The concept of financial inclusion has been around for a while, and digital approaches to furthering financial inclusion has received a lot of attention because it is a potentially relatively low cost way to bring a basket of financial services to the doorstep of those who have been ill-served by the formal financial sector. Dan Radcliffe and Rodger Voorhies at the Bill & Melinda Gates Foundation recently published a paper titled A Digital Pathway to Financial Inclusion that does a nice job of capturing some of discussion and evidence surrounding digital approaches to financial inclusion.
In their own words:
We depict what digital financial inclusion would look like and present a growing body of evidence which suggests that connecting poor people to a digital financial system will generate sizable welfare benefits. We argue that countries will not bridge the cash-digital divide in one giant leap. Instead, they will likely pass through four stages of market development along the pathway to an inclusive digital economy.
This image is from page 9 of the paper that captures the central thesis:
You hear about all these digital-based interventions, from cell phones to mobile money to digital deposits of government-to-person (G2P) payments and sometimes it’s overwhelming to try to categories which does what and how it matters in the grand scheme of things. I think this 4-stage schema does a pretty good job at providing one framework for all that.
Bangladesh, with a population of nearly 160 million and a landmass of 147,570 square kilometers, is among the most densely-populated countries in the world. It remains a low-income country, with a per capita income of US$ 652 in FY09 and 40 percent of its population living in poverty. Despite periods of political turmoil and frequent natural disasters, in the past decade Bangladesh has been marked by sustained growth(with nearly six percent on an average in past one decade), stable macroeconomic management, significant poverty reduction, rapid social transformation and human development. Foreign remittances sent by expatriate Bangladeshis remain one of the most consistent sources of foreign currency in Bangladesh, which earned Bangladesh 7th position among the top remittance-receiving countries in 2010, as reported byMigration and Remittance Fact Book 2011 of the World Bank.
Still, the majority of the Bangladeshis are unbanked, and access to financial services is very limited. Commercial banks have very low penetration in rural areas, where over 75 percent of the population lives. There are less than two ATMs for every 100,000 adults in the country. All of these characteristics make it a good business case for expanding accessibility to financial services through innovations.
Mobile networks have expanded quite rapidly in Bangladesh over the past decade. Currently, there are six mobile network operators (MNOs) in Bangladesh covering more than 90 percent of the geographic territory and 99 percent (coverage wise) of the population in Bangladesh. Consumer demand in Bangladesh makes the mobile market one of the fastest growing in the world. For instance, over the past 15 months, Bangladesh recorded nearly 1.4 million subscribers per month. The total number of mobile phone active subscribers reached about 73 million at the end of March 2011, with about a 45 percent penetration rate in the whole country. The Government and the Central Bank now recognize that the mobile banking is as a unique opportunity for the banks to increase their presence in rural and remote areas of the country and serve a huge unbanked population.
Banglalink, the fastest growing telecom operator in recent years, is the pioneer in testing out mobile mone initiatives in Bangladesh. The products it has recently launched along with other partners (such as banks and post offices) are as follows: (i) M-remittance (International and Local): which allows people to receive international remittance in the m-wallet account; enables local fund transfer P2P from one m-wallet to another m-wallet; facilitates cash deposit from “cash points” and other sources; and provides for cash withdrawal from “cash points”; (ii) M-payment (Utility): allows payment of utility bills using m-wallet; and (iii) M-collection: facilitates the purchase of train tickets.
M-remittance services are meant to address widespread issues such as inability to send money frequently, delays experienced while sending money, and issues related to insecure distribution and inconsistent delivery methods. It is also helping small entrepreneurs (agents) use part of the remittances which the receivers often do not withdraw all at once. The use of m-remittance services offered by Banglalink is picking up gradually. Around 1000 transactions are being reported across the country at the Banglalink mobile money agents/points. Users like the service for its fast and cost effective disbursement, as Banglalink found in its own market study.
Among many recent initiatives is the creation of a new organization called bKash — a scalable mobile money platform that will allow poor Bangladeshis to store, transfer and receive money safely via mobile phones. bKash is a joint venture of BRAC Bank Limited and Money in Motion LLC, USA, created out of a generous $10m grant from the Bill and Melinda Gates Foundation to ShoreBank International, an international consulting firm. The grant forms part of the Foundation’s $500m pledge over the next five years to expand savings and build a “new financial infrastructure” to bring savings services to the poor.
With mobile density of 45 percent and mobile retail density averaging 0.5 in each village, like many other countries such as Kenya, South Africa and the Philippines, Bangladesh also has enormous opportunity for financial inclusion through creating a solid “mobile money ecosystem”. This arguably will contribute to greater efforts at poverty reduction and economic development in Bangladesh.
(The writer/blogger is a Graduate student of Development Economics and International Finance at the Fletcher School of Law & Diplomacy, Tufts University)