Fintech for Financial Inclusion

Faisal Ahmed
Chief Economist
Bangladesh Bank
Outline
• The Bangladeshi context
• The Macro Overview – Parameters for Financial Inclusion
• Fintech for Financial Inclusion: MFIs/Mobile Financial Services (MFS)
• Challenges and Lessons
 The Bangladeshi context…
• From a low-income agrarian society at its birth in 1971, Bangladesh is now a lower middle-income
country of 160 million people in the midst of critical transitions. Population density and size
fostered financial innovation and inclusion, including through microfinance.
Urbanization Industrialization

28% GDP
30%

Demographics Technology
50% < 25 yr

Mobile
125 m
Growth has been bottom-up, driven by young, rural firms
• Recent transformations, fuelled by dynamic rural non-farm sectors
(enterprise numbers more than doubled in last decade)

Units by Year of Inception

Economic Units
(In percent of total)
(In percent of total)
Rural
71
63 Urban

37
29

7 13 80

2001 2013 Before '90 During '90s After 2000

Financial inclusion through microfinance institutions
• 700+ MFIs and 37 million active borrowers in Bangladesh

Digitiztion through the DFS Wallet

(BRAC and Shakti examples)
Borrowers Depositors
(In percent of population) (In percent of population)
15 15

10 10

5 5

24
0 0
Tanzania Nigeria Sri Lanka India Kenya Phillippines Bangladesh India Tanzania Nigeria Sri Lanka Phillippines Bangladesh Kenya
Financial inclusion through mobile financial services (MFS)

80 70.0
Clients (In millions) 64.0
Clients (In percent of adult population) 60.0
60
60 55 50.0

40.0

40 39
30.0

30
20.0
20 22
10.0
12
0 3 0.0

0
Dec '11 Dec '12 Dec '13 Dec '14 Dec '15 Dec '16 Dec '17 July '18
Financial inclusion improved the quality of growth
• Inclusion minimized inequality: lower than the start and lowest among the peers.

Gini Coefficient : Bangladesh Cross-Country Gini Coefficients

50
40
40
30
30
20
20
10
10

0 0
1973 1992 2010
Bottom-up growth and financial inclusion boosted savings

Savings
(In percent of GDP)

30

20

10

0
Cambodia Thailand Pakistan Sri Lanka Brazil Vietnam India Bangladesh Indonesia
…and supported financial deepening.
• Bangladesh ranks well in terms of its financial depth.

Domestic Credit
(In percent of GDP)
60

Median Emerging Market Depth

40

20

0
Tanzania Kenya Mexico Indonesia Sri Lanka Nigeria Phillippines Bangladesh India
Fintech replicates population density and
aggregates through connectivity
Fintech and Financial Inclusion
• Fintech and upgrades of financial infrastructure – BACH, BEFTN, NPSB
and RTGS;
• Bangladesh Bank provided two types of DFS licenses to serve the
customers:
• Mobile Financial services (MFS) [unbanked, bottom-of-pyramid];

• Payment Service Provider (PSP) [banked, affluent/middle-class];

Fintech for upgrading MFIs (savings, credit, insurance)
• Over 700 MFIs including Grameen Bank, BRAC
• Only credit and savings facilities, some insurance, no payment service
• Cash-intensive and labor-intensive, so efficiency is constrained
• 17,000 branch network all over the country
• Reached 20% adult and 38% poor HH
MFS Market Status
18 banks 8.4 lac 6.4 mn
provide transactions daily
agents
MFS service

30.6 mn 994 crore BDT

active accounts average daily
64 mn transactions
registered
MFS Transaction Mix
accounts
Cash In 41%
Cash Out 38%
Send Money 16%

94% Salary Disbursement…

Utility Bill Payment (P2B)
2%
1%
Government Payment 1%
local Merchant Payment 1%
remittance Others 2%

Source: Bangladesh Bank, Intermedia (June 2018).

MFS and PSP License Comparison

MFS = PSP + cash

in/out
(using agents)
Paper
KYC

Mobile
MobileFinancial
Financial Services
Services (MFS)
(MFS) Digital
Digital Wallet
Wallet (PSP)
(PSP)
Target
Target customer
customer Unbanked
Unbanked (bottom
(bottom of
of pyramid)
pyramid) Banked
Banked customers
customers (middle-class,
(middle-class, affluent),
affluent),
stores/merchants
stores/merchants
Account opening
Account opening Paper
PaperKYC
KYC Electronic KYC(secondary
Electronic KYC (secondaryKYC)
KYC)based
basedon on
bank
bank account
account oror credit
creditcard
card
Primary
Primary usage
usage Basic
Basic financial
financial service:
service:cash
cashin/out,
in/out,P2P,
P2P, Digital
Digital payments:
payments:add addmoney
moneyfrom
frombank
bank
mobile
mobile recharge,
recharge,bill
billpay
pay account/card,
account/card, retail
retailpayment,
payment,P2P,
P2P,bill
billpay,
pay,
online
online purchase
purchase
Retail
Retail agents
agentsand
andcash
cash 
 --
in/out
in/out
Business ownership
Business ownership Bank-led
Bank-led (bank
(banksubsidiary
subsidiarywith
withatatleast 51%
least 51% Fintech companies
Fintech companies
shareholding)
shareholding)
Designing the MFS Regulations
• Bank-led Model; Guidelines in 2011
• 18 MFS providers, two have lion share
• Interoperability among MFS and with other payment systems;
• Client can open an account by filling up a short KYC
• Used to transfer money/remittance, pay bills, get salaries, pay merchant,
and to get social benefits.
• Used by other financial organizations like Banks and MFIs to disburse
credits and get repayments.
Lessons and Challenges …
• Behavioral shifts for DFS adoption, innovation and risk management;
• Co-ordination among various related stakeholders i.e.
• collaboration between public and private sectors;
• Careful regulatory and oversight framework-both from BB and from
internal control and compliance of bank/non bank DFS;
• Finding the right balance to encourage innovation and to ensure consumer
protection by right regulations (especially for insurance);
• Financial literacy in all layer of Payment systems-for regulators, for
participants and also for end-users.
Thank You