Developmental Central Banking:

The Bangladesh Experience

Dr. Atiur Rahman
 Developmental Central Banking:
Rethinking induced by Global Crises

The crisis of 2007-08

revealed the fallout
of this myopic
Washington approach.
Consensus turned
the tide again
Some developing (towards
countries fought back conventional
(e.g., capital control ‘inflation targeting’).
Major central banks by Malayaisa)
and IMF pushed for
reversal (to
Rethinking initiated conventional
in the post WW2 era. approach).
Ò
Before the crisis, mainstream economists and
policymakers had converged on a beautiful
construction for monetary policy. … we had
convinced ourselves that there was one target,
inflation. There was one instrument, the policy
rate. … If there is one lesson to be drawn from this
crisis, it is that this construction wasn’t  right, that
beauty is not synonymous with truth. The fact is
that there are many targets and there are many
instruments. How you map the instruments onto
the targets and how you use these instruments
best is a very complicated problem.

- Oliver Blanchard
Chief Economist for IMF from 2008 to 2015
 Bangladesh’s Central Bank:
An Agent of Sustainable Economic Development

1 Financial Inclusion Campaign 2 Promotion of Agriculture

Credit program for share-

3 croppers 4 Green credit support

5 SME credit programs 6 Women entrepreneurship

Industrial policy (especially

7 the cluster approach) 8 Guiding green development

Source: Gerald Epstein, 2013

POST-COVID WORLD: UNCERTAIN &
UNEQUAL RECOVERY

Global recovery Govt. responses Developing With poorer

projections have been countries have credit histories
obscure constrained by very limited and ratings
disparities across macroeconomic fiscal space due poorer countries
& within policy space to diminished face much higher
countries. (especially access borrowing interest rates on
to finance). capacity. foreign
borrowing.
"We now witness an uneven response to globalization around the world. During
the COVID-19 pandemic, we have seen the international governance system
failing millions of people in the Global South. The huge gap in access to vaccines
and treatments is only too telling." 

- HPM Sheikh Hasina in her remarks at the Paris Peace Forum on 12 November 2021
INTERNATIONAL SUPPORT HAS BEEN
SIMPLY INADEQUATE
Almost
Almost of all fiscal efforts for recovery have gone to the
developed countries (equivalent to 16 percent of their
80% national income).

cut
cut in
in bilateral
bilateral aid
aid commitments
commitments to
to poorer
poorer countries
countries have
have
36% taken
taken place
place inin 2020.
2020. Consequently,
Consequently, an
an average
average 2.6%
2.6% only
only
increase
increase inin government
government spending
spending has
has been
been possible
possible in
in LICs.
LICs.

fall
fall in
in FDI
FDI to
to developing
developing economies
economies inin 2020
2020 has
has made
made the
the
12% recovery
recovery process
process even
even more
more difficult
difficult for
for them.
them.
NOW IS THE TIME TO FURTHER AUGMENT
DEVELOPMENTAL CENTRAL BANKING
To
To enable
enable spending
spending on
on nationally
nationally
produced
produced goods
goods &
& services.
services.

Public
Public debt
debt is
is high.
high. To
Governments
Governments To invest
invest in
in productive
productive capabilities
capabilities and
and
Revenue
Revenue has
has shrunk.
shrunk. creating
require
require thethe credit
credit creating more
more jobs.
jobs.
Central
Central Banks
Banks need
need flow
flow for
for creating
creating
to
to expand
expand their
their fiscal
fiscal space
space (to
(to
balance
balance sheets
sheets toto To
strengthen
strengthen relief,
relief, To enhance
enhance social
social protection
protection (to
(to cover
cover
give
give credit
credit to
to the
the the
recovery,
recovery, & & reform)
reform) the newly
newly poor
poor and
and vulnerable).
vulnerable).
governments.
governments.

To
To ensure
ensure excess
excess liquidity
liquidity does
does not
not
create
create inflationary
inflationary pressure
pressure or
or imports.
imports.
 “Monetary policy has implications for
issues beyond inflation and payments,
including climate change and
inequality. ... The best way forward for
central bankers is to use monetary policy
to target inflation, while directing their
regulatory powers at other pressing
concerns.”
-Barry Eichengreen, Professor of Economics, University of California, Berkeley
‘ New-Model Central Banks’, Project Syndicate, February 9, 2021.
DEVELOPMENTAL CENTRAL BANKING IN BANGLADESH:
BANGLADESH BANK AS AN EARLY STARTER

The challenge
The Solution
Bangladesh
A strong financial
Economy was The strategy
under pressure in Bangladesh Bank sector enabled
2008-09 due to opted for a broad- Outcome GoB to provide
based financial Reach the bottom stimulus
the Global of the pyramid
Financial Crisis inclusion A strong packages
campaign (to (finance
agriculture, macroeconomic equivalent to
finance the real basis (reserve 4.6% of the GDP
sector) promote SMEs,
women enhanced, amid the
entrepreneurship, inflation pandemic
green growth) controlled,
investment
accelerated)
 DIGITIZATION HAS BEEN THE KEY TO
BANGLADESH BANK’S SUCCESS
ISS
ISS (Integrated
(Integrated Supervision
Supervision System)
System) has
has ensured
ensured effective
effective and
and efficient
efficient monitoring
monitoring by
by the
the central
central bank.
bank.

Introduction
Introduction of
of automated
automated CIB
CIB enabled
enabled effective
effective credit
credit risk
risk management
management and
and eased
eased doing
doing business
business in
in
Bangladesh.
Bangladesh.

Initiatives
Initiatives like
like automated
automated Cheque
Cheque processing,
processing, National
National Payment
Payment Switch,
Switch, BEFTN
BEFTN and
and RTGS
RTGS has
has
enhanced
enhanced speed
speed asas well
well as
as reliability
reliability of
of banking
banking services.
services.

KYC
KYC process
process has
has been
been linked
linked with
with the
the national
national database
database of
of election
election commission
commission through
through use
use of
of NIDs.
NIDs.

Digital
Digital financial
financial services
services (online
(online banking,
banking, mobile
mobile financial
financial services,
services, and
and agent
agent banking)
banking) has
has revolutionized
revolutionized
access
access toto finance
finance in
in Bangladesh.
Bangladesh.
 OUTCOME OF BANGLADESH BANK’S
DIGITAL FINANCIAL SERVICE REVOLUTION

7% 68% 257% 300% 661%

Increase
Increase in
in Increase
Increase in
in Increase
Increase in
in Increase
Increase inin
number
number ofof bank
bank number
number ofof ATM
ATM number
number of
of mobile
mobile number
number of of mobile
mobile Increase
Increase in
in
branches
branches per
per 100
100 machines
machines per
per 100
100 money
money agents
agents per
per money
money accounts
accounts mobile
mobile money
money
thousand
thousand persons
persons thousand
thousand persons
persons 100
100 thousand
thousand per
per 11 thousand
thousand transactions
transactions per
per 11
(from
(from 8.02
8.02 to
to (from
(from 4.81
4.81 to
to persons
persons (from
(from persons
persons (from
(from 45
45 thousand
thousand persons
persons
8.58)
8.58) 8.07)
8.07) 187
187 to
to 667)
667) to
to 178)
178)

Between
Between 2013
2013 and
and 2018
2018 access
access to
to finance
finance got
got significantly
significantly enhanced
enhanced through
through digitization.
digitization.

Source: FAS Survey, 2018

BANGLADESH’S RECOVERY:
DFS TO PLAY A PIVOTAL ROLE

Reaching the
distressed with
digital finance will be
DFS has proven its a core element of
efficiency and the recovery
reliability to the process.
Through DFS, people and the
finance has reached government.
the ‘bottom of the
pyramid’ at a
minimum cost.

Proliferation
Proliferation of
of MFS
MFS and
and Agent
Agent Banking
Banking services
services in
in Bangladesh
Bangladesh have
have proven
proven that
that early
early policy
policy moves
moves
towards
towards the
the right
right direction
direction can
can provide
provide cushion
cushion in
in case
case of
of shocks.
shocks.
 MOBILE FINANCIAL SERVICE:
BANGLADESH ENJOYING THE BENEFITS
OF AN EARLY & PRUDENT DECISION
SUCCESS FROM INNOVATIVE POLICY

 Almost a decade ago Bangladesh Bank,

upon considering the prospects and
challenges of MFS- chose to implement the
‘Bank-led Model’.

 Within three-four years, virtually all the

citizens were brought under MFS coverage.

 The country is enjoying the benefits of that

prudent and early decision amid the
pandemic.
KEEPING THE ECONOMY VIBRANT AMID
THE PANDEMIC
BDT Over
347
712 million 98
billion transactions million clients

Monthly In May 2021. As of May 2021.

transaction in May Covers shipping Almost 20 million
2021 (more than spending, salary new clients added
five times higher disbursement, GoB since the beginning
than that of payment, & utility of the pandemic.
February 2020) bill payment.
MFS IS OPENING NEW WINDOWS FOR
BANGLADESH
BDT Over
The government provided347cash assistance to 50 lakh poor families
712
hit by the coronavirus pandemic 98 operators.
million through four major MFS
billion transactions million clients

MFS has helped remittance inflow growth amid the pandemic.

bKash alone brought in BDT 12 billion remittance in 2020.

More people are relying on MFS. The providers are also coming up
with new services. MFS-based credit program has been piloted.
RELIANCE ON MFS WILL FURTHER
INCCREASE

44% of the MSMEs

perceive MFS to be
providing them with
MFS will become a a competitive edge.
key determinant in
the growth of the
In the post-COVID MSMEs.
world more people
will rely on MFS.

Advancement
Advancement of
of the
the macroeconomy
macroeconomy will
will also
also rely
rely to
to aa significant
significant extent
extent on
on growth
growth of
of the
the MFS
MFS providers
providers
AGENT BANKING:
NEW DIMENSION OF SERVICE IN
REMOTE AREAS OF BANGLADESH
AGENT BANKING HAS ENHANCED ACCESS TO FINANCE
IN HARD-TO-REACH AREAS OF BANGLADESH

BDT Over
347
712
52% 67%
million 98
20%
billion transactions million clients

Clients reported saving Reported they do not Reported they were not
time because of outlets have to spend money to able to save before agent
being close to their travel to the outlets banking was available in
residences/workplaces. (previously they had to). their locality.

Source: Field Survey by Unnayan Shamannay, 2018

PANDEMIC HAS MADE AGENT BANKING DELIVER
FURTHER ON ITS GREAT POTENTIAL
BDT Over
347
712
52% 67%
million 98
20%
billion transactions million clients

Number of accounts Deposit mobilization Over the course of

stood at 88 million as stood at BDT 137 2020, loan
of October 2020. This million in October disbursement was up
number almost 2020. This is more by 370%, remittance
doubled during 2020. than double of the distribution by 302%
same in the previous and utility bill
year. payment by 17%.
 THE POTENTIAL OF AGENT BANKING NEEDS TO BE
HARNESSED IN THE PROCESS OF ECONOMIC RECOVERY

BDT Over
Low-Cost
712 98
Running a bank branch costs BDT 0.5 to 0.7 million per month.
billion Agent outlets are much cheaper than that.million clients

Easy
Takes 5-7 minutes to fill up a KYC form to have an account at an
agent outlet. This is easy for the people in rural areas.

Sustainable
A reliable means to ensure access to finance for hard-to-reach
areas. Women entrepreneurs are being specially benefited.
LOOKING AHEAD
 BANGLADESH BANK’S GREEN DRIVE
CONTINUES
BDT Over
347
712
52% 67%
million 98
20%
billion transactions million clients

BDT 200 crore Green transformation BDT 1,000 crore Sustainable finance
refinance scheme for fund for export- technology policy for ESG risk
52 green products oriented businesses development fund to management and
(USD 200 million plus support green clear directives (20%
Euro 300 million) technology of term loans for
development sustainable
businesses and one-
fourth of it for green
businesses)

Green financing funds and policy of Bangladesh Bank will surely reinforce longer-term
climate-friendly initiatives of GOB (e.g., Mujib Climate prosperity plan, Delta Plan etc.)
GoB is now developing the strategic
investment framework- ‘Mujib Climate
Prosperity Plan’ to mobilize finance through
international cooperation for renewable
energy and climate resilience initiatives …

“Climate change, pandemics and the

destruction of nature are common
threats. They should unite us in
working towards a common solution: a
cleaner, greener and safer world.”

- HPM Sheikh Hasina in the Financial Times on 28

September 2020
 Lessons Learned
• One size does not fit all (taking national and conjunctural needs into
account is pivotal)
• Specific groups and areas can be targeted (e.g., success of the share-
croppers’ credit program)
• Need to focus on more than just controlling inflation (focusing on
broader economy and changing the mindsets have yielded great
results).
• Broader expertise and use of new tools (green technology, DFS etc.)
• Developmental targeting (enhancing transparency and accountability of
the developmental approach).
 Lessons Learned (contd.)
• Coordination with broader policy framework (having understanding of
the policy thrust of the government helps)
• Directing credit to productive sectors instead of to speculative usage
(there need not be a trade-off between developmental central
banking and financial and economic stability)
• Developmental goal must be consistent with capacity (it is important
not to over-reach beyond institutional and economic capacity).
DEVELOPMENTAL CENTRAL BANKING MUST BE CONTINUED
…
The drive for digitization must continue. No alternative to a ‘learning by doing’ approach.

Digital
BDT infrastructure and access to internet needs to become cheaper and sustainable.
Over
347
712 million
A policy environment focusing on customer
98
benefit required (e.g., interoperability, favorable tax policy
billion
etc.) transactions million clients

Innovations need to be encouraged. Sharing international experience and continued R&D are pivotal.

Gaining and maintaining customer confidence is pivotal. DFS needs to ensure that customers get
acclimated to the ‘new normal’ with ease.

More coordination between fiscal and monetary policies as the space for monetary expansion is reaching
limits;

More investment in digital finance related infrastructure by the central bank with support from the government.