Connecting dots …

Financial Inclusion

by

Nazmul Shah

Shifting payments from cash to electronic forms helps drive greater financial inclusion and economic opportunity in many countries. The government of Bangladesh is laying the groundwork through regulatory measures, and an innovating private sector is also driving the shift from cash to digital.

Although all forms of digital payments have been increasing in Bangladesh, the mobile financial services (MFS) industry in particular is notable for its rapid expansion. Government-to-Person (G2P) digital payments have also grown significantly, and further digitization of G2P payments could save an estimated US$146 million annually across six major social safety net programs, translating to 44% of total operating costs or 3% of the combined annual budget of the six programs.

However, the overwhelming majority of payments in Bangladesh are still made in cash. Achieving further progress will require continued efforts by the government to implement policies that create enabling conditions and evolve the regulatory environment in order to overcome key barriers such as the need to achieve more competition, and more interoperability enabling payment transactions between different service providers and platforms. This report measures the state of the shift from cash to digital payments, assesses the trajectory of Bangladesh’s shift, identifies specific barriers to digitization, and recommends specific actions that government and the private sector can take to guide future policy-making.

KEY FINDINGS

  1. A major shift to digital payments from governments and businesses to individuals is possible in Bangladesh
    The overwhelming majority of the payments made in Bangladesh are still made in cash.
  2. The increase in the number of MFS (mobile financial services) available indicates a trend in changing consumer behavior regarding digital payments.
  3. MFS are a key driver of the increasing number of person-to-person payments, but availability of appropriate platforms will be critical to more widespread adoption.
  4. There is a need to improve the business case for private sector actors to embrace digital payments.

GOVERNMENT PAYMENTS

  1. An estimated 69% of the value of payments made by governments are digital.
  2. While 69% of the value of all payments by government are electronic, the corresponding figure for electronic
  3. G2P salary payments is about half that amount, at 36%
  4. Electronic payment of conditional cash transfers or other social program payments is in its very early stages in Bangladesh, at less than 1% of payments by volume.

BUSINESS PAYMENTS

  1. There is an opportunity for businesses to increase the number of payments they make and receive digitally.
  2. While most Government-to-Business (G2B) payments (90%) have now transitioned to digital channels, payments from Business-to-Government (B2G) have not transitioned at all (0%).

INDIVIDUAL PAYMENTS

  1. At present, over 95% of the overall number of individuals’ payments is made in cash.
    Migration from rural to urban areas has significantly increased domestic remittances in Bangladesh.
  2. The shift to digitizing payments such as bill payments is likely to be slower and more incremental than the shift for other payment types.

KEY RECOMMENDATIONS

  1. Fully implement a National Identification System and integrate it with key services. Bangladesh now has a National ID (NID) database currently holding information on 96 million people in the country.
  2. Improve the regulatory environment to achieve more competition in the MFS market. Bangladesh’s MFS market is currently heading toward a damaging monopoly situation, which can result in a range of negative consequences for consumers.
  3. Improve interoperability to create an unrestricted flow of money among user accounts from different institutions or service providers and across multiple channels.

Your may download the executive summary or the full report from the following links.

Executive Summary:

Download

Full Report:

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Read the press release on Better Than Cash Alliance website.

This article leverages insights from recent study ‘Building Digital Bangladesh: The Way Forward for Digitizing Payments’ authored by pi STRATEGY and supported by the Better Than Cash Alliance of the United Nations. The study was launched in 2017.