© Helvetas

Beyond Credits: Financial Inclusion in Bangladesh

BY: Noor Akter Naher, Zenebe B. Uraguchi - 22. July 2016
© Helvetas

It’s estimated that 2.7 billion of the world’s poor live on with a daily income of less than two dollars per person. This figure raises some fundamental questions: How do poor women and men ensure there is something to eat every day? How do they deal with emergencies?

In this blog post, we share the experience of the Samriddhi project in Bangladesh on addressing financial inclusion of poor and disadvantaged women and men. The experience shows that while the business model of microfinance institutions gave access to credits to millions of users, this didn’t address, as discussed below, critical issues of financial inclusion.

Understanding financial inclusion  

Financial inclusion is more than merely receiving credits from microfinance institutions. It’s about access (physical proximity, affordability, convenience); use (financial capability, actual use — regularity, frequency, time used); and quality (adapted to client needs, provided responsibly). The experience of the Samriddhi project showed that successfully enabling access and use of quality products and services requires understanding the following key factors of financial inclusion.

Financially active and heterogeneous users

Users of financial products are heterogeneous – they’ve diverse demands shaped by geography (rural and urban), income levels (middle income, poor, extreme poor), as well as gender and age (women, young and old). The reason for using financial products, moreover, is just as varied, ranging from growth to cash management and risk mitigation. Contrary to general assumptions, most poor and disadvantaged women and men in Bangladesh are financially active despite their financial engagement is limited to simply ‘recycling’ money from one informal source to another, which is highly risky and expensive.

Broader financial ecosystem 

Financial inclusion requires services that go beyond transactions between supply and demand. These services include training, coordination, information and advocacy, as well as rules and regulations such as client protection and certification. Products and services also aren’t exclusively about credits; they include savings, payments and insurance. In Bangladesh, the financial ecosystem is heavily dominated by community-based providers like traders, shop owners and community-based groups like savings and self-help groups. Others are formal institutional providers such as registered institutions (e.g. NGO microfinance institutions, money transfer businesses) and regulated institutions (savings banks, agricultural banks). The financial ecosystem, in short, isn’t just composed of microfinance institutions.

Evolving delivery mechanisms

Building and operating traditional bank branches has been a major obstacle for reaching the poor and disadvantaged. Women, for example, face mobility problems in Bangladesh, and brick-and-mortar branches are ineffective and expensive to set up and maintain in remote communities. Digital finance holds an enormous opportunity for greater financial inclusion and expansion of basic services; nearly 50% of people in the developing world, including Bangladesh, own mobile phones. Tapping into these opportunities is thus critical.

Root causes of financial exclusion  

The Samriddhi project staff heard a number of reasons why the poor and disadvantaged struggled to have adequate and quality access to and use of financial products and services. Quite often, it was assumed, the poor and disadvantaged had insufficient income and high-risk profile. It was common to hear they are financially inactive. The government is also blamed for the problem — reforms for financial rules/regulation are ineffective.

The project staff weren’t convinced by these arguments. They found out that the main problems were underperforming systems for a package of services. For example, there was lack of adequate and relevant information (e.g. on the types of services and products, and conditions for use). Services were missing for linking users and providers, and the capacity of users to negotiate with potential providers.

Demands were unmet because of weak business and technical capacity of providers for designing products and services that were responsive and affordable. Service for advocacy on rules/coordination to approach and influence relevant government bodies (on rules and regulations concerning client protection) was also lacking.

What worked and didn’t work

The project designed interventions using its analysis of the root causes. It identified actors based on their incentives and capacities. The main interventions included support to financial service providers to design suitable products; design of information system on providers, users as well as types of products and services; and financial literacy through local service providers. Overall, the experience of the Samriddhi project showed good progress in financial inclusion of poor and disadvantaged women and men.

Diversifying the sources of financial products and services: the project created linkages with a range of financial service providers. In 2010, there were predominantly many NGO microfinance institutions, and by 2014 the portfolio grew to banks, traders and financial service associations/service providers. The local service provision model, [1] which was facilitated by the project, contributed to access but wasn’t successful in improved usage (due to limited financial literary).

Broadening the types of financial products and services: the project worked with providers to design suitable cash and in-kind financial products, as well as local insurance schemes. Users had access to in-kind or non-monetised credit provided in the form of inputs – young animals or feed in the bull fattening subsector; fertile eggs or young chicks in the duck and chicken subsector; fingerlings in the fish subsector; seeds or seedlings in the fruits subsector.

Gender disparity: the project made progress in tackling social barriers as a prerequisite to women’s economic empowerment. For example, more women were able to have different products that met their livelihoods. Compared to men, however, women and in particular older, widowed and single women were more likely to face financial exclusion.

Multiple risks and limited mitigation strategies: agriculture-related loan risk management system is weak in Bangladesh, or it’s just used to ensure repayment of credits by borrowers often leading to coercion and conflicts. It isn’t tailored to the agricultural production cycle, addressing risks and corresponding funding needs of producers. This limits reaching poor and disadvantaged poor women and men. Despite the project worked to address disaster risk reduction, the progress was limited in enabling the poor and disadvantaged to have access to insurance schemes beyond the limited engagement of local traders and community organisations.

In conclusion, the two key messages of this blog post are:

First, receiving credits or opening a bank account is an important step towards financial inclusion. Yet financial inclusion is more than credits and bank accounts; it constitutes access, use and quality of a range of financial products and services from multiple providers.

Second, successful financial inclusion requires understanding key drivers and root causes. Users are heterogeneous and mostly financially active. Focusing on broader financial ecosystem enables understanding root causes and what functions and by which actors need to be undertaken to address the problems. Solutions also need to take into account practical business plans and adequate financial literary, as well as delivery mechanisms (e.g. digital finance) to reach poor and disadvantaged people who often live in remote areas.

Additional sources


[1] Local service providers (LSPs) were farmers, traders or inputs providers that acted as a hinge between poor farmers / producers, private sector entities and Government line agencies, helping producers to enter and successfully act in markets.

Programme Manager, East Europe, South Caucuses & Western Balkans; Senior Advisor, Sustainable & Inclusive Economies

Noor Akter Naher is the Programme Officer of Helvetas Swiss Intercooperation Bangladesh.

Helvetas - a partner for true change
Truly changing lives
Change takes place where people have decided to break new ground. Teófilo Caraballo, for example. He made it possible for his family to drink clean water from their own tap.