M. S. Choudhury Ph. D. 2015
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FINANCIAL INCLUSION AND LIVELIHOOD DYNAMICS: EVIDENCE FROM NORTHEAST RURAL BANGLADESH M. S. Choudhury Ph. D. 2015 FINANCIAL INCLUSION AND LIVELIHOOD DYNAMICS: EVIDENCE FROM NORTHEAST RURAL BANGLADESH Mohammad Sadiqunnabi Choudhury A thesis submitted in partial fulfilment of the requirements of the University of East London for the degree of Doctor of Philosophy September 2015 Supervisory team 1. Director of studies Dr. Meera Tiwari Head of Global Studies Reader in International Development School of Social Sciences, UEL 2. Second supervisor Dr. Massimo De Angelis Professor of Political Economy and Development Co-ordinator, Centre for Social Justice and Change School of Social Sciences, UEL ii Abstract The study focuses on rural livelihoods in the northeast region of Bangladesh highlighting two important aspects: household strategies and financial intervention. It uses participatory methods and quantitative evidence to understand the livelihood dynamics and the extent of financial inclusion in livelihood securities. In the broader context of vulnerability, the study focuses particularly on vulnerability to risk related shocks and the strategic uses of livelihood assets in combating such risks. The livelihood strategies include income-generating activities, risk coping strategies and the role of institutions in confronting vulnerability. Households develop coping and adaptation strategies to manage risks using various resources available. Strengthening the capacity often needs resilience building with self-efforts and external interventions in order to nullify the impacts of shocks and hazards. Given the vulnerability context, the study investigates how rural people deal with risks to achieve livelihood securities. Findings show that rural people handle minor risks by self- insurance mechanism including cash on hand and household savings. They manage intermediate risks through community or market-based arrangements including borrowing from moneylender or MFIs. For major risks such as flood and cyclone, they often urge for government or donor support. Household’s coping capacity depends on the appropriateness of risk management tools and strength of the households (resilient, weak or fragile). Adaptation and resilience to risks largely depend on household’s resource base and external interventions. Financial inclusion is one of the major external interventions in rural livelihoods. Rural people consider financial intermediation as avital instrument among available livelihood interventions. However, actual role of financial instruments is underutilized, as financial inclusion is incomplete in rural areas. This research identifies some financial inclusion gaps in the northeast rural Bangladesh. To minimise inclusion gaps, the study recommends raising the scale and outreach of banking and financial services through cost-effective means such as agent banking or mobile financial services (MFS). There are potential barriers to those technology-led financial services. For sustainable livelihood security, rural people need these obstacles eliminated. iii Acknowledgement I would like to express my gratitude to the Director of Studies (first supervisor), Dr. Meera Tiwari, for her patient guidance and encouragement throughout the study. My second supervisor Professor Massimo De Angelis also provided useful advice, comments and suggestions to give a nice shape of the research especially at the initial stages. I am grateful to all course instructors at the Graduate School and the School of Social Sciences, University of East London, especially Professor Alan Brimicombe, Professor Maria Tamboukou and Mr Paul Kiff, for refreshing my knowledge in academic research. Thanks to the Postgraduate Research Administrator, Mr Phil Rees for his constant and tireless administrative support. My special thanks to Ms Ahsana Israel who managed time from her busy schedules to proofread whole thesis with utmost zeal. In Bangladesh, I am grateful to Mr Zahin Ahmed, Executive Director of the Friends in Village Development Bangladesh (FIVDB), who promptly gave permission to use branch office data, interview field staff and take logistic support from branch offices. Special thanks to Mr Ruhel Kabir, Director, Integrated Financial Services Programme, FIVDB for his invaluable support from the very beginning of the fieldwork to its end. Thanks also go to my ex-students Arif and Kona at the FIVDB head office in Sylhet for making stress-free communication between the authority, field staff and me. I also get support from two Dhaka based MFIs, ASA and Grameen Bank, which have programme coverage in the sample villages. Many thanks to central authorities of those MFIs for providing branch office data and permitting group discussion with their field staff. I would like to express my deep gratitude to the participants in PRA and FGDs without whom this research would never see the light. I am grateful to the University Meet Microfinance (UMM), Germany for providing a grant for fieldwork from February to April 2013 and financial support to attend the ‘Third European Research Conference on Microfinance (10-12 June 2013)’ at the University of Agder, Norway to present preliminary findings of the research. The European Microfinance Platform and the Norwegian Centre for Microfinance Research, University of Agder jointly organized the conference. Thanks to the organizers and particularly to the seminar participants who provided fruitful comments and suggestions for this research. iv I would like to thank my wife Lucy and daughter Oyshee for providing unlimited mental support to finish the thesis. I am glad that they happily bear the troubles out of my minimum participation in the family responsibilities during the time of intensive research. I am extremely grateful to my father who passed away during the course of this research. He was very enthusiastic and passionate about my PhD project with all forms of support, even at the cost of his last farthings. Thanks to my elderly mother who has been constantly reminding the wishful and encouraging expression of my father “…to be a proud father of a doctorate”. It is now her aspiration I am committed to fulfil. I am also grateful to my elder sister and brother in London for taking the financial responsibility and mental support role of our beloved father in this project. Thanks to all of my brothers and sisters and their kids at home and abroad who are united for one single wish: realize the ambition anyway! v Dedicated. ‘...to my beloved father who passed away with an unfulfilled aspiration and to my loving mother who has been eagerly waiting for the aspiration comes true.’ vi Table of Contents 1. Introduction 1 1.1 Background of the study 1 1.2 Research problem and aims 3 1.3 Overview of previous studies 5 1.4 Rationale and scope of the research 8 1.5 Organization of the thesis 11 2. Conceptual and theoretical framework 12 2.1 Financial Inclusion 12 2.1.1 Definition and concepts 12 2.1.2 Measurement of financial inclusion 14 2.2 Financial inclusion and vulnerability reduction 15 2.2.1 Exclusion-crises interaction 15 2.2.2 Financial inclusion and coping capacity 16 2.2.3 Financial transmission channel 16 2.2.4 FI-VR link 18 2.3 Livelihood approach 20 2.3.1 Livelihood assets 21 2.3.2 Vulnerability context 22 2.3.3 Household strategies 24 2.3.4 External interventions 25 2.3.5 Livelihood achievements 27 2.4 Poverty and Vulnerability 27 2.4.1 Measurement of poverty 28 2.4.2 Measurement of vulnerability 30 3. Research design and methodology 34 3.1 Study area 34 3.1.1 Northeast region of Bangladesh 34 3.1.2 Reasons behind selecting the study area 35 3.1.2 Selection of villages 36 3.2 Data and methods 36 3.2.1 Data requirements 36 3.2.2 Data sources 37 3.2.3 Sampling design 38 3.2.4 Data collection methods 38 3.3 Survey instruments 39 3.3.1 Participatory rural appraisal (PRA) 39 3.3.2 Poverty scorecard (PS) 43 3.3.3 Focus group discussions (FGDs) 44 3.3.4 Household questionnaire (HQ) 44 3.4 Survey administration 45 3.4.1 Ethical issues 45 3.4.2 Survey process 46 3.4.3 Advantages and difficulties during fieldwork 47 3.5 Data process and analysis 48 4. Poverty, vulnerability and financial inclusion in Bangladesh 50 4.1 Poverty profile of Bangladesh 50 vii 4.1.1 Poverty status 50 4.1.2 Incidence of poverty 51 4.1.3 Depth and severity of poverty 53 4.2 Vulnerability and coping capacity 53 4.2.1 Household risks and coping strategies 53 4.2.2 Health risks 54 4.2.3 Major sources of natural hazards 56 4.3 Livelihood interventions 59 4.3.1 Government interventions 59 4.3.2 Microfinance interventions 62 4.4 Financial inclusion in Bangladesh 66 4.4.1 Financial provision 66 4.4.2 Financial participation 67 4.5 Financial exclusion in rural Bangladesh 69 4.5.1 Financial disadvantages 69 4.5.2 Rural-urban financial gap 70 5. Livelihoods context in Ausha and Bhadeshwari 72 5.1 Basic characteristics of household heads 72 5.2 Household assets 73 5.2.1 Human capital 73 5.2.2 Physical capital 77 5.2.3 Natural capital 80 5.2.4 Social capital 82 5.2.5 Financial capital 83 5.3 Vulnerability context 84 5.3.1 Risks, shocks and stresses 84 5.3.2 Trends and seasonality 86 5.3.3 Vulnerability to poverty 87 6. Livelihood strategies: coping capacity and resilience building 90 6.1 Income generating activities 90 6.2 Risk management strategies 91 6.2.1 Risk protection strategies 92 6.2.2 Coping with risks 97 6.2.3 Sharing risks with others 103 6.3 Coping capacity 107 6.4 Adaptation and resilience building 110 6.5 External interventions 111 6.6 Effectiveness of institutions