Financial Inclusion:

Financial inclusion is defined as access to the full range of financial services at an

affordable rate for everyone, with minimum risk through a competitive financial
marketplace. Financial inclusion or inclusive financing is the delivery of financial
services at affordable costs to sections of disadvantaged and low-income segments of
society Financial Inclusion has now become one of the strategic instruments for
achieving Sustainable Development Goals (SDGs) including Bangladesh’s Seventh Five
Year Plan’s goals.

Measures:
Central Bank has initiated several measures to achieve greater financial inclusion, such as
(1) opening of no-frills accounts, (2) relaxation on know-your-customer (KYC) norms,
(3) engaging business correspondents (BCs), (4) use of technology, (5) adoption of
Electronic Bank Transfer (EBT) to reduce the cost and time for fund transfer, (6)
introduction of General purpose Credit Card (GCC) facility to help the poor and the
disadvantaged with access to easy credit, (7) simplified branch authorization, (8) opening
of branches in unbanked rural areas.

Strategy:
The first National Financial Inclusion Strategy (NFIS) for Bangladesh has been set from
2019-2024.

Middle Income Country:

The time period was set in line with the government target to graduate to middle income
country status by 2024.

Current State of Financial Inclusion:

After decades of microfinance, its various achievements and criticisms notwithstanding,
we have clear evidence that there is demand for financial services among the
underserved. Until now, most bank branches (or ATMs) are concentrated in urban areas,
and high costs of setting up bank branches in rural areas have dissuaded banks from
reaching the last-mile customer. Now the country has almost 10000 (Ten) thousand
branches. But more 5000 (Five) thousand branches urgently needed for providing
efficient financial services. However, digital financial services (DFS), which are currently
almost exclusively, bank-owned and bank-run, will allow banks to reach the last-mile
customer. The newest entrants in the DFS space, with the widest potential for mass
market penetration, are mobile financial services (MFS) and agent banking services.
Mobile Financial Services:
MFS has also had a noteworthy journey of growth thus far. Starting in 2011, with the
establishment of a BRAC Bank subsidiary named bKash, a total of 18 banks are currently
providing MFS services in Bangladesh while 28 are licensed to do so. BRAC Bank's
"bKash" and Dutch Bangla Bank's "Rocket" are the leading players, although bKash
accounts for more than 80% of total MFS transactions.

Agent Banking:
Agent banking services is banking services which are provided through engaged agents
under a valid agency agreement, service agreement or a similar agreement.
Officially sanctioned by the Bangladesh Bank in 2013, agent banking has only recently
begun to take off. It is considered to be the latest innovation in banking services and is
persuading banks to think beyond CSR and focus on business imperatives with a view
towards serving the unbanked.
Now-a days the banking process is becoming faster, easier and wider throughout the
world. At the same time banking sector is modernizing and expanding its area in different
financial events every day.

The following services will be covered under Agent Banking:

 Receiving of small value cash deposits and cash withdrawals

 Inward foreign and local remittance disbursement

 Facility of small value loan disbursement

 Recovery of accounts, cards, loans, instalments to customers

 Facility of utility bill payment and other bills

 Cash payment under the Government social safety net programmer

 Facilitating fund transfer from account to account

 Balance inquiry and information

 Collection and processing of forms/documents in relation to account opening, loan

application, credit and debit card application from public
  Post sanction monitoring of loans and advances and follow up of loan recovery.

 Receiving of clearing and issuing cheque.

 Other functions like collection of insurance premium etc. (Agent Banking)

Monetary Policy:
Monetary policy is how central banks manage liquidity to create economic growth.
Liquidity is how much there is in the money supply. That includes credit, cash,
checks, and money market mutual funds.

Objectives of Monetary Policy

The primary objective of central banks is to manage inflation. The second is to reduce
unemployment, but only after they have controlled inflation.

Six Tools of Monetary Policy

All central banks have three tools of monetary policy in common. Most have many more.
They all work together in an economy by managing bank reserves.

First, it sets a reserve requirement, which tells banks how much of their money they must
have on reserve each night. If it weren't for the reserve requirement, banks would lend
100 percent of the money you've deposited. Not everyone needs all their money each day,
so it is safe for the banks to lend most of it out.

The Bangladesh Bank (BB) requires that banks keep 18% (CRR and SLR) percent of
deposits on reserve. That way, they have enough cash on hand to meet most demands for
redemption. When BB wants to restrict liquidity, it raises the reserve requirement. BB
only does this as a last resort because it requires a lot of paperwork.

It's much easier to manage banks' reserves using Bank rate (5%). This is the interest rate
that banks charge each other to store their excess cash overnight. The target for this rate is
set at the eight annual Federal Open Market Committee meetings. The Bank rate impacts
all other interest rates, including bank loan rates and mortgage rates.
The third tool is its discount rate. That's how it charges banks to borrow funds from the
fourth tool, the discount window. The FOMC sets the discount rate a half-point higher
than the bank rate. Bangladesh Bank prefers banks to borrow from each other.

Fifth, BB uses open market operations to buy and sell Treasurys and other securities from
its member banks. This changes the reserve amount that banks have on hand without
changing the reserve requirement.

Sixth, many central banks including BB use inflation targeting. It clearly sets
expectations that they want some inflation. The BB’s inflation goal is 5 to 7% percent for
the core inflation rate. People are more likely to buy if they know prices are rising.

Monetary policy of Bangladesh:

Monetary policies can promote economic growth by ensuring adequate availability of
credit and lower cost of credit. Easy availability of credits at low interest rate stimulation
investment and thereby quickens economic growth.

The policy will help real sectors achieve sustainable economic growth while fighting
inflation.Officials said the central bank has formulated the growth-supportive monetary
policy giving top priority to investment through increasing credit flow, especially in the
real economic sectors.

They also said the BB will facilitate credit flow to the productive sectors for achieving
7.8 per cent GDP (gross domestic product) growth by the end of this fiscal.The central
bank has prepared the policy blueprint considering the upward trend in prices of
petroleum products in the global market, and possible rising inflationary pressure, they
explained.

"We may take cautious policy stance to curb inflationary pursuers building up on the
economy ahead of the national elections," a senior BB official told the FE without
elaborating.Meanwhile, the inflation as measured by consumers' price index (CPI) rose to
5.78 per cent in the FY'18 on annual average basis from 5.44 per cent a year ago,
according to the Bangladesh Bureau of Statistics (BBS) data.

Food inflation stood at 7.13 per cent in the FY'18 as compared to 6.02 per cent in the
previous fiscal.The government had set the inflation target at 5.6 per cent for the FY'19.

In the policy document, the BB will also give emphasis on boosting loans for small and
medium enterprises (SME) and agriculture along with microcredit to create employment
opportunities across the country, the official added.
Meanwhile, private sector credit growth exceeded the target, set by the central bank
earlier, in June despite a declining trend in recent months.

The growth in credit flow to the private sector dived to 16.95 per cent in June 2018 on a
year-on-year basis from 17.60 per cent a month ago.It was 15.66 per cent in June 2017,
the BB data showed.The central bank in its outgoing monetary policy had set a target for
the private sector credit growth at 16.80 per cent at the end of June, 2018.

The policy has also encouraged banks to avoid unduly high, medium or long-term
investment financing exposures to corporate borrowers.“Inflation is currently under
control, but there are indications that it may increase in future in the event of devaluation
of taka, which is now under pressure.”

The current account will also face a large deficit this fiscal year because of higher import
payments to implement the mega projects. Repo and reverse repo policy interest rates
will, for the time being, have left unchanged at 6.75 and 4.75 percent, respectively.

The salient features of the current MPS:

1. Focus and engagement in mobilizing foreign savings of NRBs (Non-Resident
Bangladesh) through high yielding Wage Earners Bonds and portfolio investment
with Non-resident Investment Taka Account (NITAs) for NRBs indicating bond
market development as well as the revival of securities market development.
Issuing long-maturity corporate bonds in the capital market will encourage a
much-needed shift from bank loans to the capital market for long-term financing
paving the way of bond market foundation.

2. MPS focuses on series of measures to tighten the money supply and contain
aggressive and excessive lending. The policy encourages banks to avoid unduly
high, medium and long-term lending exposure to corporate borrowers and develop
capital market as an alternative source of funding for corporate houses
popularizing issuing a long-term corporate bond in the market.

3. MPS sets conservative target for private sector credit growth 16.8% though the
private sector credit growth reached to 18.1% in immediate past term with more
personal credit concentration. The reduction in ADR ratio will not hurt much the
liquidity supply in the market which will enhance growth. The unchanged repo
rate and reverse repo rate may to some extent control the huge liquid outflow in
the market and hold back the inflation rate though these tools are not widely used.

4. The shift in current account dynamics from the large surpluses of recent years to a
deficit from investment-and food-related imports, capital machinery import
especially 33% rise created pressure on the foreign exchange rates as well lower
 export growth and remittance has widened the negative capital and current account
balance.

5. Given the nominal depreciation of Taka against USD and other major currencies
nominal effective exchange rate (NEER) and real effective exchange rate (REER)
depreciation by 10% and 7% during 2017 respectively also made our foreign
exchange rate volatile and directive from Central Bank for keeping the cap of
exchange rate is not followed by the scheduled banks which inflate the cost of
doing business.

6. To support the enrichment of remittance rise and retention, the informal channel of
foreign exchange transfer and mobile backed fund transfer mechanisms can be
ceased. Export and remittance could be moderately enriched due to Dollar price
appreciation but the recent trend of export and remittance cannot commensurate
this as export diversity is not robust and less than import volume and GCC (Gulf
Cooperation Council) economic fall also to some extent squeezes our remittance
upturn.

7. The state banks are given re-capitalization fund almost every fiscal year but some
liquidity shortage of private banks and NBFI (Non-bank Financial Institution)
often borrow from 4 state-owned banks. The dual standard policy of
recapitalization versus external lending into banking sectors needs to be looked
into and rationalized as it is the two edge sword impact mass people.

Keeping inflation under control:

Inflation ended 5.7 points in last MPS. Due to increasing cost-of-living, doing-business
and other inflation increasing exogenous economic factors and geo-economic impacts on
the economy, the inflation aimed at 6.5 in given MPS. The inflation may be higher as
non-food inflation factors like LNG led energy price and LPG, an indication of the higher
tariff of imported liquid fuel can exceed the 6% inflation in the given MPS.

Broad money target reduction to 13.3% in this MPS may help reduce inflationary
pressure with cautionary spirit provided the import trend is kept consistently low. The
widening negative current and capital account balance tend to signal weak balance of
payment and wake up signal for the economy.

Controlling the illicit capital outflow:

The GFI (Global Financial Integrity) report of $61.63 Billion illicit capital flow from
Bangladesh between the Year 2004 and 2013 is really panicking, this devastating, illicit
capital outflow needs to be repealed and ceased. As increasing import LC in recent years
also needs to be brought under strong scrutiny. The decline of government borrowing
from bank and increase of extreme ‘Sanchypatra’ led to Government borrowing
imbalance the financial market add tax burden and incidence on mass people hurting the
economic sustainability. The trend of nontradable savings instrument is also being large.
This sort of culture development is discouraging and slimming banking portfolio and
their expansion.

The current account:

A current account is an economic term that helps indicate how well a country is able to
trade with foreign markets. Taking into consideration the balance of trade, it looks at the
amount of products a country exports versus how much it imports. The current account
represents the net effect of this transaction on the given country.

In other words, if a country exports more than it imports, its current account will have a
positive balance. Likewise, if it imports more than it exports, the current account balance
will be negative. A deficit occurs when a country's government, businesses, and
individuals export fewer goods and services than they import.

The current account is part of a country's balance of payments. The other two parts are
the capital accounts and the financial accounts.Bangladesh's current account deficit
recorded an all-time high of $7.08 billion in the first nine months of the fiscal year as the
country's capacity to export is failing to keep up with the appetite for imports.

Bangladesh's current account deficit is set to cross the $10 billion mark for the first time
in history. Between the months of July and April of fiscal 2017-18, the current account
deficit stood at $9.37 billion.A deficit of $10 billion means the country has already
borrowed the same amount from foreign sources. If the trend continues Bangladesh will
become an indebted country within the next five years.
If it was for a large, resource-rich country like the United States or Germany, a current
account deficit of around USD 10 billion would be nothing. But for a small developing
economy like Bangladesh, a current account deficit of USD 10 billion or four percent of
GDP is definitely big enough to sound the alarm.
Bangladesh Bank has already injected about $2.5 billion into the market to cool down the
foreign exchange market. If the central bank stops its intervention into the market, the
exchange rate of the dollar against the taka will go up suddenly. The exchange rate is Tk
83.75 per dollar, up from Tk 80.64 a year earlier.
A higher import payment against the lower export earnings was largely responsible for
the large trade and current account deficit.
Major functions of Bangladesh Bank (BB) in an economy are as follows:

BB as the central bank of Bangladesh executes all the functions that a central bank
traditionally performs as elsewhere in the world. The core functions of BB are briefly
discussed as follows:

(1) BB formulates and implements monetary policy aiming at stabilizing domestic

monetary value and maintaining competitive external per value of taka for fostering
growth and development of country's productive resources in the best national interest;

(2) BB formulates and implements intervention policies in the domestic money market
and foreign exchange market. BB intervenes the money market with some policy
instruments such as (i) open market operation (treasury bills/bonds, repo, reverse repo
auctions), (ii) variations in reserve ratios such as cash reserve requirements (CRR) and
statutory liquidity ratio (SLR), (iii) secondary trading, (iv) discounting rate/ bank rate,
and (v) moral suasion;

(3) BB monitors and supervises scheduled banks and non-bank financial instructions
(NBFIs) that include off-site supervision and on-site supervision in order to enhance the
safety, soundness, and stability of the banking system to ensure banking discipline,
protect depositors' interest and retain confidence in the banking system;

(4) BB holds sole responsibility of the management of international reserve representing

aggregate of BB's holding of gold, foreign exchange SDR and reserve position in the
IMF;

(5) BB, as the central bank of Bangladesh reserves sole responsibility to issue bank note;

(6) BB performs as a clearing house for the scheduled banks to clear and settle inter-bank
payment arising through drawing cheque, drafts, bills etc. to one another;

(7) BB acts as a banker to the government;

(8) BB functions as a lender of the last resort for the government as well as for the
country's scheduled banks;

(9) BB acts as an advisor to the government;

(10) BB directs the growth expediting programs for the national interest.
Additional Functions of Bangladesh Bank:
Exchange rate policyTowards liberalization of foreign exchange transactions, a number
of measures were adopted since 1990s. Bangladeshi currency, the taka, was declared
convertible on current account transactions (as on 24 March 1994), in terms of Article
VIII of IMF Article of Agreement (1994). As Taka is not convertible in capital account,
resident owned capital is not freely transferable abroad. Bangladesh adopted Floating
Exchange Rate regime since 31 May 2003.

Reserve management strategy Bangladesh Bank (BB) is empowered by section 7A of

Bangladesh Bank Order, 1972 (President's Order No. 127 of 1972) to hold and manage
the official foreign exchange reserve of Bangladesh. It maintains its foreign exchange
reserve in different currencies to minimize the risk emerging from widespread fluctuation
in exchange rate of major currencies and very irregular movement in interest rates in the
global money market. BB has established Nostro account arrangements with different
Central Banks.

Deposit and insurance The Deposit Insurance Scheme (DIS) was introduced in
Bangladesh in August 1984 to act as a safety net for the depositors aiming at
minimisingthe risks of loss of depositors' fund with banks in which all the commercial
banks including foreign banks and the specialised banks operating in Bangladesh are the
member of this scheme by compulsion as provided under Article of Bank Deposit
Insurance Act 2000.

Research and publications Bangladesh Bank brings out a number of research and
statistical publications. Among others, major publications include the Annual Report, the
Monetary Policy Review, the Financial Sector Review, the Bangladesh Bank Quarterly
Report, and Monthly Report- Major Economic Indicators, Monthly Economic Trends
intended to inform policy makers, market participants and general public.

Financial inclusion and growth expediting programs Basic financial services such as
deposit, credit etc. is considered as entitlement of all people in a society, this is
particularly true in developed countries. Inclusiveness of a greater segment of people in
financial system is pre requisite for economic development of a country like Bangladesh
to facilitate employment to ease credit facilities. Despite a large number of bank branches
and micro finance institutions in our country, a large segment of our population
particularly rural poor have scant access to banking services.

In addition, BB is always urging the financial institutions to be more committed to the

society by fulfilling their Corporate Social Responsibilities (CSR) because the ultimate
target of any business activity should be the maximization of social welfare.

Treasury Bond:
Bonds issued though the government are called treasury bonds. These bonds are issued to
help the government pay off debts and to fund government activities. Of all the bonds,
these have the lowest returns or yields. However, government bonds are exempt from
local and state taxes and they are lower in risk if you hold them until they mature.

Bangladesh Bank issues 07-day BB Bill,14-day BB Bill,30-day BB Bill, 91-day Treasury

bill, 182-day & 364-day T-Bills, and 2-yr Treasury Bond, 5-yrTB, 10-yr TB 15-yr & 20-
yr Treasury Bonds.

Repo:
A repurchase agreement is the sale of a security combined with an agreement to
repurchase the same security at a higher price at a future date. It is also referred to as a
"repo." Repos are usually very short term transactions, mostly with overnight terms
although some extend for a period of years. For short term repos, the risks are very low.
For longer long repos, with the possibility of fluctuations in the market, collateral risk is
much higher.
A repurchase agreement (repo) is a form of short-term borrowing for dealers in
government securities. The dealer sells the government securities to investors, usually on
an overnight basis, and buys them back the following day.
Arrangement where a dealer or broker agrees to buy a security and sell it to a customer
(investor) at a higher price on a specified date. These agreement are in effect loans from
dealers to investors, collateralized by the securities bought.
A reverse repurchase agreement is the purchase of securities with the agreement to sell
them at a higher price at a specific future date.

LIBOR
LIBOR, the acronym for London Interbank Offer Rate, is the global reference rate for
unsecured short-term borrowing in the interbank market. It acts as a benchmark for short-
term interest rates. It is used for pricing of interest rate swaps, currency rate swaps as well
as mortgages. It is an indicator of the health of the financial system and provides an idea
of the trajectory of impending policy rates of central banks.

DIBOR
Dhaka inter-bank offer rate (DIBOR), which will help banks get a benchmark interest rate
or reference rate."An established benchmark rate is required for the buoyancy and
transparency of any interbank market. This is a beginning towards the development of a
liquid interbank term market in Bangladesh." DIBOR will provide a leading indicator of
our economic and financial condition to foreign investors, who for long have been
enquiring about such an indicator.
A benchmark rate will create a positive impression on our market and attract more
foreign investors, as they will now have a reference rate, which they can use to estimate
their financial projections. Such offer rates existing in other cities include LIBOR in
London, SIBOR in Singapore, TIBOR in Tokyo and EURIBOR in eurozone.