Could new technologies in Bangladesh enable formal financial services to reach two-thirds of adults by 2020?

Conditions in Bangladesh offer scope for some optimism. Famous for high population density, Bangladesh may be able to deliver a larger volume of financial flows over a relatively smaller distribution network; possibly making the business case more tenable. The demand for remittance services is likely to be high.  There are large numbers of Bangladeshis remitting from overseas. There are plenty of internal migrant laborers needing to send money home – well illustrated by the the ubiquitous rickshaw drivers of Bangladesh’s capital, as one example. Other countries, notably Kenya, have seen branchless banking surge because of domestic money transfers.

Spurred by the release of Scenarios for Branchless Banking  in 2020 by CGAP and the UK’s Department for International Development (DFID), leaders of Bangladesh’s banks, mobile operators, microfinance institutions and technology providers met recently to examine the factors which could enable Bangladesh to double the number of people with access to basic financial services over the next decade.

In Dhaka, David Porteous, with the support of ShoreBank International, facilitated a scenario building exercise sponsored by the Bangladesh office of DFID.  Building from Bangladesh’s 2010 base of 150 million people, with one third of adults accessing formal financial services today, participants contemplated a future scenario in 2020:

• 172 million people with two-thirds of adults with access to formal financial services
• Large microfinance organizations evolve to become mono-line credit specialists and spin off large agent networks
• As a result, the cost of sending remittances from Middle East has halved; and domestic P2P from any cell phone linked bank account is less than the cost of a the informal courier services in 2010

Private sector groups would play a key role in making the scenario a reality:

• Large microfinance institutions can contribute their credit expertise and distribution networks
• Banks are critical to the safety and soundness of the financial sector and provide essential treasury, foreign exchange and banking expertise
• Mobile operators offer a new wide reaching network for wireless communication to enable real-time transactional support
• Technology solution providers offer a range of the hardware and software necessary to innovate

The government would need to ensure a  supportive policy environment.  Critical areas of government intervention:

• Regulatory certainty through the issuance of transparent regulations and licensing processes
• Channeling a large share of government payments through electronic channels building  a more secure and efficient delivery system
• Promote fair competition to ensure that innovation is encouraged and to avoid the monopolization of the payments system
• Strengthen the national identification system to ease Know Your Client (KYC) requirements and helping to provide further protections against money laundering and other abuses of the payments system

The key question now is whether the government and the private sector will begin to move on these ideas. Dr. Atiur Rahman, the Governor of the Bangladesh Bank, is keenly aware of the potential and has articulated a policy message of providing support across rural Bangladesh.  And the central bank Dr. Rahmah oversees is preparing to issue new regulations to support the branchless banking – the completion of which will be critical to setting the future direction of the industry. As these ideas gain traction, multiple private players are developing business plans and entering into partnership negotiations. Critical decisions in the months ahead will determine whether Bangladesh can achieve its vision of greater financial inclusion.

-Greg Chen