{"id":14416,"date":"2016-11-13T15:51:15","date_gmt":"2016-11-13T20:51:15","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/the-digitization-of-microfinance-bkash-in-bangladesh\/"},"modified":"2016-11-13T15:51:15","modified_gmt":"2016-11-13T20:51:15","slug":"the-digitization-of-microfinance-bkash-in-bangladesh","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/the-digitization-of-microfinance-bkash-in-bangladesh\/","title":{"rendered":"The Digitization of Microfinance: bKash in Bangladesh"},"content":{"rendered":"

The Business of Microfinance<\/strong><\/h2>\n

Microfinance serves the World\u2019s under-banked population by providing financial services tailored to the needs of their financially constrained customer base. Microcredit is the primary service provided by Microfinance Institutions (\u201cMFIs\u201d) and it is generally dependent on a group lending model which encourages repayment through joint liability, rather than through use of collateral.<\/p>\n

\"screen-shot-2016-11-13-at-12-30-38-pm\"<\/a><\/p>\n

[Source:Raimar Dieckmann, \u201cMicrofinance: An emerging investment opportunity.\u201d Deutsche Bank Research, December 19, 2007,\u00a0http:\/\/www.dbresearch.com\/PROD\/DBR_INTERNET_EN-PROD\/PROD0000000000219174.pdf<\/a>, accessed November 2016.<\/span><\/h6>\n

Traditionally, NGOs have made up the bulk of MFIs, however in recent years more and more for-profit social enterprises have entered the sector.<\/p>\n

 <\/p>\n

Microfinance in Bangladesh and BRAC Bank<\/strong><\/h2>\n

 <\/p>\n

Bangladesh is often considered the birthplace of modern microfinance. Bangladesh has an enormous market for microfinance services as more than 80% of its 165 million people live on less than two dollars a day and 85% of the population lacks access to formal banking services.1,2<\/sup> This demand for microfinance is being met by 685 licensed MFIs, more than almost any other country.3<\/sup> With such a large market and many players, competition in the sector is tough. BRAC Bank is one of the oldest MFIs in Bangladesh and a predominant player in the sector. BRAC was founded in 1972 and is now one of the worlds largest NGOs, operating across 14 countries.4<\/sup> The intense competition in the market encourages innovation and in November 2011, BRAC Bank founded bKash to focus exclusively on digitizing microfinancial services.5<\/sup> bKash is at the frontier of digital microfinance, providing 98% of the country\u2019s mobile phone users with financial services.6<\/sup> Both the IFC and Bill & Melinda Gates Foundation have taken equity stakes in the Company.7<\/sup><\/p>\n

 <\/p>\n

Digitization of Microfinance Services<\/strong><\/h2>\n

 <\/p>\n

The digitization of microfinance offers enormous benefits to both the provider and the customer. Generally, MFIs have high transportation costs due to poor infrastructure and a high percentage of customers living in rural areas. The digitization of services allows for transport cost savings, reduced staffing needs and cash risk, increased access to information and the opportunity to scale more rapidly. Digitization also benefits the customer: increased information, increased ease of use, and reduced risk. In fact, a recent study found that the digitization of microfinance could reduce travel and wait time for customers by as much as 75%, translating into savings which could feed a family of five for a day.8<\/sup><\/p>\n

 <\/p>\n

bKash and Digital Microfinance<\/strong><\/h2>\n

\"screen-shot-2016-11-13-at-1-17-01-pm\"<\/a><\/p>\n

Source:\u00a0Gregory Chen and Stephen Rasmussen, \u201cbKash Bangladesh:A Fast Start for Mobile Financial Services,\u201d CGAP Working Paper, 2014, http:\/\/www.cgap.org\/publications\/bkash-bangladesh-fast-start-mobile-financial-services, accessed November 2016.<\/span><\/h6>\n

bKash is at the frontier of the digitization of microfinance, conducting more than 80% of mobile financial services in Bangladesh.9<\/sup> In fact, \u201cthe term bKash has become so commonplace that it is synonymous to mobile money payments.\u201d10<\/sup> bKash offers money transfer and lending services which can be accessed on even the cheapest mobile phone.11<\/sup> Customers can receive salaries, remittances, or credit through a pin on their mobile device (\u201ccash in\u201d) and then can \u201ccash out\u201d by visiting one of bKash\u2019s 100,000 agents or one of BRACs 300 ATMs.12,13<\/sup> Signing up for bKash and \u201ccashing in\u201d are both free, but there is a flat fee of 6 cents for person-to-person money transfers and a 1.85% fee on funds withdrawn.14<\/sup><\/p>\n

 <\/p>\n

 <\/p>\n

bKash & Digitization Moving Forward<\/strong><\/h2>\n

 <\/p>\n

bKash has made great strides in increasing the digitization of financial services in Bangladesh, but there is still an enormous potential for growth. Only 22% of Bangladesh adults are currently using mobile money.15<\/sup> Furthermore, bKash can provide other services such as micro insurance and business-to-business transactions. Another option for bKash is to introduce a structured savings programs. A study in Africa found that regular reminders to save sent through mobile financial service providers increased customer savings by 16%.16<\/sup><\/p>\n

 <\/p>\n

However, to be successful there are several risks that bKash needs to manage. First, the group-lending model of microfinance has been crucial to its success. Mobile microcredit eliminates the group function: how will bKash maintain high incentives to repay without collateral or group pressure? Second, bKash should strive to move away from the agent model. Not only is this an additional cost to the system which will eventually be borne by the consumer, but it also adds an element of risk as the agent must carry large amounts of cash and the system is heavily dependent on the trustworthiness of these agents. Third, bKash must be extremely clear about the fees it is charging. It is a pervasive misconception among users that digital financial services are free.17<\/sup> Kenya recently enacted a law requiring all digital financial service providers to put transaction costs on the same screen as the transaction to ensure users have full information.18<\/sup> While this is not currently required in Bangladesh, it is important bKash adopt this level of transparency to ensure the continued trust of its customer base. [757]<\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

Works Cited<\/span><\/p>\n

    \n
  1. Raimar Dieckmann, \u201cMicrofinance: An emerging investment opportunity.\u201d Deutsche Bank Research, December 19, 2007, http:\/\/www.dbresearch.com\/PROD\/DBR_INTERNET_EN-PROD\/PROD0000000000219174.pdf<\/a>, accessed November 2016.<\/span><\/li>\n
  2. bKash Limited, \u201cCompany Profile,\u201d https:\/\/www.bkash.com\/about\/company-profile<\/a>, accessed November 2016.<\/span><\/li>\n
  3. \u201cList of licensed MFIs as of Oct 30, 2016,\u201d Microcredit Regulatory Authority, http:\/\/www.mra.gov.bd\/index.php?option=com_content&view=article&id=115&Itemid=95<\/a>, accessed November 2016.<\/span><\/li>\n
  4. Gregory Chen and Stuart Rutherford, \u201cA Microcredit Crisis Averted: The Case of Bangladesh,\u201d CGAP Working Paper No.87, July 2013, https:\/\/www.cgap.org\/sites\/default\/files\/Focus-Note-A-Microcredit-Crisis-Averted-July-2013.pdf<\/a>, accessed November 2016.<\/span><\/li>\n
  5. Gregory Chen and Stephen Rasmussen, \u201cbKash Bangladesh:A Fast Start for Mobile Financial Services,\u201d CGAP Working Paper, 2014, http:\/\/www.cgap.org\/publications\/bkash-bangladesh-fast-start-mobile-financial-services, accessed November 2016.<\/span><\/li>\n
  6. Kamal Quadir, \u201cThe Story of Bkash,\u201d The Daily Star<\/em>, April 23, 2014, http:\/\/www.thedailystar.net\/the-story-of-bkash-21235<\/a>, accessed November 2016.<\/span><\/li>\n
  7. Chen and Rasmussen, \u201cbKash Bangladesh:A Fast Start for Mobile Financial Services.\u201d<\/span><\/li>\n
  8. Leora Klapper and Dorothe Singer, \u201cThe Opportunities of Digitizing Payments,\u201d World Bank Development Research Group Report No. 9035, August 28, 2014, http:\/\/siteresources.worldbank.org\/EXTGLOBALFIN\/Resources\/8519638-1332259343991\/G20_Report_Final_Digital_payments.pdf<\/a>, accessed November 2016.<\/span><\/li>\n
  9. Chen and Rasmussen, \u201cbKash Bangladesh:A Fast Start for Mobile Financial Services.\u201d<\/span><\/li>\n
  10. Ibid.<\/span><\/li>\n
  11. Quadir, \u201cThe Story of Bkash.\u201d<\/span><\/li>\n
  12. Ibid.<\/span><\/li>\n
  13. bKash Limited, \u201cCompany Profile.\u201d<\/span><\/li>\n
  14. Quadir, \u201cThe Story of Bkash.\u201d<\/span><\/li>\n
  15. Chen and Rasmussen, \u201cbKash Bangladesh:A Fast Start for Mobile Financial Services.\u201d<\/span><\/li>\n
  16. Klapper and Singer, \u201cThe Opportunities of Digitizing Payments.\u201d<\/span><\/li>\n
  17. Rafe Mazer, \u201cKenya Ends Hidden Costs for Digital Financial Services,\u201d CGAP Blog, 2016, https:\/\/www.cgap.org\/blog\/kenya-ends-hidden-costs-digital-financial-services<\/a>, accessed November 2016.<\/span><\/li>\n
  18. Ibid.<\/span><\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

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