Working Paper No.

52

Impact of Mobile Financial Services on

Financial Inclusion in Bangladesh

Nahid Akhter
M. A. Baqui Khalily

June 2017

Institute for Inclusive Finance and Development (InM)

 Working Paper No. 52

Impact of Mobile Financial Services on

Financial Inclusion in Bangladesh

Nahid Akhter
M. A. Baqui Khalily

June 2017

Institute for Inclusive Finance and Development (InM)

c Institute for Inclusive Finance and Development (InM)

This working paper has been prepared as a part of research in progress. Comments and
criticisms are welcome. The views expressed in this paper are entirely of the authors and do
not necessarily reflect the views of InM or any other affiliated organisations.

As per the InM policy, all the working papers are peer reviewed.
 Abstract

Competition in financial markets and the drive for higher market share are the major drivers in
expansion of financial services, which has higher impacts on growth and financial development
in countries like Bangladesh. Innovation in finance, either as a new product or a new process,
has contributed to such competition and expansion of financial services. Technology and
innovation has positive impacts on production and efficiency, and in turn, to growth at the macro
level and institutional performance at the firm level. Two key factors are perceived as major
determinants of acceptance of technology by users: usefulness and ease of use. Positive
perception of usefulness and ease of use is influenced by low transaction cost, ensures
security, improves convenience and minimise transaction risk for the users of financial services.
Mobile technology is one of the financial innovations, which has multi-dimensional impacts. In
technical terms, it improves efficiency and financial inclusion. The paper investigates the
impacts of mobile financial services on financial inclusion in Bangladesh. The outcome shows
that the need for mobile financial services is beyond any question. Mobile financial services
have brought major changes in financial products and institutional structure. It can reach
excluded low-income and micro and small entrepreneurs, which will have wider impact
including growth and poverty alleviation. Our analysis shows positive role of mobile banking on
financial inclusion. The findings do suggest that the role of banks and MFIs to expand services
in inaccessible areas can be effective if they are complemented by mobile money and
appropriate regulatory framework.

Keywords: Financial Inclusion, Technology, Mobile banking, Bangladesh.

 Impacts of Mobile Financial Services on
Financial Inclusion in Bangladesh

Nahid Akhter a
M. A. Baqui Khalily b

1. Introduction
Competition in financial markets and the drive for higher market share are the major drivers in
expansion of financial services, which has higher impacts on growth and financial development
in countries like Bangladesh. Innovation in finance, either as a new product or a new process,
has contributed to such competition and expansion of financial services (Horne, 1985). Benefits
are derived from financial innovations by both providers of financial services (financial
institutions) and users of services (depositors and borrowers). On the supply side, the benefits
are development of quality financial products, increase in efficiency, and decrease in
transaction cost, among others (Adewoye 2013; Arnaboldi and Claeys 2008; Ilyas et al. 2015;
Hosein 2013; Weigelt and Sarkar 2012). The demand side factors can be derived from the
theory of technological acceptance model (Davis 1989). The theory states that two key factors
are major determinants of acceptance of technology, as perceived by users: perceived
usefulness and ease of use. Positive perception of usefulness and ease of use is influenced by
low transaction cost, ensures security, improves convenience, minimise transaction risk for the
users of financial services (Frame and White 2002; Horne 1985; Lee 2009; Luo et. al. 2010;
Mbogo 2010; Mallat 2007; Mehta 2013;Viehland and Leong, 2007).

Technology and innovation has positive impacts on production and efficiency, and in turn, to
growth at the macro level and institutional performance at the firm level. Mobile technology is
one of the financial innovations, which has multi-dimensional impacts. In technical terms, it
improves efficiency and financial inclusion (Horne 1985; Frame and White 2002; Mbogo2010).
Not only on the one hand, it ensures efficient uses of resources and higher level of profitability,
and on the other hand, it contributes to growth – local and national economy. Because of the
transfer of resources from one place to another; from one region to another region, and from
one country to another, it increases mobility of money resources and thereby it has multiplier
effects on the regional and macro economic growth.

Mobile banking or mobile financial services (MFS) have brought major revolution in financial
markets. There is no doubt that mobile banking and mobile financial services will have larger
impacts. A recent estimate shows that MFS has contributed 4.2 percent to the global economy
or GDP. More than 4.5 billion individuals have uniquely subscribed MFSs. The penetration rate
is expected to reach 72 percent of adult population by 2020. It has contributed to employment
creation. Some 17 million jobs were directly supported by mobile ecosystem. This is expected
to reach 20 million jobs by 2020 (GSMA 2016). Furthermore, it has been contributing to
expanding mobile insurance services, and expansion of health services.

a
Nahid Akhter is a Senior Research Associate at Institute for Inclusive Finance and Development (InM),
Bangladesh.
b
M. A. Baqui Khalily is a former Professor of Finance, Department of Finance, University of Dhaka, Bangladesh
and a former Executive Director of InM.

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As of December 2015, the GSMA report on the State of the Industry Report – Mobile Money,
emphasised on three key findings: (i) strong growth is emerging in new regions including South
Asian countries, where more than a third of all registered mobile money accounts were opened
in 2015; (ii) In 2015, there were 29 cross-border mobile money initiatives connecting 19
countries, and by volume, international remittance was fast growing with 52 % growth over
2014; and (iii) customers are using mobile money more than ever – in December 2015, there
were over a billion transactions.
In South Asian countries, mobile money has made major headway into providing financial
services. In Bangladesh, in October, 2016 alone, total number of transactions reached128
million, growth of 9.19 percent over the previous month, amounting to total transactions of BDT
206 billion. There were inward remittances of BDT 75 million in October, 2016; cash-in
transactions amounted to BDT 89.5 billion compared to BDT 19.5 billion as cash-out transaction
(Bangladesh Bank 2016). Most of these transactions are P2P transactions. Evidences are quite
strong in other countries. In India, in 2015-16, mobile banking transactions amounted to INR
4,040 billion from a total number of transactions of 389.5 million. One of the important
developments that has taken place in India compared to other SAARC countries is savings
through mobile, commonly known as Mobile Wallet. Some INR 205 billion was transacted in
mobile wallet from a total number of transactions of 603 million (India 2016). In Pakistan, MBS
has progressed quite well with higher rate of growth. In the last quarter of 2015-16, the value of
MFS was Rs.543 billion from some 118.7 million numbers of transactions. Although at a slow
pace, savings through mobile account has grown at a higher rate. Deposits in the last quarter
of 2015-16 grew by over 60 percent to Rs.13 billion from the previous quarter (Imauddin 2016).
Financial institutions that had difficulty providing services to the poor using their traditional
financial production technology, now can offer financial services using the mobile technology at
relatively low cost. Government agencies also find it appealing because of the
multi-dimensional effects of MFS, and revenue maximising instruments. They are coming
forward with required legal and policy supports to expand MFSs with higher degree of security
and taxation.
There is no unique and universal form of mobile money or financial services. They vary from
country to country because of the stated goals and available structure. As noted above, MFSs
offer diversified financial functions. This includes payments to traders and shopkeepers,
payments of utility bills, P2P transfers between individuals and remittance within the country or
between the countries. Who offer these services? There are different modes of offering services
– (a) banks only; (ii) telecommunication providers, and (c) combination of (a) and (b).
Technological advancement and diversification of institutional arrangements have changed
landscape for financial development – from postal savings institutions to banks; from branch
banking to branchless banking on the supply side. This advancement has multi-dimensional
impacts. They, as noted earlier, are: (i) convenience, and the payment effects when households
or farms can make payment for utility services; (ii) financial inclusion effect when mobile
technology leads to increase in intensity of access to financial services in addition to security
and safety of funds; (iii) institutional effect where new institutions can now venture into providing
financial services in excluded households and farms in both accessible and inaccessible areas;

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 Impacts of Mobile Financial Services on Financial Inclusion in Bangladesh

(iv) ease to do business effect when cooperatives and micro finance institutions (MFIs) in the
less explored areas like mountainous or coastal belt regions can now be more effective in
transferring financial resources and offering financial services to its members; (v) remittance
effect when the hardworking poor migrants can remit money to their families either from within
the country or abroad at low transaction cost using secure means for improving their quality of
life; (vi) informational effect when bank account holders can access to their accounts for
transactional information. List of the potential effects of MFS can be longer if one recognises all
economic activities at the micro level.
The basic objective of this paper is to assess impact of mobile banking on financial inclusion in
Bangladesh. The paper is structured as follows. After the preface, section 2 describes the
development of mobile financial services in Bangladesh. Section 3 shows the framework and
technical approach to understand the overall objective of the study. Section 4 describes the data
that has been used. Section 5 presents socioeconomic characteristics of the household.
Section 6 describes the impact of mobile banking on financial inclusion. Section 7 describes the
regulatory approach and section 8 describes the role of government in advancing mobile
financial services. Section 9 presents the major challenges that has been faced by the sector to
expand properly and finally, section 10 suggests a range of broad and specific policy
recommendations.

2. Development of Mobile Financial Services in Bangladesh

In Bangladesh, with the network support from two mobile companies i.e., Banglalink and
Citycell and software solution support from Sybase 365, Dutch Bangla Bank limited (DBBL) for
the very first time in Bangladesh started mobile financial services on March 31, 2011. In July
2011, BRAC Bank Limited established a subsidiary called “bKash” to facilitate banking services
at the household level and in unbanked areas with different products. They have started offering
mobile banking with a VISA technology platform for money transaction. They have also
brought-in a useful way of transferring international remittances. The service charges of these
two leading mobile banking services are given in the appendix A.

Over the past five years, other commercial banks like, Bank Asia, Mercantile Bank, Trust bank,
Prime Bank Limited, Islami Bank Bangladesh Limited etc. designed their mobile banking
products and entered into the market of mobile banking. BRAC Bank and DBBL are the two
dominant players in the market. Currently total twenty-eight banks in Bangladesh are licensed
to provide mobile banking services. Up to March 2017, seventeen (17) banks have lunched
their mobile banking services. Moreover, not only the poor, but also many well-off individuals are
using those services because of its convenience. In a short span of time, mobile banking has
flourished at a geometric rate because of higher intensity of mobile users (120.73 million as of
October 2016) and diversification in mobile financial services.

Most of the users of mobile banking services use it for transfer of fund and security. More than
three-quarters use it for remittance of money and one-quarter for security reason (Bangladesh
Bank 2012). The dominating purpose of the rural users either receiving remitted money. In
urban areas, payment service is the primary reason for using mobile banking. The same policy
paper predicted about development of mobile banking in future as almost three-fourth of the
users have desire to continue using the mobile financial services. With wider mobile network

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backed by appropriate set of policies, mobile financial services will expand and contribute to
higher intensity of financial inclusion. From regulatory standpoint, Bangladesh Bank has
approved only the bank-led model to operate in Bangladesh. Permitted Mobile Financial
Services by Bangladesh Bank are listed as follows,

• Disbursement of inward foreign remittances.

• Cash in /out using mobile account through agents/Bank branches/ ATMs/Mobile
Operator's outlets.
• Person to Business Payments - e.g. a. utility bill payments, b. merchant payments.
• Business to Person Payments e.g. salary disbursement, dividend and refund warrant
payments, vendor payments, etc.
• Government to Person Payments e.g. elderly allowances. Freedom-fighter
allowances, subsidies, etc.
• Person to Government Payments e.g. tax, levy payments.
• Person to Person Payments (One registered mobile Account to another registered
mobile account).
• Other payments like microfinance, overdrawn facility, insurance premium, DPS, etc.
(Bangladesh Bank, 2017)

The guidelines provided by Bangladesh Bank allow only a bank-led model to perform mobile
banking services and P2P highest transaction of about BDT 10,000 per day and BDT 25,000
per month (this may change with the passes of time) (Table 1). The bank-led mobile banking
means that a client’s “mobile-account” will rest with the bank and clients can access his/her
account through mobile device. This will be a non-chequing account. Among the various
transactions through mobile banking, P2P transaction is most popular. Other services like, P2B
or B2P are limited. This is the outcome of financial innovation. The brief of Mobile Financial
Services (MFS) in Bangladesh is given in Appendix-B.

Table 1
Mobile Banking Transaction Limit Set by Bangladesh Bank

Sl. Type of
Per Day Per Month
No. Transaction
1 Cash in BDT 15000 (maximum 2 transactions) BDT 100000 (maximum 20
transactions)
2 Cash out BDT 10000 (maximum 2 transactions) BDT 50000 (maximum 10
transactions)
For any cash in transaction in a certain a/c, not more than BDT 5000 can be
withdrawn from that a/c within next 24 hours
3 Person 2
person BDT 10000 (no limit in transaction BDT 25000 (no limit in transaction
transfer number) number)

source: Bangladesh Bank (2017)

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 Impacts of Mobile Financial Services on Financial Inclusion in Bangladesh

As of March, 2017, registered clients reached to 50.429 million and total number of agents
reached almost 0.72 million. Total number of mobile bank accounts was 24.57 million. Total
number of transactions reached BDT. 250.47 billion in March 2017, growth of 12.18 percent
over the previous month. This included inward remittances of BDT 77.1 million, cash-in
transactions of BDT 106.68 billion compared to BDT 96.196 billion as cash-out transactions.1
(Appendix-B)

A recent amendment (2015) and updated amendment in 2017 by Bangladesh bank set a limit
for transaction numbers, cash-in and cash-out of mobile banking. In the amended instruction,
agents will not be permissible to deposit money in his or her mobile account more than two
times daily and 20 times monthly. Similarly, agents are also not allowed to withdraw cash more
than two times daily and 10 times monthly. Before any transaction, the banks are also required
to follow “Know your customer” guidelines provided by Bangladesh bank.

The critical question is, has expansion of mobile banking contributed to financial inclusion in
Bangladesh? No paper, to the best knowledge of the authors, has yet addressed the issue of
impact of mobile banking or mobile financial services in Bangladesh, although some papers
sporadically show that mobile banking has expanded for financial services to micro and small
enterprises (e.g., Donner and Escobari, 2010; Jang, Fong and Insu).

3. The Framework
There are several approaches to understand growth and impacts of MFS in developing
countries including SAARC countries. We can at least think of three major approaches. They
are: (i) transaction cost approach; (ii) Inclusive finance approach; and (iii) empowerment
approach.

Formal banks generally offered services to its customers or clients through branches. The
branches have been located more in commercial centres or economically active areas. The
rationales are deposit potentials and investment opportunities. Until otherwise subsidised by
the government or central bank, banks have expanded its areas of operations from the
perspective of profit maximisation. Although in recent decades, branch density has increased in
developing countries, particularly in South Asian countries, quite a large number of adult
population remains inaccessible. Such inaccessibility is due to high transaction cost of
providing financial services to the potential clients and also due to high cost of receiving
financial services by the clients. A financial market is deemed to be efficient if transaction costs
of banks and clients converge. It will only converge when transaction cost is low. Therefore,
banks through its branches have not been able to provide financial services to every adult
individual. In last few decades, agent banking in Southeast Asian countries became quite
successful, particularly in Indonesia. Yet there are significant numbers of adult populations that
are left-out of the network of banks. One of the important drivers for the growth of MFS is low
transaction cost. Parvez, Jaheed, et al., (2015) mentioned that MFS users of Bangladesh were
inquired to chose the most crucial uniqueness of Mobile financial services and 91 percent MFS
users graded ‘low transaction cost’ at the top. The spread of MFSs across the globe is driven by
profitable operations because of low transaction cost. Because of low transaction cost and ease
of access, financial institutions do have advantages of economies of scale and scope.
1
[1 lac = 0.10 million and 1 crore = 10 million]

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The ‘inclusive finance’ approach makes the institutions more focused. The stated objective then
becomes reaching out the excluded adult population or households. Availability and uses of
technology is present in excluded individuals and regions. But when payments of utility bills
become dominating purpose of the users of MFSs, then it really does not talk of improving
intensity of inclusive finance. It speaks of offering multi-dimensional services to those who have
bank accounts. This is strengthening their extent of financial uses through diversifying financial
products by the financial institutions. The ‘financial inclusion’ approach should have higher
marginal effects on the new users of services. Furthermore, when we speak of providing
financial services to the excluded because of the market failure of formal banks, we are
speaking about low-income households and micro or small enterprises. They will require
services beyond ‘payment services’. They will require savings, credit and insurance services.
Therefore, our argument of ‘inclusive finance’ approach should be for these financial services
through mobile technology.

The ‘empowerment approach’ underscores the need for empowering the ‘less-empowered’ or
neglected segments of the society. The segment that has remained less empowered or
neglected is the women. Access to finance does empower them. This is well established
empirically in Bangladesh and elsewhere in the world. In Kenya, access to MFSs has
empowered the women and made them also more economically active. The ‘empowerment’
approach will enable the banks and technos to target women in their approach to promote
MFSs.

In this paper, we focus on assessing impact of access to mobile banking on financial inclusion.
Mobile banking is an outcome of technological advancement and new financial innovation.
Therefore, the framework that we use to understand the impact is essentially impact of mobile
banking as financial innovation on financial inclusion.

Before we use a framework for understanding growth and impacts of mobile banking, we need
to recognise the kind of financial services that can be offered in mobile baking. In the financial
model new innovations take place due to different reasons.

Generally, financial system offers mainly six types of services. They are: (a) transfer of funds,
(b) pooling of funds, (c) risk management, (d) generation of information for financial decisions
and solving problems of asymmetric information and moral hazard, and (f) payment services.
But market does not act perfectly all the time and various crises arise periodically (Merton
1992). Market imperfections like incomplete markets, asymmetric information restrict the
members to perfectly avail required financial services. This exists also because of lack of
appropriate financial production technology, and consequently not all groups of society receive
financial services (Tufano 2002). Financial innovations like mobile banking have solved the
problem of transfer of fund in remote areas, payment services from work place or home,
mobilisation of savings from remote areas where branches find it difficult to operate.

How does financial innovation benefit providers of financial services? Financial institutions
provide financial services to the users of financial services as long as providing such services
maximise profit through reducing transaction cost and increasing productivity. By duality, this
benefits users of financial services; financial deepening as well as area deepening of financial
institutions takes place. As a result, financial inclusion increases and financial institutions will

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be more efficient. Financial development increases with such efficiency. This can be graphically
represented.

Efficiency of financial intermediation is also determined by the technological innovations and

progress. Mobile technology has improved efficiency through higher labour and capital
productivity and scale advantage. As a result, the expected rate of return on investment will be
positive and higher (Figure 1). This can be graphically represented, and figure 2 shows that
outward shift in production possibility frontier with positive change in technological progress.

Figure 1
With Technological Progress, Higher Output Level Given the Same Capital or Labour
y
TPC2
(Technological
progress)
y2

y1 TPC1
(Previous
Technology)

K or L
Source: Author’s own illustration

Figure 2
With Technological Progress, Production Possibility Frontier Shifted to the Higher
Level of Production

y2

y1
Shift in PPF
due to TP

x1 x2 x

Source: Author’s own illustration

With the technological progress (TP), there will be two types of output gains: (i) there will be
more output given the fixed or previous inputs, and (ii) there will be higher output by using lower
combination of inputs. Technological innovation allows firms to produce more outputs with same
or fewer inputs resulting a shift in the total product curve (TPC). Figure 1 shows high financial
output with technological progress given the same level of inputs.

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When technological change occurs, the production possibility frontier (PPF) shifts outward.
Change in (one or more) resources or technology or removal of any institutional barrier will shift
the PPF out. If any technological change took place, the nature of the PPF-shift depends on the
type of technological change. This can be occurred in the production of one good or in the
production of all goods. Outward shift of the PPF represent economic growth. An outward shift
means that it is possible to increase the production of one good without decreasing the
production of the other. Figure 2 shows that outward shift in production possibility frontier with
change in improved financial service/ transaction caused by mobile technology. With the use of
mobile technology, financial services has expanded at relatively low labour cost; enabling banks
to expand financial services with higher labour and capital productivity. This will be clear from a
simple discussion of how mobile banking works.

Mobile banking services can be offered through either mobile using mobile agents or own
mobile accounts. Mobile accounts are required to be opened with a bank. In Bangladesh, both
the modes are popular but mobile agents are more popular than the other. The marginal cost of
providing mobile financial services through agents is quite negligible. Like any other account,
mobile banks accounts are quite flexible in fund transfer, payment of utilities and bills. One can
also save in mobile bank account through wallet services. The major investment for mobile
banking is the fees that need to be paid to the mobile operator. To be more precise, it is a
popular form of financial service as it requires less paper work, cheap and can spread in
different corners of the country. In fact, in many cases a household does not even need to open
a mobile banking account as one can send and receive money through agents, thus, making
the services easily accessible. Apart from transaction costs, there is no account maintenance
fee for mobile financial services. With financial production technology and the mode of offering
mobile banking services, marginal cost of capital and labour will reduce. Therefore, one would
expect higher level of output and lower use of marginal capital and marginal labour. Financial
outputs refer to mobile financial services.

4. Data
We use the data of the study on ‘Access to Financial Services in Bangladesh, 2015’, of the
Institute for Inclusive Finance and Development (InM) to assess intensity of financial inclusion
and its determinants. The survey was carried out in 2014 and covers about 8449 households
drawn from all over Bangladesh (63 districts) through a stratified random sampling technique.
The scope of survey was limited to only one district of Bangladesh, i.e., Rangamati district.

Access to finance is defined as access to different financial services – deposits, credit, payment
services, remittance service and any other formal financial services that are offered by banks
and micro finance institutions. The variables included household level characteristics, region
(rural and urban), types of financial services accessed and mobile banking related information.

5. Socioeconomic Characteristics of the Household

Socio-economic characteristics of households need to be discussed to get an idea about which
types of households are accessing financial services through mobile banking. This analysis will
include various household characteristics such as annual income, land asset holding,
occupation, age, education, migration, poverty status and so on. It has been seen that the

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comparatively well-off households are mostly using mobile banking services (Table 2). Those
households are better in terms of annual food and non-food expenditure, income and land
holding. Even a higher percentage of non-users households (30.74%) are below poverty line
compared to the mobile banking user households (18.74%). The most apparent disparity
among the two types of households is in having migrant members. Above 34 percent of the
mobile banking user households have at least one local migrant member, which is tiny for the
nonuser mobile banking households, only around 8 percent. Therefore this discussion
illustrates that financially better-off households who have at least one migrant member are
mostly using mobile banking services.

Table 2
Household Characteristics with Respect to Access to Mobile Banking (2013)

Sl. Have Access to Don’t have Access

no. Determinants Mobile Banking to Mobile Banking
(n=2270) (n=6179)
1. Annual food expenditure of the HH 80148 70258

2. Annual non-food expenditure of the HH 587910 43762

3. Local migration (any member of the household) 34.05 7.85

4. Household head’s primary occupation is agriculture 20.52 18.50

5. Household head female 7.31 11.15

6. Age of household head 47 47

7. Education of household head 5.23 3.64

8. Average annual income of household 204862 143798

9. Land holding (decimal) 65.11 48.24

10. Percentage of HH below poverty line 18.74 30.74

Source: Author’s own calculation

6. Impacts of Mobile Banking or Money

Research on impacts of MFSs is very scanty in developing countries. This is equally true in
South Asia. Nevertheless, some research analysis on the impact of mobile money exists in
Bangladesh (e.g., Lee et al. 2015; Khalily et al. 2015)
As mentioned before, we have used the data of the study on ‘Access to Financial Services in
Bangladesh, 2015’, which was focused on the access of financial services in Bangladesh. The
survey also focused on mobile banking. In the context of mobile banking, we assessed (i)
intensity of access to mobile banking; and (ii) impact on financial inclusion based on the
‘financial inclusion’ approach. The results are reported below.
Table 3 measures the intensity of access to financial services and reports the role of mobile
banking in Bangladesh. Since the study was based on survey of some 8449 households, it

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provides information of unique access of households to financial services and the intensity of
access to mobile financial services. Essentially, it avoids duplicate counting of the overlapping
users of services.

Table 3
Intensity of Access to Mobile Banking in Bangladesh

Access to Mobile Have Own Mobile Using Mobile Banking

Banking (%) Banking Account (%) through Others Account (%)

Individuals HH level Individuals HH level Individuals HH level

(Age ≥18) (Age ≥18) (Age ≥18)
National 13 26.87 2.96 7.72 12.16 25.4
Division
Barisal 21 43 2 6 21 42
Chittagong 10 26 3 8 9 22
Dhaka 14 27 2 6 13 25
Khulna 9 18 3 8 9 17
Rajshahi 11 23 5 12 10 21
Sylhet 9 24 2 7 9 22
Rangpur 21 37 4 9 21 36
Region
Rural 12.22 24.63 2.47 6.55 11.53 23.55
Urban 16.07 34.90 4.70 11.86 14.37 31.46
Poverty
Status
Non-poor 15 30.36 4 9.64 13 28.37
Poor 9 18.40 1 2.95 9 17.87

Source: Author’s own calculation

The above table provides several findings. First, based on households, some 27 percent of the
households have access to mobile financial services using either own mobile account or others’
accounts. Second, despite relatively higher percentage of households having access to mobile
banking, only around 13 percent of the adult populations have accessed mobile financial
services. Third, intensity of uses of MFSs varies by divisions with higher access in Barisal and
Rangpur; the one purpose is internal remittance (Appendix-C). It is expected that the higher the
percentage of migrant workers the higher the remittance flow in that locality. Fourth, intensity of
uses of MFSs is higher in urban areas than in rural areas. Fifth, in terms of poverty status,
non-poor households have used more than the poor. Finally, there is ample scope for expanding
mobile financial services in Bangladesh because of the fact that only thirteen percent of the
adult populations have had access to MFSs in 2014-15. These findings give us good
understanding of who uses the mobile financial services. Through Logit regression, we
assessed the probability of households with different characteristics using the mobile financial
services.

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A logistic regression analysis has been conducted to examine the association between the
dependent variable, i.e., the log of the odds-ratio and the independent variables. Here the
dependent variable represents the log of odds-ratio of access to mobile banking, i.e.,

And the independent variables are various socio-economic characteristics of the households,
like, migrated member, household head’s age, education, gender, main occupation, poverty
status of the household, rural and urban variation etc. The model has been adjusted by
geographical variation of the household.

The logit regression model will be run by as follows,

…………………………..(1)
Where,
= Log of odds ratio of access to mobile banking i in division j,
= Migrant member (dummy),
= Household head’s primary occupation is agriculture (dummy),
= Age of household head, = Vector of division characteristics,
= Nonsystematic error reflecting, in part, unmeasured determinants of that vary over
households.

Along with the logit regression co-efficient, the marginal effects of the explanatory variables on
the dependent variable are also shown for the ease of interpretation.

For the binary explanatory variables, marginal effects assess discrete change, i.e. the change
in predicted probabilities due to the binary independent variable changes from 0 to 1. Marginal
effects for continuous variables assess the instantaneous rate of change.

There is a clear significant relationship among the national migration and use of mobile banking.
It is quite expected, as usually migrant members of the households send money to their family
through various medium of transaction. And now a day, mobile banking is one of the most
popular medium of transaction.

The results are reported in Table 4. We have reported both Logit coefficients and marginal
coefficients.

The results as reported in Table 4 shows that the households with someone migrated within the
country have higher probability to use MFSs. The marginal probability was estimated at 0.43,
the highest probability. Second, households in rural areas are more expected to use MFSs. This
is quite expected because of the fact that internal remittances are sent mostly to the households
in rural areas. Third, Non-poor households have higher probability to use the services
compared to the poor. This suggests that poor households are more or less likely to be left out
from using mobile financial services. This might be the reason for their access financial services
of the Micro Finance Institutions (MFIs). Similarly, education has positive impact on using

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MFSs. The educated individuals are more likely to use the services of mobile banking than the
less educated individuals. Individuals with profession in non-agriculture have higher probability
to use MFSs. All these results were statistically significant, and corroborate the findings that we
derived from Table 4.

Table 4
Determinants of Mobile Banking at the Household Level (n= 8243)
Variables Logitcoeff. Marginal Effect
National migration 1.93*** 0.43***
HH head female -0.36*** -0.06***
HH head – occupation agriculture -0.045 -0.008
HH head age -0.005* -0.001*
HH head education 0.09** 0.017***
HH head edu square -0.003** -0.001**
Poverty status (1 for poor) -0.51*** -0.088***
Regional dummy (Rural=1) 0.75*** 0.14***
Total income 0.0000009*** 0.00000016***
Note: *** p<0.01; ** p<0.05; * p<0.10

Source: Author’s own calculation

Now let us bring the issue of impact of mobile banking on financial inclusion in Bangladesh.
Impacts of access to financial services will depend on the intensity of access of mobile financial
services. The results are reported in Table-5.

Table 5
Impact of Mobile Banking on Access to Financial Services in Bangladesh
Bank Bank and MFIs

Variable Access to Bank Marginal effect Access to Marginal effect

Bank and MFIs

Mobile banking via own

account 1.272*** 0.303*** 0.77*** 0.13***
Mobile banking (other
accounts) 0.279*** 0.069*** 0.30*** 0.06***

Region (rural=1) -0.413*** -0.102*** -0.33*** -0.07***

Source: Author’s own calculation

We have reported only the significant logit coefficients of two groups – banks only and banks
and MFIs. The other variables that we included in the model estimation were regional dummy
variables and selected characteristics of the households.

16 Working Paper No. 52

 Impacts of Mobile Financial Services on Financial Inclusion in Bangladesh

The mobile banking has positive impacts on access to bank financial services and services of
both banks and MFIs. Access to bank financial services increases with mobile banking. But the
probability of positive impact is higher for the households having own mobile account. The
estimated marginal probability was 0.30, compared to 0.069 when using mobile accounts of
others. This is quite expected because mobile services are offered through banks in
Bangladesh. The probability reduces when we consider access to financial services of both
banks and MFIs. Finally, marginal effect on financial inclusion is higher in urban areas. This is
also expected, as the mobile financial infrastructures are available more in urban areas.

The conclusion of the analysis of the impact of mobile banking or money on financial inclusions
is, it has contributed positively to financial inclusion. But the findings do also lead to conclusion
that there is an urban-bias and non-poor bias in providing mobile financial services in
Bangladesh. This is equally true in other SAARC countries as the sector is still at the nascent
stage, not in terms of intensity, but in terms of scope and versatility.

The Boston Consulting group (BCG) Study on Impacts: The BCG conducted the survey on the
socio-economic impact of mobile financial services in five countries including India, Pakistan,
Bangladesh, Serbia and Malaysia in 2011. The study reported several important findings. First,
MFS will drive financial inclusion with varying degree, ranging from a 20-percentage point
increase in financial inclusion in Pakistan to a five percent increase in Malaysia. In other three
countries (Bangladesh, India and Serbia), intensity of impact will be around 10-12 percent.
Second, MFS will accelerate economic growth in India by 5 percent and by around 2-3 percent
in Pakistan, Bangladesh and Serbia in 2020. The study further estimated that income inequality
will reduce by 5 percent by 2020 because of supporting poor population and micro and small
entrepreneurs with savings and credit, increasing flow of domestic and international
remittances and transfers.

All these results do provide information about very positive impacts of mobile financial services.
Impacts will be higher on economic growth and income inequality as well as poverty reduction
because of increasing flow of resources through mobile technology and provision for savings
and credit.

7. Regulatory Approach
Regulation of mobile financial services is an area of major concern for the central bank. It
becomes a concern when banks and mobile operators offer mobile financial services. Banks
are regulated by the central bank, and mobile operators are regulated by a separate agency, for
example, in Bangladesh, it is BTRC. Mobile operators are crucial part of providing financial
services. The strong argument for regulation is to ensure financial stability with growth. This is
justified when mobile financial services include savings, credit and insurance. We focus on the
broad issue of regulation.

In most countries including Bangladesh in South Asia, mobile financial services are bank-led.
That means, banks provide financial services through mobile accounts and the agents in
conjunction with telecom operators. In Bangladesh, most banks have been offering mobile
financial services either directly by banks or through establishing subsidiary. When they offer
direct services, they appoint their own agent network. The principal holds major share in the
subsidiary company to ensure that focused services are provided.

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 Institute for Inclusive Finance and Development

In 2011, Bangladesh Bank issued guidelines for MFSs and updated in December of the same
year. Under the guidelines, two ownerships structures can exist – MFS could operate as a wing
of the banks, and MFS can be provided under a subsidiary with 51 percent share of the primary
bank. A draft new guideline was issued in 2015 that are likely to have significant changes,
important being single entity (bank or non-bank) will not have ownership of more than 15%, and
interoperability.

Mobile financial services will involve multiple institutions. In many countries, particularly
developed countries, it is provided largely techno operators. In South Asian countries it is
bank-led.

As long as money is the raw material of the financial products and is being offered through
banks, regulation should be in the hands of the central bank. But central bank will not only
regulate or monitor the behavior of the banks and subsidiaries but, should ensure flexibility and
create appropriate environments for expanding mobile financial services. The ultimate outcome
should be expansion through minimising risk for the financial system.

8. The Role of Government in Advancing MFSs

Mobile financial services are at the different levels in different countries. Moreover, there cannot
also be any regulatory approach or a set of role of government that can be applied in all
contexts and all countries. A government should play a role in creating enabling environment for
developing a financial system that is largely mobile based. Enabling environment should ensure
flexibility for the operators and the banks.

We consider that the government role can be elucidated based on the seven pillars of
developing mobile financial services. The seven pillars can be broadly classified into four
groups. The World Economic Forum in 2011 identified the seven pillars for developing MFSs.
In Table-6, we present the seven pillars as classified into four groups.

Table 6
Seven Pillars of Developing Mobile Financial Services
Adoption and
Institutional Environmen Market Environment End-user Environment
Availability
1. Regulatory Proportionality 3.Market 5. End-user 7. Adoption and
- Financial sector regulation competitiveness Empowerment and Availability
- Telecom sector regulation - Financial sector Access - Adoption
- MFS regulation competitiveness - Financial literacy - Mobile payment
- Policy and coordination - Telecom sector - Financial diversity
2. Consumer Protection competitiveness empowerment - Mobile financial
- Regulation - Innovation - Mobile penetration diversity
- Enforcement and 4. Market Catalysts
administration - Government 6. Distribution and
leadership Agent Network
- Data collection and - Supporting
monitoring infrastructure
- Other market - Agent network
catalysts development

Source: World Economic Forum, The Mobile Financial Services Development Report, 2011

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 Impacts of Mobile Financial Services on Financial Inclusion in Bangladesh

Government has keen interest in the development of mobile financial services even in the
context of using the services. It can provide subsidy and other financial benefits to the targeted
groups through using MFSs. This will reduce cost of transfer and minimise leakage. More
importantly, beneficiaries will receive it at a very low transaction cost. But from the perspective
of a bigger picture, government should contribute to the development of MFSs as a financial
system. The critical role that government can play is to ensure protection of consumers and
financial stability through appropriate legal framework. It is needed because multiple agencies
are involved in it.

9. Challenges
Consumer literacy and awareness play an important role in mobile internet or money adoption
and empowering people with knowledge and information. In Bangladesh, as revealed in our
survey, around 56 percent of the households do not have any idea about mobile banking or
mobile financial services. Even in the USA, more than fifty percent of the adult populations have
‘safety’ concern about using mobile money. These findings do clearly suggest that there is need
for consumer literacy and awareness.

Security and efficiency is another area of challenge. Mobile financial services should not be
developed because it helps consumers and because everybody is talking about it. Individual
approach will be required for selecting clients or subscribers. National identity smart card
should be the basis for selecting clients. This will reduce risk of financing terrorism or informal
use of money in informal inter-country border trade or business. For controlling criminal
activities, the central bank has recently set a limit for transaction numbers, cash-in and cash-out
of mobile banking in Bangladesh (Bangladesh Bank, 2015).

Savings and credit through mobile technology need to be clearly perceived. Bangladesh is yet
to enter into ‘mobile wallet’. But it is used in India and Pakistan, for example. There are other
countries that are mobilising savings and offering credit. Where the wallet should be opened?
Should be technoco operators or the banks? Security of money or savings needs to be clearly
examined. This has to be examined from the perspective of safety and institutional
accountability and guarantee.

Development of infrastructure and competition: Many operators operate in a country; and also
many banks operate. Jointly they are offering mobile financial services. Government as well as
the central bank should ensure that infrastructures are development and competition exists.
This will help institutions to expand services with scale economy and offer the services at low
cost.

10. Conclusion
Growing mobile network in Bangladesh has brought forth new possibilities, which comprises
larger usage of cell-phones, smart-phones and internet service. Along with the technological
advancement, new mobile banking services have been commenced. The increase in
technology usage in the urban areas is influencing consumer behavior, payment techniques
and purchasing habits eventually. And a number of people from all levels are using this service.
It is an easy, cost-effective, secured and affordable way to send and receive money. Financial

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 Institute for Inclusive Finance and Development

services, like, bill payment, transfer of funds, depositing or withdrawal of cash through mobile
telecom could play a significant role.

Mobile financial services have brought major changes in financial products and institutional
structure. It can reach excluded low-income and micro and small entrepreneurs, which will have
wider impact including growth and poverty alleviation. In South Asian countries, it has made
headway. The need for mobile financial services is beyond any question. It can play a
complimentary role in expanding financial services in mountainous and other inaccessible
areas. MFIs have been playing role in financial inclusion in Bangladesh and other South Asian
countries as well as in many developing countries. Our analysis showed positive role of mobile
banking on financial inclusion. The findings do suggest that the role of banks and MFIs to
expand services in inaccessible areas can be effective if they are complemented by mobile
money. Central bank should also collaborate with institutions like MFIs or cooperative that can
expand financial inclusion through using the mobile technology. While banks may be driven by
profitability or central bank may be driven by their commitment to financial inclusion, mobile
financial services should be provided with appropriate regulatory framework for the participating
institutions. This should not be forgotten.

Our final point is that research on impact or efficiency of mobile financial services is largely
absent in Bangladesh. Whatever studies are available; there is none on impact of mobile
money. There is a need for further research on the impact of mobile money both at the micro
and macro levels. There should be study on what should constitute optimum regulation for
mobile money. However, we conclude that mobile financial services should be bank-led.

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Appendix-A
Charges of two Leading Mobile Banking Service Providers (DBBL and BRAC) in
Bangladesh
Service type DBBL Bkash (BRAC IBBL (proposed charges)
Bank)

Registration Fee Free Free Free for customer

Cash-in 1% of the Free Free for customer and agents will get a
transaction commission from IBBL as per different
amount or Tk. transection slabs, for example, for
5 whichever 50-1000 tk. 1, 1001-5000 tk.2 and so on
is higher
Cash-out 2% of the Slab based; From tk.50 to tk 150 charge is tk.4, tk.151
transection starting from tk. to tk 500 charge is tk 8, tk. 501 to tk 1000
amount or tk. 5 for tk 100 to charge is tk.12, tk. 1001 to tk.10000
10, whichever tk 135 for tk. charge is tk. 10 per thousand and over
is higher 10,500, for 10000 upto 25000 charge is 1% of the
bigger amount, amount
charge is 1.25%
of the amount.
Fund Transfer Free Tk. 2/ Tk. 2/Transection
(P2P) Transection
Merchant Free for Free Free for customer . Merchant will pay
Payment (P2B) customer 0.5% or tk. 5 whichever is higher as
commission.
Mobile Top-up Free for Not mentioned Free for customer. Telco will provide
(P2B) customer commission as per agreement
Salary Free Not mentioned Free for customer. Corporate househ will
Disbursement provide commission as per agreement
(B2P)
Allowance Free Not mentioned Free for customer. Government may
Disbursement provide as per rate, if any.
(G2P)
Remittance Free Not mentioned Free for customer. IBBL will provide the
disbursement Telco and agent charge
Tax, levy Not Not mentioned As per Govt. set charges, if any
payments (P2G) mentioned

Source: Inam T. & B. Islam (2013)

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 Institute for Inclusive Finance and Development

Appendix-B
Mobile Financial Services (MFS) in Bangladesh (March, 2017)

Sl. no. Description Status

1 No. of approved Banks 28
2 No. of Banks started to convey the service 17
3 No. of agents 717046
4 No. of registered clients (in lac) 504.29
5 No. of active accounts (n lac) 245.70
6 No. of total transaction 151,778,574
7 Total transaction in taka (in crore BDT) 25,046.67
8 No. of daily average transaction 4896,083
9 Average daily transaction (in crore BDT) 807.96
10 Inward Remittance (in crore BDT) 7.71
11 Cash In transaction (in crore BDT) 10,667.48
12 Cash Out Transaction (in crore BDT) 9,619.61
13 Person to Person transaction (in crore BDT) 3,743.51
14 Salary Disbursement (Bank to Person) (in crore BDT) 404.69
15 Utility Bill Payment (Person to Bank) (in crore BDT) 180.09
16 Others (in crore BDT) 423.58

Source: Bangladesh Bank (2017)

Appendix-C
Division Wise Percentage of Households have Internal Migrant Members

Sl. no. Description Percentage (%) of

Internal Migrants
1 Barisal 30.57
2 Rangpur 20.12
3 Rajshahi 15.66
4 Dhaka 14.93
5 Khulna 12.84
6 Chittagong 9.97
7 Sylhet 5.36

Source: Author’s own calculation

24 Working Paper No. 52

The Institute for Inclusive Finance and Development (InM) is working since
1 January 2016 as a non-profit organisation established primarily to meet
the research and training needs of national as well as global financial
sector including microfinance institutions (MFIs). Its predecessor, Institute
of Microfinance, was established at the initiative of the Palli
Karma-Sahayak Foundation (PKSF) on 1 November 2006. The InM is
registered as an independent non-profit institution under the Societies
Registration Act 1860. The Institute works for developing the overall
capacity of the financial sector and strengthening the links between the
financial and real sectors through undertaking research, training,
education, knowledge management and other programmes in priority
areas including microfinance, inclusive finance, poverty and development.

Institute for Inclusive Finance and Development (InM)

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