• May 2, 2018

More than 22 million people live below the poverty line in Bangladesh, accounting for around 13 percent of the population. Despite social and political instability, however, huge inroads have been made to improve economic growth.

The small business sector is helping bolster this economic growth and is currently home to eight million small businesses that employ about half of the country’s workforce and contribute to 25 percent of GDP.

Yet 75 percent of Bangladeshi small businesses are unserved by the formal financial sector. Until now there has been limited incentive for financial institutions to serve the small business community owing to capital constraints, high servicing costs, a challenging regulatory environment and the active discouragement of investment by conservative boards. Also, many small businesses opt against using formal financial services as they feel the product offering is inflexible and not suited to their business needs.

The Business Finance for the Poor in Bangladesh (BFP-B) program, managed by Nathan, has been operating for five years working to bridge this gap between the MSE (micro and small enterprises) market and financial institutions by encouraging private sector investment, enhancing the creditworthiness of small businesses, and improving the policy and regulatory framework and environment.

The latest policy study on Mobile Financial Services for MSEs in Bangladesh has revealed that mobile financial services (MFS) are not being utilized by the eight million small business owners nationwide despite a huge upsurge in the use of mobile money across the country. In fact, fewer than half of those with mobile money accounts do not use them for business purposes due to low transaction limits and flat rate transaction fees which make payments extremely costly.

Our research recommends several changes to improve Bangladesh’s mobile money ecosystem, including greater incentives for financial service providers to launch new and improved services targeted at MSEs. The summarized recommendations are as follows:

(1) Provide detailed operational guidelines on MFS business accounts and transactions to expand the MFS beyond cash-in, cash-out and payments, and motivate adoption of these guidelines;

(2) Establish tiered and e-KYC (know your customer) based MFS accounts to ensure that small business owners can open MFS accounts with ease and according to their business requirements;

(3) Formulate a uniform USSD pricing policy which will simplify entry barriers and encourage smaller, new MFS players to operate on a level playing field;

(4) Facilitate interoperability among MFS providers and across banks in order to promote healthy competition in the market while also moving towards a cashless society;

(5) Develop guidelines to promote partnership among MFIs and MFS providers with a suggestion that the Bangladesh Bank works with the Microcredit Regulatory Authority (MRA) to improve coordination amongst MFIs and MFS players, developing a favorable environment for sustainable partnership and fair competition; and

(6) Revise MFS guidelines to allow all financial service providers to leverage the MFS platform for the development of new products and services, e.g. the experience of M-Shwari in Kenya.

Program Director Buddhika Samarasinghe comments: “It is evident that mobile financial services have incredible potential to help accelerate small businesses’ participation to boost the economy but the research clearly indicates that the high cost currently associated with mobile financial services deters small business owners from accessing and benefiting from these services.

By tapping into these services, which the BFP-B programme is piloting, MSEs will be able to benefit from more investment to allow them to play a fuller role in job creation and more inclusive economic growth. Using the work we did to contribute to the first National Financial Inclusion Strategy for Bangladesh, we will work to ensure that the policy recommendations which were developed will be able to translate this vision into action.”

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