How the mobile phone and bKash revolutionised financial transaction
Currently, 13 MFS providers are in operation and the government also entered the MFS business by setting up Nagad
Eleven years back an entrepreneur was wearing out his soles day after day in the corridors of the Bangladesh Bank to make policymakers understand a novel concept of mobile financial service (MFS) and make them formulate a guideline to set up such a company.
The central bank was finally convinced and the new concept took its shape as a subsidiary of BRAC Bank Limited.
Today, that entrepreneur Kamal Quadir is leading the largest MFS provider bKash Limited which alone holds 50% share of registered MFS accounts in Bangladesh.
The total registered accounts crossed 11 crore at the end of December last year of which most are unbanked people. The number of MFS accounts is not far behind the number of bank accounts of 12.35 crore.
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When low income people like rickshaw-pullers and garment workers in the city could not think of stepping into a bank to send their earnings to their families in the village, it was bKash that brought the unique solution for them to send money home through a mobile wallet.
This is how a simple mobile phone brought them under financial services and helped them move to financial inclusion.
The first entrepreneur had to struggle to explain the innovative concept of mobile-based financial transaction to central bankers. The system has proved its miracle. Now Bangladesh Bank itself wants to open a new window for MFS business to fulfill its financial inclusion agenda.
With this aim, the central bank recently amended Bangladesh Mobile Financial Services (MFS) Regulations, 2018, allowing financial institutions and government entities to enter into this platform.
The central bank introduced its first MFS guideline in 2011 when MFS was only bank-led, but now other entities can get the license as many foreign investors are interested to invest in this platform.
Abul Bashar, executive director of the Bangladesh Bank, has recently acknowledged that MFS has made huge contributions in reducing the gender gap in financial services.
The Bangladesh Bank opened a new window of opportunity by amending MFS regulations to improve financial inclusion, he added.
The total registered MFS accounts stood at 11.14 crore at the end of December last year of which 45% are female accounts.
Of the total number of MFS accounts, rural areas accounted for 56% and the rest were in urban areas, according to central bank data.
Average monthly transaction through MFS stood at Tk 71,173 crore in December last year.
The robust growth in MFS has encouraged foreign investment in the platform.
Japanese tech investment giant SoftBank is going to enter Bangladesh by acquiring a 20% stake of bKash.
The existing other foreign investors in bKash are Money in Motion LLC, the International Finance Corporation, Bill & Melinda Gates Foundation, and AliPay Singapore E-Commerce Private Limited.
More companies are in the queue to join the MFS platform.
Dutch-Bangla Bank for the first time introduced an MFS service named Rocket as a small wing of the bank. bKash is the first company that started its journey in 2011 by setting up a separate company.
Currently, 13 MFS providers are in operation and the government also entered the MFS business by setting up Nagad.
Nagad, owned by the Bangladesh Post Office, started operation in 2019 and became the second largest MFS company in two years of its inception by grabbing 30% share of the MFS industry.
This company also got foreign investment in its bond subscription.
Sharing the experience of establishing an MFS company, Kamal Quadir in an interview with The Business Standard in 2020 said that the rising use of mobile phones gave him the idea that this electronic device can be used in financial transactions. The idea also was aligned with the thoughts of the Bangladesh Bank and the government around 2009 about a cost-efficient digital payment system to improve financial inclusion.
The mobile-based service proved cost effective for banks, too. When a person goes to a bank and makes a transaction, it costs the bank Tk 128. Common people like a rickshaw-puller at best transact Tk1,000 to Tk1,500 at a time and if the bank charges him Tk128 it makes no business case. And that is why the poor people are left outside the financial system.
"No matter how serious the bank or the government is about financial inclusion, it would not be achieved through this model (transaction through banks)," said Kamal. "So I thought of a system that would protect the client's interest by remaining fully regulated by the central bank and at the same time, reduce the cost of transaction."
With the idea of using mobile phones in financial transactions, he met with Brac's founder Sir Fazle Hasan Abed during the preparatory work.
"I chose Brac for multiple reasons, one is that it has a presence across the country. We need credibility which Brac has already gained. Moreover, Fazle Hasan Abed bhai had the vision to create a viable business to serve the poor. This alignment with common philosophy and objective gave me a sense of possibility to make the idea successful," said Kamal.
Kamal travelled across Africa multiple times to learn the experience of MFS in Kenya.
He used his learning from Kenya's success of MFS in Bangladesh to widen financial inclusion through using mobile wallets.
