Bangladesh has made impressive strides in socio-economic development over the past decade. However, challenges persist around poverty alleviation, infrastructure gaps, lack of quality education and healthcare access. The country envisions becoming a digitally empowered, knowledge-based ‘Smart Bangladesh 2041‘. The banking sector of Bangladesh has a pivotal role to play in realizing this national vision.
However, there are still many challenges and opportunities for further development, especially in the areas of financial inclusion, digital transformation, and innovation.
The banking sector of Bangladesh has undergone significant changes in the last decade, driven by the adoption of digital technology and the emergence of new players and business models. The central bank of Bangladesh, Bangladesh Bank, has been instrumental in facilitating and regulating these changes, with the aim of improving the access, usage, and quality of financial services for all segments of the population.
Major Initiatives Taken By The Banking Sector of Bangladesh
Some of the major initiatives and achievements of the banking sector in Bangladesh in terms of digital transformation and innovation are:
Mobile Financial Services (MFS)
MFS is a form of digital financial service that allows customers to conduct financial transactions remotely using a mobile device, such as a basic phone or a smartphone.
According to the Bangladesh Bank, as of June 2023, there are over 26.5 crore MFS account holders and 15.55 lakh agents in Bangladesh. This shows that the MFS industry in Bangladesh has continued to grow rapidly in the past two years, with a significant increase in both the number of account holders and agents.
In addition, Nagad and ACI’s Kori Digital received mobile financial service licenses from Bangladesh Bank in 2023, further expanding the digital banking landscape. With the entrance of these new players, competition in the MFS sector is expected to increase, potentially driving further innovation and affordability in banking sector of bangladesh.
Therefore, the statement that MFS was introduced in Bangladesh in 2011 and that there are over 26.5 crore account holders and 15.55 lakh agents as of June 2023 is accurate. The recent licensing of Nagad and ACI’s Kori digital also points to the continued growth and development of digital financial services in the country.
Agent Banking
Agent banking is a form of branchless banking that allows customers to access financial services through authorized agents, such as local shops, post offices, or NGOs. Agent banking was introduced in Bangladesh in 2012, with the issuance of a guideline by Bangladesh Bank.
Agent banking aims to provide a safe, convenient, and affordable alternative to the traditional branch-based banking model, especially in rural areas where setting up full-fledged branches is not feasible or profitable. Agent banking offers services such as account opening, cash deposit and withdrawal, fund transfer, loan disbursement and repayment, and more.
Digital Payments
Digital payments are transactions that are made electronically, without the use of physical cash or cheques. Digital payments can be made through various channels, such as cards, mobile phones, internet banking, QR codes, and more.
Digital payments offer benefits such as convenience, speed, security, and transparency, for both customers and businesses. Digital payments also support the growth of the digital economy, by enabling e-commerce, online education, digital entertainment, and more.
Bangladesh has witnessed a significant increase in digital payments in recent years, driven by the expansion of MFS, e-commerce, and fintech.
According to the Bangladesh Bank, the total volume and value of digital payments in Bangladesh reached 3.2 billion and 3.7 trillion taka respectively in 2022, compared to 1.8 billion and 1.9 trillion taka in 2020. This represents a significant increase of 77.78% in volume and 94.74% in value.
Therefore, the statement that Bangladesh has witnessed a significant increase in digital payments in recent years, driven by the expansion of MFS, e-commerce, and fintech, is accurate. The updated data shows that the total volume and value of digital payments in Bangladesh increased by 77.78% and 94.74%, respectively, in 2022 compared to 2020.
Fintech
Fintech is a term that refers to the use of technology to provide innovative and disruptive solutions in the financial sector. Fintech can cover various aspects of financial services, such as lending, insurance, investment, wealth management, personal finance, and more.
Fintech can also leverage emerging technologies, such as artificial intelligence, machine learning, blockchain, big data, and more, to enhance the efficiency, effectiveness, and customer experience of financial services.
Bangladesh has a growing fintech ecosystem, with over 100 fintech startups and companies operating in the market. Some of the notable examples of fintech in Bangladesh are:
ShopUp
ShopUp is a fintech company that provides digital solutions for micro, small, and medium enterprises (MSMEs) in Bangladesh. ShopUp offers services such as e-commerce, digital marketing, logistics, and financing, to help MSMEs grow their businesses online.
ShopUp has over 5 lakh merchants on its platform, and has raised over 30 million USD in funding from investors such as Sequoia Capital, Flourish Ventures, and VEON Ventures.
iPay
iPay is a fintech company that provides a digital wallet and payment platform for individuals and businesses in Bangladesh. iPay allows users to make and receive payments, pay bills, buy airtime, and more, using their mobile phones or computers.
iPay also offers a loyalty program, cashback offers, and discounts, to incentivize users to use its platform. iPay has over 10 lakh registered users and over 50,000 merchant points.
SureCash
SureCash is a fintech company that provides a mobile banking and payment platform for individuals, businesses, and the government in Bangladesh.
SureCash allows users to access financial services such as money transfer, bill payment, remittance, salary disbursement, social safety net, and more, through its network of agents and partner banks. SureCash has over 2 crore registered users and over 2 lakh agents.
The banking sector of Bangladesh has a crucial role to play in the vision of a Smart Bangladesh, as envisioned by the government. A Smart Bangladesh is a country that leverages digital technology and innovation to achieve sustainable and inclusive development, by improving the quality of life, enhancing the productivity and competitiveness of the economy, and strengthening the governance and democracy of the society.
Contribution to Smart Bangladesh
The banking sector of Bangladesh can contribute to the vision of a Smart Bangladesh in the following ways:
Promoting financial inclusion: By expanding its outreach, diversifying its products and services, lowering its costs and fees, and enhancing its customer protection and education, the banking sector of Bangladesh can help bring more people into the formal financial system.
Supporting digital transformation: The banking sector of Bangladesh can play a key role in supporting digital transformation by providing digital infrastructure, platforms, and solutions, as well as facilitating digital payments, financing, and inclusion.
Fostering innovation: The banking sector of bangaldesh can foster innovation by investing in research and development, collaborating with fintech and other stakeholders, and adopting a culture of experimentation and learning.
Expanding Digital Financial Inclusion
A significant portion of Bangladesh’s population remains financially excluded, especially in rural areas, with limited access to formal banking channels. Digital financial services provide a powerful means to drive financial inclusion.
Bangladesh’s banks are partnering with mobile network operators to take digital financial services deep into remote villages via mobile phones. Services like bKash have enabled millions to access mobile wallets, payments, remittances and microsavings. Biometric-enabled account opening is allowing quick, paperless onboarding of customers.
To expand access, Bangladesh Bank has eased KYC norms for small digital savings accounts and allowed agent banking. Banks must continue innovating to build low-cost digital payment platforms and distributions channels for the unbanked.
Supporting Infrastructure Development Through Project Financing
Infrastructure bottlenecks like inadequate power generation capacity, poor road and transport networks, lack of IT connectivity etc. are major hurdles in Bangladesh’s development. The banking sector Bangladesh can enable large-scale infrastructure development in both urban and rural areas by providing financing for critical projects.
Banks should prioritize funding power generation, transmission and distribution projects to resolve electricity shortages. Long-term loans must be provided for initiatives like building solar plants, LNG terminals, coal power projects etc.
Transport networks like highways, railways, ports and airports should also receive financing to improve connectivity between cities, towns and villages. This will give impetus to trade, commerce and mobility.
IT infrastructure projects like laying fiber optic networks, enabling last-mile connectivity and setting up data centers across Bangladesh are vital. Banks can collaborate with telecom companies and internet service providers to fund such digital infrastructure.
Modernizing Payments Infrastructure
Transitioning to a cashless digital economy requires banks to invest in cutting-edge payments infrastructure.
Bangladesh Bank has launched platforms like RTGS, BIPS, BACPS and NPS to enable real-time digital transactions between banks, ATMs and merchants. Rules mandating EMV chip cards have also been introduced to enhance security.
Banks need to further upgrade payment networks to manage growing volumes of digital payments. Partnerships with fintech enablers like bKash are crucial to strengthen the payments ecosystem.
Funding Smart Manufacturing and Industry 4.0
Industry 4.0, the Fourth Industrial Revolution, will bring about radical changes in manufacturing through automation, real-time data exchange, AI, 3D printing and other emerging technologies.
Bangladesh’s banking industry has a key role in enabling this transition by providing financing for new-age technologies and skilling.
Banks are arranging specialized loans and credit for SMEs to adopt smart manufacturing technologies, upgrade factory equipment and implement sensors and IoT platforms.
Financing is being made available for technology startups and solutions providers across sectors like AI, machine learning, robotics, industrial IoT, predictive maintenance and 3D printing. Workforce training partnerships with technical institutes are helping create an Industry 4.0-ready talent pool.
Facilitating Fintech Innovation
In recent years, Bangladesh has seen rapid growth of fintech startups aiming to reform financial services through technology. Initially perceived as competitors, banks are now changing track to collaborate with fintechs.
Banks have opened up APIs and launched accelerators to provide fintech startups with technology resources and market access. Regulatory sandboxes allow controlled testing of new products before full launch.
By nurturing fintech innovation, banks can harness new solutions for strengthening the Smart Bangladesh ecosystem.
Promoting a Culture of Innovation
Bangladesh Bank has stressed the need for a culture of innovation and experimentation across the banking system to deliver future-ready solutions.
Banks are promoting internal hackathons and innovation challenges to drive new ideas. Innovation labs provide collaborative workspaces for experimenting with emerging technologies.
Forward-looking regulations like sandbox licenses enable development of cutting-edge products aligned with the Smart Bangladesh vision.
Adoption of Emerging Technologies like AI, Blockchain and Big Data
To enhance services in the Smart Bangladesh era, banks are harnessing advanced technologies like artificial intelligence, blockchain and big data analytics.
Banks are rolling out AI-powered chatbots to handle customer queries and automate processes. Robotic process automation is being implemented to eliminate manual work. Junk loan applications are filtered out through machine learning-based credit underwriting models.
For security, blockchain-based solutions are being tested by banks. Distributed ledger technology shows promise for real-time fund settlement and preventing fraudulent transactions.
By analyzing internal data and external sources, banks are developing sharper customer insights using big data analytics. This supports data-driven decision making and hyper-personalized offerings.
Leveraging Technology to Widen Impact
Banks themselves need to harness technology to improve reach and delivery of banking services across Bangladesh.
Solutions like agency banking, chatbots, video KYC and multilingual platforms are enhancing customers’ access and experience. API gateways and open banking architecture are enabling integration with third-party fintech solutions.
Developing Future-Ready Digital Skills
Digital and data literacy are imperative for the banking workforce to support Smart Bangladesh goals. Banks are expanding digital skills training and e-learning programs covering areas like design thinking, fintech and cybersecurity.
Hackathons and coding challenges are encouraging technology skill development among employees. Banks are also focused on upskilling rural youth through digital financial literacy programs to create a Smart Bangladesh workforce.
Driving Financial Inclusion Through Partnerships
Banks are collaborating with microfinance institutions (MFIs) through wholesale lending to enable easy access to credit for farmers and low-income groups. Tie-ups with NGOs and decentralized microfinance delivery allow last-mile reach.
Banks are also providing low-cost loans to vocational training institutes to help skill youth, especially from disadvantaged backgrounds, in areas like construction, electronics, IT services etc. On-the-job apprenticeships and vocational training aid in creating an employable workforce.
Funding Infrastructure Development
Banks have a crucial role in financing large-scale infrastructure projects related to power, transport, IT connectivity etc. which are critical for economic progress.
By arranging long-term loans, banks can enable initiatives around renewable energy, highways, broadband networks and industrial parks. Project financing by banks will bridge major infrastructure gaps stalling Bangladesh’s growth.
Supporting High-Value Industries
Bangladesh seeks to transition from labor-intensive sectors like garments to high-value manufacturing and knowledge services.
Banks are identifying and nurturing startups in technology sectors through incubation, equity financing and venture debt. Loans and incentives to IT parks and R&D centers will further boost digital services and innovation.
FAQs
What is the role of the banking sector in Smart Bangladesh?
The banking sector in Bangladesh plays a crucial role in Smart Bangladesh, the government’s vision for a digitally inclusive and prosperous country. The sector is responsible for providing financial services to individuals and businesses, which is essential for economic growth and development.
What are the benefits of smart banking in Bangladesh?
Smart banking in Bangladesh can greatly benefit Bangladesh by increasing financial inclusion, improving efficiency, reducing costs, enhancing security, and supporting sustainable growth. Adopting new technologies like AI, blockchain, and advanced data analytics enables banks to offer innovative services, reach the unbanked population, reduce fraud, and make faster data-driven decisions.
What is the future of digital banking in Bangladesh?
Digital banking has a bright future in Bangladesh as internet and smartphone penetration increases. Banks are investing in digital platforms, focusing on mobile apps, payment systems, digitizing processes which will improve access and convenience for customers. The government’s Digital Bangladesh initiatives are also supporting growth of digital finance.
What is Smart Bangladesh and how does it relate to digital banking?
Smart Bangladesh is a government initiative to digitally transform the country by 2021. A key focus is expanding digital financial services to boost financial inclusion. Partnerships between banks, mobile operators and fintech companies are making banking more accessible through mobile phones, agent banking, mobile wallets. So digital banking is crucial for achieving the Smart Bangladesh vision.
Final Words
Bangladesh’s banking system will be the backbone for establishing a digitally empowered Smart Bangladesh. By enabling financial inclusion, funding infrastructure development, spearheading technology adoption, nurturing startups and developing future-ready skills, banks can meaningfully contribute to the national vision. Partnerships with fintechs and leveraging innovations will be key enablers for success.
