Dhaka Sunday February 17, 2013
Mobile Financial Services: Its Impact
Salehuddin Ahmed, Managing Editor, The Daily Star
Bangladesh can use mobile financial services not only to accelerate financial inclusion, but also to bring more than 85 percent un-banked population to the mainstream in a cost effective manner.
I found the poor and especially the women generated many of the innovative ideas in Bangladesh. The classic examples are microfinance and non-formal education of BRAC. Second lesson that I got is that, the tools of empowerment or power tools is usually been given to the men. I have found from the statistics that bKash has 25,000 agents and Dutch-Bangla Bank has 20,000 agents. My question is that how many among them are female. I think there is no female agent. I think we should consider giving the tool to the women and inclusion of women as agent. Good guidance will definitely help them to overcome the problem regarding illiteracy and inexperience.
Syed Mahbubur Rahman, Managing Director & CEO, BRAC Bank
Pial Islam, Managing Partner, pi Strategy Consulting
Financial inclusion is something that allows household and business to have access to two components - access to appropriate financial services and then effectively make use of those financial services. An important distinction is that financial development has disproportionately helped the poor. Many poor people in the rural communities who do not have the access to financial services in a formal financial institution would be paying a negative interest. They have to pay for the safekeeping of the fund.
When we look at financial inclusion and mobile payments, it helps in improving country's Gini Coefficient as well. The number of mobile phones and POS machines has been increasing significantly, and there is practically a mobile bank in the pockets of large number of people around the world. This is not different in Bangladesh either. There is a significant price reduction and phenomenal impact on ability to reach the base of the pyramid segments.
At a recent CGAP conference we were looking at Mobile Money specifically and found the responses from people of different countries that they think the biggest challenge is not technology but the business model where partnership play a big role. Partnership between existing platforms, such as a bank, a Mobile Network Operator as well as an agent network could be leveraged for local market access. Although this task of getting 77% of unbanked around the world into some sort of banking interfaces and experiences is very daunting, we see strong reason for hope at global level. Financial inclusion and innovations across axis has become number one priority in many countries.
Dr. Muhammad Abdul Mazid, former Chairman, National Board of Revenue
In our country most of the peoples' livelihood is agro-based and they live in villages. There is also a growing urbanization for livelihoods. People are coming to the cities, they are earning money and they want to send the money to their parents living in the villages. There is a significant domestic remittance flow but the physical infrastructure is still poor.
Dr. AB Mirza Azizul Islam, former Adviser to Caretaker Government
Md. Nazrul Islam Khan, ICT Secretary, NPD, Access to Information
It is important to look into the security aspects of various security IDs itself. But for financial services we only need one simple identity - it is my money. Even if I have 10 cases against me I should be able to draw my money unless it is being attached by a court order.
Khondkar Ibrahim Khaled, former Chairman of Bangladesh Krishi Bank and former Deputy Governor of Bangladesh Bank
In Bangladesh, Micro Finance Institutions (MFIs) are now currently brought under laws. Under this Act, MRA (Micro Regulatory Authority) is already being established. It is different from Bangladesh Bank but still connected with it. Bangladesh Bank Governor is also the Chairman of MRA with its own managing director and managerial body. Bangladesh Bank has introduced an innovative Bank-led financial service. Similarly, if MRA can introduce MFI-led financial service then there will be no regulatory issues. MRA is still not a strong regulator but over time, they may get stronger with broader scopes and lower expenses. We need to target the segment that is immediately after the already banked population . In general, regulators create hindrance in the process to ensure the security of the involved parties against cheating and fraudulent activities. Is telephone authority capable of handling this responsibility? I think they are not able to do it and this is not their mandate.
Economic growth is highly correlated with our financial inclusion and education. The players in the field should work for education at their own level. We can form a concise flexible body named Mobile Financial Service Promotion Bureau like Export Promotion Bureau. The constituting bodies of the bureau will be the Central Bank, Banks, MFI and MRA, BTRC, MFS, academicians and other stakeholders. Its first work will be to identify the problems, to find out where is the bottleneck. It will conduct some research to understand the issues. It would introduce new services with lower cost that would be popular in the lower income customer group. Ultimately, the MFS operators will deliver these services found by the Bureau.
Abul Kashem Md. Shirin, Deputy Managing Director, Dutch Bangla Bank Limited
Mobile banking is affordable for the poor because you can deposit 20 or 30 taka, and in the same way, you can draw small amounts of money. Maintaining a bank account is very costly. It costs almost 2000 taka for maintaining an account. In mobile banking there is no such cost. If you do not do any transaction for a year, it will cost you nothing.
Michael Kuehner, CEO, Robi
This would make the identification process much easier for the MFS providers also. However, the authority says that it is not secured, as there is a chance of being hacked. Concerns are also expressed in this forum about security. Mobile networks are possibly the safest platform in the world. There are no incidences where mobile platform was hacked. There are some exceptions on the smart phone site as the client of the smart phone of course have open software piece where a lot of things can happen. In Bangladesh, smart phone represent less than 2% of the population in the market. I think we can easily say that hacking into a phone of any user in Bangladesh is literally excluded because mobile networks are proprietary and very safe against the hacking from outside.
Dr. Mahabub Hossain, Executive Director of BRAC
Iqbal Quadir, Professor, Massachusetts Institute of Technology
Shameem Ahsan , Sr. Vice President, Bangladesh Association of Software
There should be a system that if I have a bank account I can transact through any mobile banking services. In Bangladesh, we see bank led model only, but there are other models like Google, Amazon.com, PayPal and so on. They are neither a bank nor a telephone company but giving mobile services and payment services. Therefore we should think of these new avenues.
Finally, mobile financial services should be connected with other financial services. It should be a package. In our country, we talk about twenty thousand crore taka from mobile phone service, but from value added services we get only 400 crore taka. This is only 20% of the global average. There is possibility of being a market of 4000 crore taka in Bangladesh. Through mobile, we can reach to grassroots level with information of health, education, agriculture and so on. Then there will be a demand of mobile payment.
There is also a lack of proper policies, which has created obstacles for entrepreneurs to come up with innovative ideas. If an entrepreneur wants to provide an innovative service, he or she has to share 70-80% revenue with the telephone operator. There is no protection for intellectual property. BTRC started working on a guideline for VAS but it is yet to see the daylight.
M. Khalid Shams, former Chairman, Grameenphone and former
My second point is that if financial inclusion is the objective as every body is emphasizing on it then how to reach the very large number of people who have been left outside the room of banking services. How do you create synergies among various partners? I think we need to look into existing models in various countries. Financial providers will have a comparative advantage if they can come up with differentiated products for villagers, girls, students, farmers and so on. Therefore, the banks and financial institutions have to demonstrate clearly that we are providing financial services to the poor people then all confusion will wither away within short time.
There are some risks in the service, but Bangladesh should seize the opportunity. MFS providers should come up with new products for the targeted people.
Dr. Hassan Zaman , Chief Economist, Bangladesh Bank
One is that as a regulator of the financial system, the safety of bank depositors and of financial flows is of paramount importance to us. Therefore, from the consumer protection angle, when we know that this is poor people's money which is going into a certain system, we need to be confident that the money is safe. And that safety of money we get through the institutions that we have licensed. We want to make sure that if there is any issue with that safety of the deposits we can hold all those we have given licenses accountable to any issues that we face. We cannot hold any other party accountable directly.
The second key issue is the monetary policy. We need to have a handle on how much money is flowing in and out of banks in order for us to have a sense of whether the interest rates instruments we are using to regulate monetary policy and therefore ultimately inflation, how much it is. At the end of the month, each bank reports to us about financial flows, which includes the accounts which are currently part of their mobile financial services system. At this point I'm not sure if we'd be able to get that from telcos for example. These are some of the key reasons for the rationale for why we opted for this model and why we are very keen on sticking to this model, whilst being somewhat flexible to innovations as well.
3 to 4 months ago, we prepared a report on the regulatory challenges that we are facing. One of the key findings of the report was that as a regulator our job is to promote competition. In three years of time we have only two major players in this industry which has all the risks of monopolistic competition. As promotional activity, we suggested various donors who have shown their interest to invest in this sphere which will increase the investment in the long run. Another regulatory challenge is ensuring compliance. We have a bank-led model. We want to make sure a simplified KYC form. We are now launching quite a major financial literacy campaign.
In terms of ensuring compliance, we see some cases where telcos are coming up as in fact the front for other banks to then provide those services. The issue that I want to be very clear on, that we don't want to see a case where we have different forms of money being created by a telco and then saying that a bank is a channel that cannot be. Telco is the channel by which these services are being provided, the bank provides the basic financial security and instrument, not the other way around. And along those lines, another regulatory challenge is mediation between telcos and banks with respect to charges and various gateways etc. We see this as part of our role to promote this industry, and we do it.
Finally, we have safety net programs in Bangladesh which is still massive, 2-3% GDP of the annual budget. About 60% - 70% are cash based and other 40% are food transfers. Those who get old age pensions or those who get benefits for being war veterans do not have to queue up in line for hours; if they can get their money on mobile phone through MFS. This should be the next frontier that we need to move to. As a regulator we are ready to help other organs of government to move in that direction.
Kamal Quadir, CEO bKash
Nawed Iqbal, CTO BRAC Bank
Another point is the impact and future aspects of MFS in Bangladesh. I have read an article where it was discussed that in not too distant future the card industry and retail banking is going to merge because these all are based on retail. Therefore, we need to look into that side also how we can expedite the process.
Regarding cards, for this TG we have to think differently as their needs are different. A2I and Bangladesh Krishi Bank are experimenting with alternative technologies like Q.R. codes. These experimentations are extremely helpful in the early stages.
Another point that I make is about using MFI network to take the agent network to scale. Many of the MFI networks are already quite exhausted in providing services that they traditionally do. So re-training and re-tooling is needed. The agent-banking model (called the business correspondents) has not fully worked in India. In India they are looking at micro finance network. Therefore, Bangladesh should cautiously look into the microfinance network model, and agents should be properly trained and re-tooled.
Abdul Muyeed Chowdhury
I would like to share some points-
2) We should not be too concerned with the security of MFS in Bangladesh.
3) Government is seriously thinking about an Electronic ID better than that one made by the Election Commission. This would be very useful to have via the statistics division (BBS). Also some Union based identity in the database will be helpful.
4) MFS should be regulated by Bangladesh Bank similar to MRA (Micro-credit Regulatory Authority) where the Governor of the Bangladesh Bank is the Chairman.
5) Simpler system for the illiterate people is needed.
6) MFS should be considered as commercial issue. People will be interested only if it makes money.
7) A committee should be formed to study, monitor and recommend to the regulators.
8) Simplification of KYC.
9) Telecoms should continue to provide connectivity and increase their revenue rather than getting into MFS itself. It should be done by the bank because the central bank should always regulate the industry.
10) Women agents should be appointed. This should be seriously examined. BRAC Bank, bKash and DBBL can explore this right way.
11) G2P (Government to person) payments is an area where MFS will be useful.
12) Differentiated MFS products are needed for traders, youth, women, students, poor and ultra Poor.
13) Two regulators, Bangladesh Bank and BTRC, should meet time to time and talk to each other to understand the industry concerns.
If we can address these and implement other recommendations that have been raised by the participants, then we can smoothen the path for widening and deepening the reach of the MFS in Bangladesh.