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Harnessing the Power of Digitization in the MFI sector of Bangladesh

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Harnessing the Power of Digitization in the MFI sector of Bangladesh

  1. 1. Prepared by The Future of MFI Digitalization in Bangladesh Zahedul Amin Co-founder and Director LightCastle Partners March 16, 2021 Prepared for
  2. 2. All rights reserved by LightCastle Partners.
  3. 3. All rights reserved by LightCastle Partners. • BOP population is expected to have higher spending power and likely to be more tech savvy. • Inequality expected to increase further with rising Gini coefficient. Currently, bottom 20% of population earn 8.6% of total income, while top 20% of the population make 41.4% of the total income.
  4. 4. All rights reserved by LightCastle Partners. Loan Disbursement Contribution by MFIs (%) 724 Total MFIs 3.6Bn Savings USD 162,000 Total Employees 18,977 Active branches 32.3Mn Total Clients 9.27bn Outstanding Loan USD 15.68Bn Loan Recovery USD 16.51Bn Loan Disbursement USD
  5. 5. All rights reserved by LightCastle Partners. Stage 1 Loan management system and central database Stage 2 Financial accounting and HRIS Stage 3 Digital field applications Stage 4 Cashless disbursement and repayment Stage 5 Digital Credit Stage 6 Artificial Intelligence and enabled tools, CBS
  6. 6. All rights reserved by LightCastle Partners. 48 % 28 % 21 % 1.06mn Number of Agents 32.3mn Active Accounts 299mn Monthly total transactions
  7. 7. All rights reserved by LightCastle Partners. Number of accounts (in millions) associated with Agent Banking Number (in million) and Volume (in BDT billion) of Agent Banking Transaction Share of accounts (Sept 2020) 39.5% 32.3% 11.8% 3.5% 2.7%
  8. 8. All rights reserved by LightCastle Partners.
  9. 9. All rights reserved by LightCastle Partners. • Launched in 2007 by Vodafone and Safaricom for facilitating mobile based fund transfer, payments and micro credit. • Customers can deposit and withdraw funds from the MFS agents spread across the country.
  10. 10. All rights reserved by LightCastle Partners. Dana allows banks to make their lending solutions more agile, transparent and efficient. This helps financial institutions to simplify the processes for achieving cost savings and improved customer experience as a loan management solution. A scalable, mobile loan and payments platform for emerging market small- medium enterprises (SMEs) that requires no smartphones or loan applications. Their platform can read digital footprints such as transaction history with large suppliers to grant instant digital credit lines that SMEs can use to purchase inventories from our selected suppliers. ShopUp was established in 2016 to support online F-commerce businesses in Bangladesh. However, they pivoted in 2020 and has started catering to retail businesses across the country, with delivery, sourcing, re-selling and micro-credit services. The company raised USD 23 million funding in the 4th quarter of 2020 for revamping their businesses.
  11. 11. All rights reserved by LightCastle Partners. BRAC Digitization Model BURO Digitization Model Sajida’s Digitization Model
  12. 12. All rights reserved by LightCastle Partners. Increased Efficiency: • Reduction of time spent in loan disbursement and collection • Reduced time spent in cash management • Reduction in cost of branch operations • Efficiency in processing documents Strong Internal Control: • Better control over malpractices Increased Accessibility: • Increase in number of members per credit employees Ease of Consumers: • Reduction of cost of travel for clients Possibility of Improved Interest Rates: • With improved operational efficiency, and reduced malpractices, the per transaction cost will decrease • By building a better customer experience, the number of active clients are expected to increase
  13. 13. All rights reserved by LightCastle Partners. Operational Challenges: • Cost of transaction is crippling for MFIs and borrowers • Lack of proper IT infrastructure is challenging for bridging MFIs and DFS providers and disbursing loans digitally. Management Challenges: • Decision-makers need evidence of local cost savings • Field officers’ duties are in need of revision Client Challenges: • Branch employees have expressed that borrowers’ accountability to repay the loan has decreased. Regulatory Challenges: • Low cash-out limit remains the major bottleneck to implementing digital loan disbursement • Mobile wallet is still hard to open and maintain
  14. 14. All rights reserved by LightCastle Partners. Digital Transformation Develop in-house technological capability for ushering in end to end digitalization. Partnership Development Partnerships with FinTechs and other payment aggregators. Behavior Change and Tech Adoption Enable capacity development as well as disbursing micro loans for purchasing smartphones. Ecosystem Development Facilitate ecosystem development by enabling payments using MFS. Advocacy Facilitate special cash-out rates for BOP population Digital Transformation Fund The Central bank should encourage digital transformation of MFIs by providing a low interest loan to them.
  15. 15. Thank you! LightCastle Partners Level 5, House 10/12, Road 1, Block B, Niketan Gulshan 1 Dhaka 1212, Bangladesh Email: info@lightcastlebd.com Mobile: +88 01711 385988, +88 01747 353438 Web: www.lightcastlebd.com Data on Demand Platform: databd.co

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