The digital money magic in rural economy

Meet Moriom Nesa, a resourceful homemaker in a Bhola village. 

With her husband often away for work, Moriom efficiently manages household finances using mobile financial services (MFS). From collecting money sent by her husband to handling bills and school fees, she navigates these tasks effortlessly, without the need for travel. 

Fifteen years ago, she had to wait for her husband's monthly visit to handle family finances. 

Today, MFS is Moriom's ally, bringing financial blessings to rural residents like her who were once excluded from the benefits of modern innovations.

Take Tapas Banik, a lungi and saree seller in Kendua, Netrokona, sources most of his shop's products from various locations such as Narsingdi, Keraniganj, Narayanganj, Sirajganj, and Pabna. He previously had to physically visit all these places to make purchases with cash. 

"Now, I can efficiently manage everything through video calls and make payments seamlessly using MFS and online banking," Tapas shared.

The seamless execution of transactions within a matter of seconds has become an integral aspect of daily life for most in Bangladesh, spanning both rural and urban communities.

The process for the mass public, however, even till the 2000s, meant travelling miles to a post office or a courier service branch, often taking 2-3 days to access the funds. It wasn't easy even for the lucky few who could avail banking services with the process taking at least half a day.

Then, in the early 2010s, mobile financial services (MFS) emerged from tireless efforts by the banking industry and regulators, presenting an innovation that quietly revolutionised the money transfer process in Bangladesh.

Fast forward to the present day. All it takes is a tap on digital devices to effortlessly send and receive money through MFS and internet banking. 

The securely stored funds in the digital wallet can be conveniently withdrawn from any of the 16.30 lakh agent points nationwide, often conveniently located at shops nearest to people.

Cash-out and cash-in transactions at agent points take just a minute, allowing even residents in remote villages to promptly settle their electricity and gas bills, admission and job recruitment fees, and shopping expenses using their own digital wallet or through an agent point.

Besides, the advent of agent banking, ATMs, and online banking has streamlined financial transactions, making them faster and more convenient. 

Daily life has become more accessible, with the ease of purchasing through debit or credit cards at shopping malls or online marketplaces. The introduction of the Bangla QR code has ushered people away from reliance on paper currency.

Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue, highlighted the remarkable surge in Bangladesh's digital economy in the recent past. 

This growth is fuelled by the widespread availability and improved accessibility of mobile banking, internet banking, as well as the escalating utilisation of digital communication technologies, applications, and tools, he said.

"Entrepreneurial talent, various policy supports, and a host of fiscal-monetary incentives by the government have combined to trigger this spurt in digital economy-centric activities in the country," the economist added.

MFS expansion makes life easier

The MFS industry, initially conceived as a solution to the challenges faced by the unbanked population in money transactions, has made significant strides aligning with the government's "Digital Bangladesh" mission.

Tanvir A Mishuk, founder and managing director of Nagad, said the MFS industry has registered a robust growth, becoming the preferred choice for diverse financial transactions, from money transfers to bill payments to both physical and online shopping.

"Despite grappling with technological constraints, our MFS industry has come a long way when it comes to popularising digital transactions," he said.

According to Bangladesh Bank data, daily MFS transactions averaged Tk4,258 crore in August of this year. The country boasts more than 21.50 crore MFS account holders, with 55% of MFS users residing in rural areas and nearly 42% being women.

The MFS industry doesn't only facilitate the transfer of money; it serves as a significant relief for people in terms of payment solutions. From paying utility bills, school fees, to even settling traffic fines at a reasonable transaction cost that doesn't surpass the expenses of reaching a bank branch, daily life has become remarkably convenient.

Internet banking and CRM 

Online banking made its debut in the early 2000s through a foreign bank in the country, and since then, it has seamlessly been woven into the fabric of the entire banking industry. 

In 2010, banks embarked on a series of initiatives to entice customers into embracing the digital realm, enabling them to deposit and transfer money from the comfort of their homes at any time.

As of September this year, the number of internet banking customers stands at an impressive 77.26 lakh, with transactions amounting to Tk48,716 crore in the same month. This reflects an 83% year-on-year increase from Tk26,605 crore, according to data from the central bank.

A transformative technology in the financial sector is the introduction of Cash Recycling Machines (CRMs), allowing users to effortlessly deposit and transfer cash to others' accounts. 

Since their inception in Bangladesh in 2017, the number of CRMs has surged to 3,652 as of August this year, up from 1,930 a year ago.

Atiur Rahman, former governor of the Bangladesh Bank, said Bangladesh has made rapid strides in financial inclusion and swiftly adopted digital technology. 

"The recent initiatives by the Bangladesh Bank, aimed at promoting digital banking, have further accelerated the overall digitisation of the financial sector," he noted.

Drop in use of cash 

There is a growing trend of using cards for transactions in numerous small retail establishments across the country, leading to an increasing prevalence of shopping bill payments through cards. 

According to Bangladesh Bank's statistics, the transaction volume at point-of-sale machines surged from Tk1,350 crore in September 2020 to Tk2,815 crore in the same month the following year. 

The number of credit cards rose from 15.84 lakh to 23.16 lakh during this period, while debit cards increased from 2.02 crore to 3.36 crore. 

Remarkably, the transactions conducted through these cards have more than quadrupled.

Sirajul Islam, executive director and spokesperson for Bangladesh Bank, noted that the simple and extensive network of digital banking has sparked a nationwide revolution. 

"The convenience of transferring money hassle-free through mobile phones and cards has contributed to the gradual popularity of these services," he added.

Financial inclusion 

With almost every adult as a user, MFS has become a reliable companion for retailers, whether they operate online or offline. The inclusive nature of the service has not only transformed daily transactions but has also fostered financial inclusivity and ease across diverse segments of the population.

Bkash and Nagad – the country's top two MFS providers – boast an impressive five lakh merchants on board, finding it financially advantageous to receive payment for their products or services through mobile money. This method allows them to cash out later at a reasonable cost, no more than what they would pay for processing debit and credit card transactions.

The continuous on-boarding of merchants, coupled with enticing deals such as discounts and cashbacks for using mobile money in shopping, contributes substantially to the growth of MFS in the retail sector.

The burgeoning e-commerce sector, in particular, plays a pivotal role in fostering MFS growth, with online retailers supporting and reciprocating the trend. 

Unlike debit or credit card users, who are relatively fewer in number, no online retailer in the country denies the convenience of being paid through their preferred MFS partners.

It is especially for small and medium online retailers, primarily Facebook-based, that MFS has become a preferred choice due to their smaller transaction sizes and a vast customer base that is yet to be fully banked.

Consider a scenario where a rural housewife effortlessly orders wearables online, paying with mobile money and receiving the parcel. This easy transaction, made possible by MFS, underscores its practicality in real-life situations.

MFS, with its digital database encompassing every customer and transaction, provides transparency to regulators and the government. With widespread penetration, the service has proven itself as an effective tool for disbursing salaries and state welfare benefits to the unbanked poor.

Furthermore, the SME sector and local trade and commerce witness a substantial portion of their daily transactions being conducted through MFS, solidifying its role as a preferred method of payment in diverse economic domains.

Mobile money has also emerged as a direct source of employment, generating nearly 16 lakh jobs in the form of MFS agents. 

Approximately one-third of these agents are actively engaged in facilitating account holders' cash-in, cash-out, and other transactions, contributing to the widespread adoption of mobile financial services in rural areas.

Facilitating remittance 

Rural residents no longer find it necessary to travel to urban centres to retrieve remittances sent from abroad by their loved ones, thanks to the convenience of mobile remittance services. 

This has significantly simplified their lives, eliminating the need for assistance from individuals who frequently travel to towns.

Blessing for traders

Sultan Mia, engaged in organic farming, highlighted how mobile financial services have streamlined transactions for his organic vegetable sales. 

"Several organic vegetable sellers in the capital collect products from me, and they conveniently send the payment through mobile financial services," Sultan said.

Beyond traditional business models, e-commerce has flourished, relying heavily on MFS and internet banking. 

According to the e-Commerce Association of Bangladesh (e-CAB), there are approximately 2,500 active e-commerce sites in Bangladesh, collectively selling products worth over $2 billion. Globally, Bangladesh ranks 46th in terms of e-commerce revenue.

Facebook has emerged as an indispensable platform for online businesses, with more than 3 lakh Bangladeshi stores operating through the social media giant. 

Shomi Kaiser, president of e-CAB, said MFS and internet banking have played a significant role in the remarkable growth of e-commerce in the country. 

As she put it, "Now, any entrepreneur in a remote area can deliver his or her product nationwide and receive the product value through his or her mobile wallet."