monipuri women living in the greater Sylhet areas.

Poverty Alleviation through Production and Improvement of Sheep: This is a government directed program which has been launched in the last part of the fiscal year 2004-05. Primarily this is to be implemented throughout the selected 22 upazillas under selected 11 districts of BKB`s jurisdiction.

Source: BKB Annual Reports and Web Source.


Appendix 5E: Poverty Alleviation Programs of Rajshahi Krishi Unnayan Bank

Zero Poverty Loan Scheme: The bank has initiated a special group-based micro-credit program entitled "Zero-poverty Loan Scheme" for the extreme poverty stricken 23 upazilas in greater Rangpur district. Under the program, Tk 3000 collateral-free credit is provided to day-laborers at only 6% interest rate.

Marginal & Small Farm System Crop Intensification Project (MSFSCIP): The project aims at increasing productivity in agriculture as well as off-farm activities, helping target group people achieve sustainable development, resist the increasing trend of losing land under cultivation and attain self-dependence.

United Nation Capital Development Fund (UNCDF): Under the program, credit facilities are extended to entrepreneurs of cottage industries for creating self- employment opportunities. The program aims at economic development and upliftment of the craftsmen.

RAKUB-NGO Linkage Program (RNLP): Under the program RAKUB provides fund to selected NGOs for financing micro-credit among landless, marginal & small farmers within Rajshahi division. Under the program NGOs provide credit to the farmers at 17% rate of interest while they achieve loan at 14% rate of interest from RAKUB.

Shashya Gudam Reen Prokalpo (Loan against Warehouse Receipt): RAKUB implementing the program since 1988 to support the sharecroppers, marginal and small farmers having up to 5 acres of land. Small and marginal farmers receive loan against stored crops in warehouses immediately after harvest.

Northwest Crop Diversification Project (NCDP): A special program financed by Asian Development Bank (Bank) started in 2002. Under the program RAKUB provides credit facility to selected four NGOs namely BRAC, PROSHIKA, RDRS & GKF.

Source: RAKAB Annual Reports and Web Source.


Appendix 6: Loan Outstanding for Poverty Alleviation Programs by Banks

Banks 2010 2011 Percent [2011] 2012 [Estimated] Sonali Bank Ltd. 6112 7245 2.10% 7370 Janata Bank Ltd. 1820 1745 0.67% 1931 Agrani Bank Ltd. 4931 5670 2.92% 6936 Rupali Bank Ltd. 1094 811 1.06% 980 Pubali Bank Ltd. 174 111 0.10% 22 Uttara Bank Ltd. 93 108 0.20% 123 Islami Bank Bangladesh Ltd. 1724 1660 0.50% 1950

AB Bank Ltd. 41 2563 2.70% 2636 NCC Bank Ltd. 251 231 0.30% 220 Prime Bank Ltd. 570 1017 0.70% 1129 Social Islami Bank Ltd. 366 618 1.10% 700 Dutch-Bangla Bank Ltd. 4 1 0.50% 1

Standard Bank Ltd. 49 53 0.10% 57 First Security Islami Bank Ltd. 570 107 0.20% 119

Bank Asia Ltd. 114 435 0.50% 581 Trust Bank Ltd. 293 665 1.30% 700 Standard Chartered Bank Ltd. 4563 4561 4.80% 4687

Citi N.A. 2724 1809 9.80% 2466 Bank Alfalah - 13 3.60% 193 Bangladesh Krishi Bank 4134 3178 2.00% 3258

Rajshahi Krishi Unnayan Bank 1000 1137 3.00% 1223

BASIC Bank Ltd. 989 4471 8.00% 4700 Source: MOF 2012. Note: The figures are million BDT as of June in each year; percentages are of the total outstanding credit of each bank.


Appendix 7: Correlating Money Supply and MDG Indicators

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Appendix 8: Correlating Private Credit and MDG Indicators

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0100200300400500600700800900

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Appendix 9: Correlating Deposits and MDG Indicators

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