DIGITAL FINANCIAL SERVICES FOR ACHIEVING FINANCIAL INCLUSION

Khondkar Ibrahim Khaled

Inclusive economy is a national obligation. All sections of people joined the war of liberation in 1971. Hence our constitution declares that all citizens of Bangladesh are the owners of the country. They deserve equal social, economic and political rights. Economic inclusion of all citizens arises out of their constitutional rights. Financial inclusion is not a favour. It is their right, secured through the war of liberation.

War of liberation provided four basic principles which have been described as the basic principles of the state in our constitution. These are Nationalism, Secularism, Democracy and Socialism. Out of these, political basic principle is democracy while economic basic principle is socialism.

Socialism was the basic economic principle in 1972 constitution. In 1975, some anti liberation elements under foreign patronization killed Bangabandhu and four national leaders who led the liberation war and removed 'Socialism' from the constitution. Bangabandhu's party Awami league gained three fourth majority in 2008 election and brought back ‘socialism’ as basic economic principle of the state. Some political leaders belonging to different parties including Awani League, while speaking at seminars and talk shows, opine that Bangladesh for all practical purposes, has adopted capitalism while socialism remains in the constitution. Socialism and capitalism are poles apart and contradictory to each other. How can they co-exist? This needs a close examination. Socialism is for economic inclusion and capitalism stands for concentration of wealth, resulting in social exclusion. Since socialism has been adopted in the constitution as basic economic principle of the state, we cannot practice or opt for capitalism, which contradicts our constitution. Some political leaders including some Awami Leaguers openly argue that Bangladesh has practically landed in a changed economic strategy and joined capitalist platform. Let us examine their opinion.

Bangladesh has clearly opted for ‘free market economy’ remaining faithful to 'socialism'. Market economy is a continuum, containing may points in it. Extreme socialism stands at the left-most point in the continuum. Humane socialism or welfare economy stands at the middle, while capitalism stands at the right-most point. Socialism, welfare economy and capitalism, all the three belong to market economy, but they are very different from each other.

Our constitution uphold socialism as basic economic principle, which necessarily means welfare economy. Communism or extreme socialism requires the state to take-up the control of properties and assets under state control and state allows citizens to use them as per need, assessed by the state. But our constitution, under section-13, states that properties shall be owned by the (i) state, or (ii) co-operatives or (iii) Individual citizens. So our socialism really means 'welfare economy' as practised by some of the Europian countries, particularly the Scandinavian countries. Welfare economy, by concept and practice, use market economy as a tool of freedom as well as inclusion. But capitalism provides extreme freedom, neglecting inclusion. Hence, welfare economy contradicts capitalism. Some of our leaders are under illusion that welfare economy and capitalism are same. In fact, both belong to the market economy continuum, welfare economy at the middle and capitalism at the right, yet contradicting each other on matters of inclusion and concentration of wealth. Capitalism clearly stands for concentration, consequently negating inclusion. On the other hand welfare economy (humane socialism) advocates diversification of wealth, resulting in inclusion. Our constitution stands for socialism as the basic economic principle of the state, which may be explained as humane socialism or welfare economy, standing at the middle of ‘market economy continuum’ implementing a model which ensures inclusion through diversification  of  wealth and at the same time resisting high concentration of wealth (i.e. capitalism). It is clearly evident that inclusion is our constitutional obligation.

Let us try to understand how we can proceed towards the obligation of inclusion. To achieve this objective, we need appropriate policy, strategy, and implementation plan. It is a very hard task, if we ponder over the present position of concentration of wealth. Financial inequality is generally measured by Genie co-efficient which stood at .24 in 1974, .46in 2016 and .48in 2017. Inequality is growing at a fast rate and stands at an alarming level. Social happiness indicators will be grossly affected, if we fail to reduce inequality.

At this stage, half-hearted measures will not yield result. Because, wealth is power. Few wealthy groups may counter diversification measures, However, scope of this paper is limited to accommodate digital financial services and allied areas. Without policy commitment, only financial service measures may yield result modestly.    

For financial inclusion, Banks, NBFIs and micro-credit organizations may play vital roles. They may act in their traditional way. They may also join the digital platform. Most of the banks and NBFIs are now providing on line service throughout the country. Government banks are lagging behind, but catching up quickly. All banks are expected to be fully automated by next two years.

Most of the banks are providing ATM services in the city areas. Service provider banks have formed a platform to ensure that customers of all banks may use the ATM booths of any bank. Banks may stretch ATM services in the non-urban and rural areas, if demands can be created there with proper strategy of financial inclusion.

Opening and operation of bank branch involve high expenses and therefore, prohibitive in the vast rural areas. This is a big challenge for financial inclusion. Some innovative steps have been taken by some banks to face this challenge. It includes Agent banking, phone banking and low-cost operating centre. Low cost operating centre is yet to become effective. Let us take stock of other two innovations.

Agent banking involves selection of agents who will handle small transactions on behalf of a bank. Generally agents have their own other business. They must enjoy good reputation in the area, so that bank customers may have faith on them. Transaction ceiling is given depending on their wealth and activity. Agents are connected with their principal bank through phone system. Internet connection is also available with some agents. Gradually, we envisage a platform of agents with digital system.

Now in Bangladesh, there are 13 crore subscribers of mobile telephone. Cell phone is quickly transcending as a vital instrument for financial inclusion. Since every adult citizen possesses a cell phone, dramatic financial inclusion is possible through phone banking. Phone banking has already opened a new era in spreading banking activities throughout the country. Central bank has authorized a good number of banks to introduce phone-banking through Agents. 2 banks are doing phone banking in a large scale. Brac Bank and Dutch-Bangla Bank are pioneers. Other authorized banks are following.

Last year, cell phone companies applied to Central Bank for permission to go for phone banking. Licence to open cell phone companies is given by BTRI who are not authorised to regulate financial dealings. On the other hand, financial regulator Bangladesh Bank has no authority to regulate phone companies. Hence Bangladesh Bank had no way but to reject the proposal. Central Bank has entrusted these responsibilities on banks only. Banks are operating through selected agents. Phone companies remain tied with banks. This chain is being strengthened gradually towards achieving financial inclusion.

We have a word of caution. Some allegations are coming against cell companies in matters money laundering and illegal financial transactions. Central Bank has recently closed more than three thousand accounts, operated by phone-banking. Financial Intelligence is closing watching alleged transactions. We must find out ways to stop illegal transactions which are great hindrance towards sound agent banking and consequent financial inclusion.