Dr.Sikder Md. Anowarul Islam
[The success of the Grameen Bank micro credit financial intermediation was due to associated with rural poor peoples as equity partner and their creativity and ability to organize the productive roles, not their financial ability to mortgage their assets. International financing community and donor agencies have a great success that they can engage general peoples of a developing country as an equity partner of their secured financing but the commercial banks and financial institutions are traditionally involved in loan mortgage financing. It is time to rethink the total financing process both local and international sectors, since the Asian entrepreneurs are productive to their creativity and ability to engage with micro and macro financing to support and enhance the financial intermediation in sustainable productive level.]
High interest rate and high inflation can’t change anything in productive Asia. International institution preferred to finance through the integrated process of Government inclusion. Financial intermediation by the Government, for the Government, and of the Government may increase the volume of financial intermediation globally but not locally. Economic infrastructures of Asian countries are not same as well as economic and political convergence process between and amongst the countries. We can’t improve the economic growth and productivity only by increasing the access of baking facilities in remote rural areas. Regional allocation of fiancé and accordingly the regional infrastructural development in the same manner can increase the convergence of productivity and the scope of financial intermediation both locally and internationally.
The challenge for Asia economic development through increasing scope of rural finance may mitigate the poverty reduction process in short run but at the same time, the challenge of monetary policy is also the core issue to reduce the inflation and interest rate. Governments have no scope to fix interest rate below 5% in commercial banking when the inflation rose by 8% in an economy. International community can supply low interest rate long term financing by1-2%, but developing and low income countries entrepreneurs cannot access directly in international financial intermediaries due to regulatory constraint of some countries. 100% free flow of money supply in the productive investment in any source of local and international financial intermediaries is less distortionary in terms of reducing inflation and increasing productivity.
The strong economic growth has benefited hundreds of millions of Asians and accordingly benefitted many out of poverty. Across Asia today, over 900 million people live on less than $1.25 a day. Further, growing inequality accentuates poverty incidence. In Nepal, the poverty rate would have been about 13% had income distribution not worsened, instead of the actual rate of 24.7%. Likewise, Cambodia would have achieved a 9% poverty rate, instead of 18.5%. In India, the Gini index rose from 32.5 in 2000 to 36.8 in 2004. In Bangladesh, GINI index reduced by 33.2(2005), shows that substantial increase in poverty reduction process.
Millions of Asians do not have access to financial services especially in rural remote areas.The percentage of adults in Indonesia, Vietnam, the Philippines and Papua New Guinea with access to a bank account is less than 40%. In India, 51.4% of farmer households are financially excluded from both formal and informal sources, and overall 73% of farmer households have no access to formal sources of credit. Further, only 14.2% of the registered and 3.09% of the unregistered small and medium enterprises availed of bank finance. In a country where nearly two–thirds of the labor force is engaged in agriculture and where nearly 13 million small and medium enterprises operate, these numbers indicate the magnitude of challenges and the concerted efforts needed for transforming exclusion into inclusion.
The impact of the global crisis also influenced the poor and vulnerable populations through various channels. In Bangladesh, where remittances were still growing, the growth slowed to 19% from 27% in the period June 2009–March 2010 compared to the same period in the previous year. Remittances receipts from overseas workers declined sharply in the Philippines and Vietnam. The growth in remittances also moderated in Nepal from 42% in 2008 to 36% in 2009. As otherwise, in some developing countries, strict borrowing conditions, rising borrowing costs and increased risk aversion reduced availability of loans to vulnerable groups. This scenario is strictly prevailing in Bangladesh.
Economic experts and literature generally suggest that affordable access to financial services helps poor households plan for routine expenses, cope with sudden external shocks, and better cover unanticipated expenses, and also contribute to facilitate better access to more dependable and productive activities.
An ADB impact evaluation study on rural credit programs assessed 39 rural credit projects and 21 technical assistance grants provided to seven countries including Bangladesh, People’s Republic of China, Indonesia, Nepal, Philippines, Sri Lanka, and Thailand. The study found that ADB’s assistance for rural credit programs generated positive impacts in general, such as increased production, improved productivity, and upgraded technology, which raised income at the farm level. ADB support also helped enhance the quality of the participating financial institutions’ loan portfolio, and improved deposit mobilization.
Governments across Asia have long made financial inclusion a policy priority. The Government of India has attempted to address the issue by promoting the spread of commercial banks, developing cooperative credit institutions, and establishing extensive networks of regional rural banks, while also enhancing the spread of insurance services for the poor as well as crop insurance. As a result, regional rural banks account now for 37% of total offices of all scheduled commercial banks, over 90% of their staff is posted in rural and semi-rural areas (as compared to 38% for other banks), and these rural banks have enhanced outreach to small depositors, more significantly in more backward regions. In parallel, microfinance institutions have complemented these initiatives.
Consensus is emerging on lessons learned and opportunities for accelerating progress towards financial inclusion. Reforms in policy, regulatory environment, and institutional strengthening need to be pursued further to enhance performance and efficiency of financial institutions. Focus should be on enhancing the scale, quality and sustainability of service delivery.
A variety of strong and dynamic institutions both in the public and private sector are needed to accelerate the delivery of financial services to marginalized and low-income groups and to help secure livelihoods in the face of slower labor absorption resulting from reduced global output potential following the global crisis. These institutions are all critical, especially in countries or regions still facing galloping demographic pressure and where the poor are particularly vulnerable to the impact of natural disasters and where further employment potential in agriculture is limited, as in India.
Technological changes are opening new grounds for optimism in the fight against poverty through financial inclusion. New technologies such as increasing capability to rely on electronic format for receivable claims have enabled private actors to increasingly view financial service outreach to those at the bottom of the pyramid. Correspondent banking schemes also open up new avenues for cost effective outreach, even in remote regions. The application of information technology among others will significantly aid the self–help group–bank linkage program, facilitate the provision of diversified financial services through microfinance institutions and cooperative banks, and enable farmers to manage price risks through warehouse receipts and commodity derivatives.
The spread of mobile phones, where India has the second largest consumer base in the world, and the ongoing efforts for a nationwide rollout of unique identification provide unprecedented potential for financial inclusion. This process supports India and Bangladesh substantially.
The ADB has been assisting the Government of India in mainstreaming public private partnerships (PPP) to bridge large infrastructure gaps. Six ongoing technical assistance projects provide sequenced capacity building, PPP institutionalization, and pilot project development in 16 states and 7 line ministries. This support also includes the Government’s flagship program for the Provision of Urban Amenities in Rural Areas.
ADB projects supporting financial inclusion are being implemented in all our South Asian member countries. For example, in Nepal, increased access to finance is being realized through the Rural Micro finance Project and Rural Finance Sector Development Program along with projects for infrastructure and strengthening local governance. Similarly, ADB is supporting Sri Lanka both for enhancing access to finance and improving infrastructure in the north and the east.
International financing community and donor agencies have a great success that they can engage general peoples of a country as an equity partner of their secured financing but the commercial banks and financial institutions are traditionally involved in loan mortgage financing. Equity risk is transferring to macro to micro level but distortion of financing is bearing by the local and regional entrepreneurs due to high interest of borrowing as fixed by the government regularity authorizes in the name of so called macroeconomic stabilization in a country.
The success of the Grameen Bank micro credit financial intermediation was due to associated with rural poor peoples as equity partner and their creativity and ability to organize the productive roles not their financial ability to mortgage their assets. It is time to rethink the total financing process both local and international sectors, since the Asian entrepreneurs are productive to their creativity and ability to engage with micro and macro financing to support and enhance the financial intermediation in sustainable productive level.(Reference: Access to Finance and Poverty Reduction in Asia, ADB)