FIs, MFIs need women’s branches

A study suggested the central bank (Bangladesh Bank) and the Micro-Credit Regulatory Authority (MRA) to encourage the financial institutions (FIs) and Mobile Financial Services (MFIs) to launch dedicated branches for female to enhance financial inclusion of women.

“The MRA should encourage MFIs to build female-led branches (already underway in some cases). Bangladesh Bank should explore mandates through which more female workers are recruited and placed in the branch offices of banks,” said the study report published on Monday.

The study made the recommendations since it found that many women face discomfort or discouragement from their families to visit branches of FIs and MFIs, especially in rural areas, but they feel more comfortable at bank branches with dedicated female desks.

The Aspire to Innovate (a2i) in collaboration with LightCastle Partners conducted the study titled “Assessing the current ecosystem of financial products for women in Bangladesh” and released the report on the study at a function at a city hotel on Monday.

The study also recommended formulating policies that ensure a certain level of female employees per branch or encourage FIs to set up a female-led branch.

It said that despite commendable progress on the social and economic inclusion of women in Bangladesh, there remain significant gaps in women labour force participation, entrepreneurship, and economic autonomy.

The study found that 85 percent of the total labour force of Bangladesh is part of the informal sector while 92 percent of women are engaged in the informal sector.

It said 60 percent of the female labour force is part of the agricultural sector, 17 percent of the industrial sector, and 23 percent of the service sector.

Since the majority of the female labor force is part of the informal sector, access to finance through formal institutions becomes difficult for them due to lack of documents, the study said, adding, therefore, they mostly rely on MFIs for financing purposes.

According to Bangladesh Bank, the total number of entrepreneurs affiliated with banks and non-bank financial institutions (NBFIs) as of December last year was 939,131 with only 83,268 female entrepreneurs, which is only 9 percent of the total entrepreneurs.

In 2020, the total SME credit disbursed for all the major sectors was Taka 1,045 billion (Bangladesh economic review, 2021), out of which only 3.4 percent was disbursed to women.

Bangladesh Bank had set a target for banks to disburse 15 percent of their total Cottage Micro Small and Medium Enterprises (CMSME) portfolio to women by 2024, but the study found that only a few NBFIs with strong agent banking network have managed to disburse above 10 percent while FIs with a separate department for women banking disbursed an average of 8 percent of their total CMSME portfolio to female borrowers.

The study said that currently, SME loans are being offered at 9 percent interest rate to women while they are also allowed to take collateral-free loans of up to Taka 25 lakh.

Besides, refinancing schemes are being provided at 5 percent interest while revolving working capital loans can be acquired at 4 percent interest rate, it added.

The NBFIs, however, provide SME loans at a higher interest rate of 10-12 percent with a less rigorous application process than that of banks, the study said.

“(That’s why) small-scale female entrepreneurs (typically ineligible for formal financing) tend to avoid formal institutions due to lack of adequate business documentation, while medium-scale female entrepreneurs do the same due to lengthy loan processing times, despite usually being qualified for these loans,” it added.

It said small-scale female entrepreneurs instead seek financing from alternative sources such as MFIs and associations due to greater accessibility as around half of all loan applications dropped by female entrepreneurs are rejected due to improper business finances, and/or lack of trade licenses.

“Around 61 percent of Bangladesh women-led SMEs (‘MSME’ Access to Finance, 2021) are either partly or fully constrained by lack of access to finance, compared to 49 percent for SMEs owned by men,” the study said, adding that rural beneficiaries do not prefer travelling to agent banking points and would rather take loans from or save with MFIs, since payments are collected from their residence.

Noting that verification of women’s authority in the business is a key issue concerning loan disbursement to women-run CMSMEs, the study suggested the central bank to generate a database of verified women entrepreneurs and gender disaggregated data from relevant fields that ought to be maintained and to take affirmative action for women and formulate better gender inclusive policies.