Know the evolution of the mobile financial service in Bangladesh and explore why it’s became integral part of financial system in Bangladesh.
Mobile Financial Service (MFS): Why it’s evolving so fast in Bangladesh?
Yousuf Miah, a 35-year-old rickshaw puller from Bagerhat, turns sweat into money for himself and a family of 3 left in Bagerhat. He visits the family sharply at a 1 month and 20 days of interval. His wife, a rural housewife, waits for Yousuf to send money for paying bills. As Yousuf has none to rely upon, the waiting time used to be inconvenient for the family of two growing- up kids. Eventually, he is now able to conveniently send money his wife using mobile banking, predominantly bKash, 3-4 times a month, ranging from BDT 1000 – 5000 each time.
That’s one simple story that speaks out loud about the revolutionary mobile financial service (MFS), a bird which has kept flying up and up since it’s set free. The baby bird learning to fly in 2011 having DBBL (DBBL Mobile Banking) as the first adopter and BRAC Bank (bKash) as the second often got caught up and stumbled but the adopters were persistent enough to fly it across millions. As of July 2018, there are more than 64 million customers1 using the mobile financial services.
Scenarios set the bird free:
Since the privatisation of the banking sector during the 1990s, private commercial banks (PCBs) did not show much interest in SMEs and agriculture which is due to the business risk, lack of collateral, and perishability. Moreover, increasing number of banks, with at least three more in the pipeline2, has squeezed bank profits and stiffed target achievement. This has forced banks to focus on a number of corporate clients to sell loans of bigger ticket size. Besides, opening a new branch at a rural place is not often commercially viable. This long- lasting situation has eventually left the mass population out of the banking system.
Up & up in the sky:
bKash Limited, the MFS market leader with more than 3/4th market share3, started with the vision of serving around 70% of the population facing difficulties in accessing to financial services4. The Fintech company has evolved from sending and receiving money to value- added services eg mobile balance recharge, payments, inward remittance and so on. Likewise, DBBL Rocket (formerly, DBBL Mobile Banking) has added digital salary disbursement service, interoperability – bank account to mobile bank account transfer, international remittance, and so on. These two companies along with 18 other active MFS providers have managed more than BDT 30,000 crore of the transaction in July 2018. Also, approximately BDT 500 crore of salaries have been disbursed through MFS5.
BB protecting public interest:
MFS providers were guided by Bangladesh to follow the Bank Model which means to operate as commercial banks holding majority ownership. MFS guidelines were first issued back in 20116. As time evolved, the unique natures of MFS operations have been discovered which have led Bangladesh Bank to continuously update the MFS guidelines. Over last 7 years, Bangladesh Bank has updated the guidelines in order to public interest and economic stability through controlling transaction limits, Know Your Customers (KYC) regulations, anti-money laundering-combatting the financing of terrorism (AML-CFT) awareness and so on. For instance, all the MFS providers are committed to submitting the central bank the MFS Report every month, foreign direct investment (FDI) report each quarter, suspicious transactions report (STR) as required and so on in line with Bangladesh Bank MFS guideline.
Financial inclusion & MFS – what is up?
According to World Bank (WB), having an account is the first gateway to financial inclusion. Talking about the case study discussed earlier, neither does Yousuf nor his wife own a mobile bank account. He rather sends money using a Hazaribagh agent’s account to the Bagerhat agent’s account where his wife waits. By real-data statistics, these two persons are beyond the financial inclusion but the empirical evidence says otherwise. Hence, this is certainly a critical research question to identify the actual number affected by the financial inclusion. A few factors need to be considered to ensure financial inclusion through the MFS. First, many of the lower-class people do not have access to the formal banking system due to the non- affordability of the financial services. Hence, the market leader bKash provides a new account for free while the second leader DBBL Rocket requires a meagre deposit of BDT 100 only7. Second, financial service centres should have a minimum distance from customer doors. As of July 2018, MFS companies are available almost on every street with 840,196 agents across the country. Third, formal banking often involves too many documentation requirements which may not be always available to the mass. As required by the MFS guideline, only a national ID card or driving license suffices for opening up a mobile bank account.
The possibility is unbound. July 2018 has experienced inward remittance of 14.70 crore through MFS which is 91% higher on a year-to-date comparison8. Anyways, there are raised eyebrows regarding the significant amount of “Digital Hundi” in the name of remittance through MFS. The internal control mechanisms of the MFS providers should be able to combat such activities for its sustainability.
The scopes of MFS might also include government pension disbursement and other government payments. As of July 2018, almost BDT 243 crore of government payments have been made through MFS platforms. This, if sustains, could be a greater source of revenue for the providers, also bringing efficiency in disbursing almost BDT 23,000 crore pension fund in FY 2017-18 which is expected to rise in upcoming FYs9.
While all these sound great to hear, let us not overlook safety issues. As MFS serves grass roots with less or no financial literacy, their money can be shielded through agent and customer awareness campaigns. For instance, besides continuous awareness initiatives, bKash has been hiring compliance training officers to provide compliance training to agents and distributors. These should armour the bird against all odds.