A Digital Bank in Bangladesh: Opportunity and Imperative for growth of its Economy

The Government of Bangladesh below the current Prime Minister Ms Sheikh Hasina has undertaken quite a few coverage initiatives to make sure regular growth of GDP, introduce monetary sector reforms and give a push to additional digitization in the monetary sector, bettering communication infrastructure and companies and enhancing the penetration of mobiles and web companies to achieve out to the below banked folks in Bangladesh.

Asian Development Bank (ADB) President Masatsugu Asakawa on 14 Mar 2023 acknowledged that “I’ve witnessed the various methods Bangladesh has been remodeled via regular and inclusive financial growth with vibrant personal sector engagement over the previous decade and a half,” he counseled Bangladesh’s financial and social improvement, significantly over the past decade and a half. Between 2013 and 2022, Bangladesh’s gross home product grew about 6.5% on common, reaching 7.9% at its peak simply earlier than the COVID-19 pandemic in 2019. In 2015, Bangladesh attained the standing of decrease middle-income nation, with per capita gross nationwide revenue reaching $1,210. It rose to $2,793 by 2022. Bangladesh is on monitor to graduate from least-developed nation standing by 2026.

1. Overview of the Banking Sector in Bangladesh:

Bangladesh’s banking sector has witnessed vital growth over the previous decade. As of 2021, there have been 58 scheduled banks working in the nation, together with 4 state-owned business banks, 40 personal business banks, 9 international business banks, and 5 specialised banks. The sector has been steadily increasing, with whole belongings of the banking business reaching roughly 125 trillion Bangladeshi Taka (round 1.48 trillion USD) by the tip of 2020.

2. Rising Digital Adoption:

The adoption of digital applied sciences in Bangladesh has been on the rise, significantly among the many youthful inhabitants. As of 2021, the quantity of web customers in the nation surpassed 100 million, with a penetration price of over 60%. Additionally, the use of smartphones has turn out to be more and more widespread, with greater than 100 million cell phone subscribers, though the sensible telephone penetration is decrease.

3. Increasing Financial Inclusion:

While Bangladesh has made vital progress in bettering monetary inclusion, challenges persist in reaching the unbanked and underbanked populations. According to the World Bank’s Global Findex Database 2017, roughly 50% of adults in Bangladesh nonetheless wouldn’t have a checking account. This presents a substantial alternative for a brand new Digital Bank to increase its companies to this untapped market.

4. Untapped Rural Market:

Bangladesh’s rural inhabitants accounts for a considerable portion of the entire inhabitants, with roughly 65% residing in rural areas. Despite the growth in digital banking companies, entry to formal banking in rural areas stays restricted. A new Digital Bank that strategically targets the agricultural market can cater to the monetary wants of thousands and thousands of people and companies.

5. Fostering a Cashless Economy:

The authorities of Bangladesh has been actively selling a cashless financial system to scale back dependency on bodily forex and improve the effectivity of monetary transactions. As of 2021, the quantity of digital transactions in the nation witnessed vital growth, with digital fund transfers, cell banking, and on-line funds gaining momentum.

6. Youth and Tech-Savvy Population:

Bangladesh has a younger inhabitants, with roughly 60% of its residents aged beneath 25 years. This demographic is tech-savvy and desirous to undertake digital options for numerous facets of their lives, together with monetary companies. A new Digital Bank that caters to the preferences and wants of this tech-savvy section can acquire a aggressive benefit.

7. E-commerce and Online Marketplaces:

The e-commerce sector in Bangladesh has skilled exponential growth, with a market dimension reaching round 3.2 billion USD in 2021. With the proliferation of on-line marketplaces, there’s a rising demand for environment friendly and safe digital fee options. A Digital Bank that collaborates with e-commerce platforms can faucet into this thriving market.

8. SME and Microenterprises Segment:

SMEs and microenterprises play a significant function in Bangladesh’s financial system, contributing considerably to GDP and employment. However, entry to formal financing stays a problem for many of these enterprises. A new Digital Bank can present tailor-made monetary merchandise and lending options to assist the growth of SMEs and microenterprises.

9. Potential Size and Volume of Opportunity:

With a inhabitants of over 160 million and a rising center class, the potential market dimension for a brand new Digital Bank in Bangladesh is substantial. The mixture of rising digital adoption, authorities initiatives for monetary inclusion, and a big unbanked inhabitants presents a singular alternative for the financial institution to seize a big share of the market.

10. Competitive Landscape:

The banking sector in Bangladesh is aggressive and numerous, with conventional banks, cell monetary service suppliers, and fintech startups vying for market share. As of 2021, cell monetary companies in Bangladesh had over 100 million registered accounts. To succeed, a brand new Digital Bank should differentiate itself via modern choices, superior person expertise, and strategic partnerships.

11. Regulatory Environment:

Entering the banking sector in Bangladesh requires strict adherence to regulatory pointers. The central financial institution, Bangladesh Bank, performs an important function in overseeing the sector and guaranteeing compliance with prudential laws, capital adequacy norms, and cybersecurity requirements. A new Digital Bank should navigate the regulatory panorama fastidiously to function legally and acquire clients’ belief.

12. Government Initiatives for Financial Inclusion:

The Bangladesh authorities has undertaken numerous initiatives to advertise monetary inclusion and digitalization in the nation. The “Digital Bangladesh” imaginative and prescient, launched in 2008, goals to leverage expertise to rework the financial system and enhance entry to digital companies for all residents. As half of this imaginative and prescient, the federal government has applied a number of flagship applications, such because the “Digital Financial Services (DFS) Policy 2011,” which focuses on increasing monetary companies via digital channels. In 2011, Bangladesh Bank launched “Mobile Financial Services (MFS)” pointers, enabling cell operators and banks to supply monetary companies to the unbanked inhabitants via cellphones. This transfer revolutionized the banking panorama, resulting in a surge in cell banking customers. As of 2021, the quantity of MFS accounts exceeded 110 million, making Bangladesh one of the worldwide leaders in cell monetary companies adoption.

13. Mobile Banking and Digital Wallets:

Mobile banking and digital wallets have turn out to be integral to the monetary ecosystem in Bangladesh. Customers can carry out a variety of monetary transactions, together with fund transfers, invoice funds, airtime top-ups, and utility invoice funds, all via their cellphones. The simplicity, comfort, and accessibility of these companies have attracted customers throughout numerous demographics. bKash, a preferred cell monetary service supplier, emerged as a serious participant in the market. As of 2021, bKash had over 50 million registered accounts and was processing thousands and thousands of transactions every day. Its widespread adoption signifies the immense potential for a brand new Digital Bank to supply modern and aggressive companies in the digital funds area.

14. Fintech Landscape and Collaboration Opportunities:

The fintech sector in Bangladesh has been rising steadily, pushed by elevated funding and a supportive regulatory surroundings. Fintech startups are introducing novel options to deal with particular monetary challenges and enhance monetary inclusion. This contains peer-to-peer lending platforms, on-line funding companies, and AI-powered credit score scoring. A new Digital Bank can leverage the strengths of the fintech ecosystem by fostering collaborations with these modern startups. Such collaborations might result in the creation of complete monetary options, tapping into area of interest markets and catering to evolving buyer preferences.

15. Financial Literacy and Customer Education:

As digital banking positive aspects momentum, there’s a urgent want to reinforce monetary literacy among the many inhabitants. Many potential clients, significantly these in rural areas, might not be absolutely conscious of the advantages and security measures related to digital banking. A proactive method to buyer schooling is significant to instill confidence and belief in the brand new Digital Bank. The financial institution can arrange monetary literacy applications, webinars, and workshops to coach people and companies on digital banking finest practices, cybersecurity consciousness, and the advantages of formal monetary companies. This effort will play a big function in accelerating the adoption of digital banking and selling monetary inclusion.

16. Capitalizing on the Growth of E-commerce:

Bangladesh’s e-commerce sector has witnessed outstanding growth in latest years. According to a examine by e-CAB (e-Commerce Association of Bangladesh), the e-commerce market’s dimension reached round 3.2 billion USD in 2021, and it’s anticipated to proceed increasing. As shoppers more and more flip to on-line purchasing, there’s a rising demand for safe and environment friendly digital fee options. A new Digital Bank can seize the chance by partnering with e-commerce platforms to supply built-in fee gateways and custom-made monetary options. This collaboration would supply a seamless purchasing expertise for clients whereas boosting the financial institution’s transaction quantity and buyer base.

Addressing Challenges and Mitigating Risks:

Expanding into the digital banking panorama comes with its challenges and dangers. The emergence of new fee applied sciences might appeal to cybercriminals in search of to take advantage of vulnerabilities. Therefore, the brand new Digital Bank should prioritize cybersecurity measures to guard buyer information and monetary belongings. Further, buyer belief is important in the banking sector. The financial institution should display clear practices, truthful pricing, and a dedication to resolving buyer issues promptly. By constructing a powerful popularity for reliability and safety, the Digital Bank can foster long-lasting buyer relationships.

18. Regulatory Compliance and Licensing:

Obtaining the mandatory regulatory approvals and licensing from Bangladesh Bank is a prerequisite for establishing a Digital Bank in the nation. The financial institution should adjust to the central financial institution’s prudential laws, capital adequacy norms, and reporting necessities. The licensing course of entails demonstrating the financial institution’s means to function in a safe and compliant method whereas serving the monetary wants of the goal market. Thorough preparation and collaboration with authorized specialists will likely be important to make sure a easy utility course of and adherence to regulatory pointers.

19. Customer-Centric Innovation:

In a aggressive banking panorama, customer-centric innovation is paramount to face out and acquire a aggressive edge. The new Digital Bank ought to prioritize buyer suggestions and constantly iterate its merchandise and companies based mostly on buyer wants and preferences. Introducing user-friendly interfaces, personalised banking experiences, and intuitive options will improve buyer satisfaction and loyalty. The financial institution may also make use of information analytics to realize insights into buyer conduct, enabling personalised product suggestions and focused advertising and marketing methods.

Overall in my view the chance and potential for establishing a brand new Digital Bank in Bangladesh are huge and promising. With a rising tech-savvy inhabitants, rising digital adoption, and authorities initiatives for monetary inclusion, the market is primed for modern digital banking options.

By concentrating on the unbanked, underbanked, rural segments, SMEs, and youth, the brand new Digital Bank can tackle vital gaps in the present banking ecosystem. Through strategic collaborations with fintech startups and e-commerce platforms, the financial institution can improve its product choices and cater to numerous buyer wants.

To succeed in this dynamic market, the Digital Bank should prioritize regulatory compliance, cybersecurity, and customer-centric innovation. By capitalizing on the growth of e-commerce, fostering monetary literacy, and constructing belief via clear practices, the financial institution can place itself as a number one participant in Bangladesh’s digital banking revolution.

Expanding into this burgeoning market requires meticulous planning, strategic partnerships, and a deep understanding of buyer preferences. With a sturdy and well-executed enterprise technique, the brand new Digital Bank has the potential to turn out to be a trailblazer in the nation’s monetary panorama, driving monetary inclusion and contributing to the imaginative and prescient of a really Digital Bangladesh.

A new Digital Bank can carve a distinct segment for itself and contribute to the nation’s monetary ecosystem’s growth and improvement.

Disclaimer : The views expressed in this text are these of the writer solely

Major General Dr Dilawar Singh is an Indian Army veteran who has led the Indian Army’s Financial Management, coaching and analysis divisions introducing quite a few initiatives therein.He is the Senior Vice President of the Global Economist Forum AO ECOSOC, United Nations andThe Co President of the Global Development Bank.He is passionate for advocacy for Fintech incorporation for enhancement of monetary transparency, effectivity of finmanagement and societal inclusive banking.