Digital finance: The way forward of banking stability in Bangladesh

In the era of 4th industrial revolution, accelerating digital finance is considered as one of the significant means for the banking sector stability that subsequently leads to sustainable economic growth as studies show. The rapid technological advancement has made the policymakers contemplate the adoption of digital financial inclusion (DFI) in the financial sector, especially in the banking sector. The DFI refers to those financial services that can be enjoyed through electronic devices in a cashless manner without much pain by which both the service providers and receivers get benefitted.

The main purpose of implementing digital financial inclusion is to bank the unbanked/ the underprivileged people in one hand and to bring financial sustainability in the other hand, which is one of the factors to achieve sustainable development goals (SDGs). The aim of SDGs is to turn this chaotic and almost culminated world into a more sustainable one where every individual is expected to enjoy a better and quality living without feeling the fear of any threat, conspiracy, conflict and war as well. One of the prime focused areas of the SDGs is the sustainable financial growth that can be attained through banking sector. According to McKinsey Global Institute (2016), digital finance will boost up the global gross domestic product (GDP) by 6 percent and generate 95 million new job scopes by 2,025 in which the contribution of the financial sector, in particular the banking sector, will be enormous.

Banking stability is a must for sustainable economic growth because when in a country the stability of the banking industry becomes questioned, the country's overall economic condition is thought to be collapsed. Banking stability can be achieved through financial inclusion and most significantly through digital financial inclusion. Thus, considering the long-term significance of DFI, Bangladesh, like other countries of the world, is also advancing towards the implementation of DFI as a part of its Vision 2021 as declared by Prime Minister Sheikh Hasina that dreams to see Bangladesh as a digital country. In the meanwhile, most of the banks in Bangladesh are going to carry out their most transactions through a cashless manner, the main moto of DFI, to keep pace with the current advancement of the world. Many banks and financial service agents are providing digital financial services where the famous names are Bkash, Sure Cash, Rocket, M Cash and latest one is Nagad owned by the government.

Apart from many other benefits, digital financial inclusion will also lead to greater economic stability and increase financial intermediation for its customers as well as for the overall economy of Bangladesh. Additionally, DFI will benefit the Bangladesh government by providing a platform to facilitate the increase in aggregate expenditure which subsequently generates higher tax revenue arising in the volume of financial transactions. Moreover, it will promote economic empowerment of women by enabling asset accumulation and increasing their economic participation. Furthermore, DFI will formalise the informal sectors of Bangladesh which subsequently help the government get unattained taxes from the informal financial activities.

Bangladesh is continuously moving forward in terms of implementing digital financial services in the transaction of both private and public sectors. In my current study (presented at the 1st international conference on Planning and Development 2019, organised by the National Academy for Planning and Development under the Ministry of Planning), using a sample 43 banks of Bangladesh my study finds that DFI is positively associated with individual bank stability which suggests that DFI leads to economic growth and an integrated DFI by banks is not only a phenomenon for attaining the SDGs, rather it is a thing that demands to be implemented carefully for the economic stability of the banks themselves.

The study also finds that active account, access to mobile phone, access to internet, and digital payment activities have boosted up in Bangladesh to 40 percent, 74 percent, 20 percent and 34 percent respectively in 2017. Furthermore, Bangladesh has been able to empower women by implementing digital financial activities, for example, around 62 percent  and 21 percent of females have mobile access and made/received digital payments respectively in 2017. Moreover, compared to India and Pakistan, the DFI position of Bangladesh in terms of gender and income (poorest 40 percent) equality is very remarkable that shows how fast Bangladesh is stepping up towards DFI.

Although Bangladesh is investing its endless effort to employ DFI to have sustainable financial sector, poor people are still away from formal banking services since banks require so many formalities to open a bank account. Bangladesh is also facing some challenges, for example, cloning of the SIM card, fake cards, card jamming, duplicate ATMs, card swapping, lack of transparency, lack of digital literacy, data privacy, phone hacking, network and server breakdown, money laundering and financing terrorism which are hindering the advancement of DFI.

It is necessary to take some steps for an effective implementation of DFI. First of all, people should be provided with digital financial literacy since it is found as a great hindrance to enjoy DFI. Digital literacy will help mass people operate internet and mobile banking smoothly.

Every individual should have a smart phone supported with uninterrupted and high-speed internet connection, latest technology and different apps relevant to DFI. If the internet buffers, users will face service interruption that might make them reluctant to use DFI.

Poor households who are unbanked now should be bankable. Many poor people are reluctant to open a bank account due to high amount of deposit so banks or other financial institutions should consider the economic status of those people. The banks should also introduce services that enable these people to open accounts sitting in the home through their electronic devices without any hassle.

However, it is very shocking that from Bangladesh people cannot send money to other countries. Sometimes parents of middle or lower middle-income families cannot send tuition fees to their issues, studying abroad, through a proper channel. This causes them to send money through illegal channels that deprives the national economy of earning more revenue. That is why, the government should reconsider the implementation of proper channel in the financial system to send money to other countries.

Bangladesh has great potential to achieve SDGs by 2030 through DFI if proper policies can be taken into consideration. However, the government and policymakers of Bangladesh should outline efficient action plans and implement the following policies regarding the inclusion of digital finance in the banking industry which will advance the attainment of the SDGs by 2030.

The author is Research Fellow, UAC, Faculty of Economics and Administration at university of Malaya