World Bank sees favouritism in digital bank licensing in Bangladesh

Infograph: TBS

Highlights:

• World Bank cites favoritism, corruption in license awarding process
• Nagad allegedly gained advantage through political connections, not merit
• bKash denied license despite top score in evaluation
• Kori failed to meet document submission deadline requirements
• Digital banking license process suspended after regime change
• Regulatory gaps deter fintech growth, says World Bank report

A diagnostic report by the World Bank Group has cast a shadow over the 2023 awarding of two digital banking licenses to Nagad and Kori in Bangladesh. The report asserts that the selection process, which saw these two entities chosen from 52 applicants, lacked transparency and exhibited signs of favouritism towards politically connected interests.

The World Bank Group's report, titled "Bangladesh: Country Private Sector Diagnostic," pinpointed corruption, political interference, and regulatory ambiguity as significant impediments to progress within the sector.

"Lack of transparency and accountability in awarding contracts and licenses discourages innovation and entrepreneurial activity," the report stated, a collaborative effort between the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), both arms of the World Bank Group. The findings were revealed during the Bangladesh Investment Summit 2025 in April.

The report further noted a seemingly arbitrary approach by the regulator, which "promised additional licenses would be issued later to some applicants and offered an ill-defined 'digital banking window' to others."

In October 2023, Bangladesh Bank issued Letters of Intent (LoIs) to Nagad Digital Bank, backed by the prominent mobile financial service provider Nagad, and Kori Digital, supported by the ACI Group.

Nagad allegedly got Hasina's blessing

Nagad, commencing its MFS operations in 2019 as a service contractor for the Bangladesh Post Office, swiftly ascended to become the nation's second-largest MFS platform. This rapid ascent was reportedly facilitated by government contracts secured through political influence.

Despite operating without a formal MFS license from Bangladesh Bank, Nagad amassed a substantial customer base exceeding 90 million, largely due to exclusive government contracts allegedly granted during Sheikh Hasina's autocratic regime.

With the apparent endorsement of Sheikh Hasina, the company secured an agreement positioning it as the exclusive conduit for government transactions, effectively circumventing consumers' right to choose alternative MFS providers.

In June 2023, the central bank introduced the digital banking license, an initiative reportedly spurred by pressure from Nagad, which sought to transition into a digital bank rather than pursue an MFS license.

Following the receipt of the final license on June 3, 2024, Tanvir A Mishuk, the then founder and CEO of Nagad Ltd, informed TBS, "We have been strong advocates for a digital bank to propel Bangladesh towards a smart economy through widespread cashless transactions."

bKash gets short end of the stick

Conversely, bKash, the country's leading MFS provider, was denied the opportunity to establish a full-fledged digital bank, while Kori, an entity with no prior experience in the financial technology sector, was granted a license.

Bangladesh Bank permitted bKash Digital Bank, DigiTen, and Digital Bank to establish digital banking windows. While a separate set of guidelines was intended for these entities, little tangible progress has been made. DigiTen represents a consortium of 10 banks, and Digital Bank is backed by Bank Asia.

A significant development occurred when the central bank suspended Nagad Digital Bank's license shortly after the fall of Sheikh Hasina's autocratic regime on August 5 of the previous year.

Upon assuming the role of Bangladesh Bank governor in August, Ahsan H Mansur announced a comprehensive review of the digital bank licensing process.

Meanwhile, Kori Digital, which received its Letter of Intent (LoI) alongside Nagad in October 2023, failed to submit the necessary documentation to Bangladesh Bank within the stipulated time frame to secure a final license.

Speaking with The Business Standard, Anis A Khan, a sponsor of Kori Digital, stated that they had submitted all required documents, including the digital bank fees, a month prior, adhering to the central bank's directives. He added that they are currently awaiting the final license from Bangladesh Bank.

According to Mr. Khan, out of the Tk200 crore in paid-up capital, Tk72 crore is expected to come from foreign investors in the form of technology assistance, a proposal already sanctioned by Bangladesh Bank.

Kori didn't submit docs within deadline

In a separate communication with The Business Standard, a senior official from the relevant department at Bangladesh Bank indicated that while Kori did not submit all mandatory documents within six months of receiving the LoI, the company is still considered to be in the compliance phase, as they have been progressively submitting the required information.

Bangladesh Bank is currently scrutinising Kori's capital structure, as the company intends to introduce a portion of its capital as technology support from overseas investors rather than in cash. Consequently, the central bank is tasked with evaluating the valuation of this non-cash contribution, the official elaborated.

Bangladesh Bank executive director Mezbaul Haque, in a press conference held on 22 October 2023, announced that three firms, including bKash, had been given a digital banking window, and that guidelines for window operation will be issued soon.

However, no companies have acquired formal clearance in this regard. Bangladesh Bank has not issued any guidelines for the digital bank window operating since its announcement.

Kamal Quadir, CEO of bKash, stated that their application received the highest score in the digital banking license evaluation report. He affirmed that their application remains active and if the regulator would consider granting a license, bKash would diligently serve customers respecting the rules with best of global standards.

When questioned about the current status of digital banking licenses, Mezbaul clarified that the process has been on hold since 5 August. "No official decision has been made yet regarding the resumption of issuing new licenses or releasing guidelines for those who were permitted to establish digital banking windows," he stated.

He confirmed the suspension of Nagad's license and noted Kori's failure to submit the required documents within six months of receiving the LoI.

Furthermore, he explained that the guideline for operating digital banking windows has not been issued due to the lack of progress in establishing full-fledged digital banks.

The World Bank, in its recent diagnostic report, observed, "Although the Bangladesh Bank has introduced a digital banking license, few have been issued despite many applications. The central bank has not yet broadened its digital licensing to encompass non-bank fintechs and embedded finance providers."

"Such digital NBFIs are increasingly important providers of financial services, particularly to inclusive finance customer segments, in many emerging markets and developing economies. A clear regulatory framework would help attract investment into fintech and embedded finance in Bangladesh," the report added.

3 applicants were under considerations for license

It was also revealed that three additional applicants – Japan Bangla Digital Bank, North East Digital Bank, and Smart Digital Bank – were under consideration for digital banking licenses following a six-month performance review of Nagad and Kori.

Among these, Japan Bangla Digital Bank PLC is a collaborative venture between Japan Remit Finance, a financial transfer and prepaid payment instrument issuer in Japan, and several local companies and individuals.

However, their licensing process has also been stalled due to the operational setbacks experienced by Nagad and Kori.