Banks moving towards digital nano lending

Complementing an already diversified set of services and products, the country's banking industry is now moving towards product dynamism with nano-lending, which is loaning small amounts without the need for any collateral.

The move is in sync with the government's aims to promote financial inclusion and provide loans to marginal people to accelerate financial inclusion and a speedy economic recovery.

Recently, the City Bank introduced the Digital Nano Loan, targeting small borrowers like cottage, micro, small and medium enterprises (CMSMEs), and even for personal use.

Other banks are also planning to offer such nano-lending products.

Among them, the Dhaka Bank is going to offer eRin and Prime Bank has moved to set up a digital loan disbursement system for industry workers.

Besides, the banking industry is also going to offer the Nano Deposit Pension Scheme (DPS) to customers, according to officials from the Bangladesh Bank.

The central bank approved the Digital Nano Loan in 2021, which led to questions over whether it will compete with microcredit lenders.

Allaying such concerns, Executive Vice-Chairman of Microcredit Regulatory Authority (MRA) Md Fashiullah told The Business Standard that microcredit worked on a relationship-based model in the field level, which entailed that banks take up other tasks apart from lending.

"I think the nano loan may work like a credit card, where the borrower will get a Tk10,000 to Tk1 lakh within a short time. But, microcredits are offering more than the nano loan limit and we have a good network and market share at the rural level," he said.

Meanwhile, the MRA has already instructed microcredit organisations to observe the situation at the field level and report to the regulator, he added.

Economists view the development with optimism as they have repeatedly urged that lending to CMSMEs be enhanced for better economic recovery in the post pandemic era.

Dr Ahsan H Mansur, executive director at the Policy Research Institute, says most of the banks in the country are not eager to lend to small businesses. "But if you see in general, small businesses are not defaulters. The loan recovery in this segment is very good. So, the banks should lend to them and create sustainable businesses for a better economic growth of the country."

Products launched

The City Bank recently launched the country's first collateral-free Digital Nano Loan service, allowing bKash users to receive instant loans ranging from Tk500 to Tk20,000 through the mobile app.

Officials at the bank said after the launch on 15 December last year, the bank has received a satisfactory response from customers and it has distributed nano loans to around 12,000 customers as of this week, amounting to around Tk4 crore.

At the launching ceremony, City Bank's Managing Director and Chief Executive Officer Mashrur Arefin said, "A customer can repay a loan in three equal monthly instalments (EMIs) from their bKash accounts. The interest rate will be 9% per annum, which is relatively low for microfinance.

"And the service involves daily calculation and processing, which means a borrower will bear interest only for the days the loan is outstanding."

Meanwhile, Prime Bank is also piloting a digital loan disbursement system for garment workers, which the bank claims is the first move of its kind.

Prime Bank sources said the digital nano lending service named PrimeAgrim is only for blue-collar workers.

The pilot of this service was conducted in collaboration with Swisscontact, a Switzerland-based non-profit organisation, and the British Fin-tech AGAM International. The pilot was initially launched in early September 2021 for selected factories only, according to the bank.

Upon successful completion of the pilot, the bank now intends to roll out the service across the country.

The Dhaka Bank Limited is also going to offer a digital nano loan, "eRin". This loan will be processed within two hours of making a request, bank officials said.

The government has planned to popularise nano lending products for the greater benefit of the marginal people and increasing financial inclusion in the country.

Bangladesh Bank Deputy Governor Abu Farah Md Nasser recently said, "We have already set an agenda to lend at least 25% of the total loans to the SME sector within 2024. This product will accelerate financial inclusion."

According to the Bangladesh Bank data for July-September 2021, total bank loan outstanding in the SME sector amounted to Tk2,45,325 crore.

On the other hand, to accelerate the pandemic recovery plan, the government unveiled financial support for CMSMEs through the central bank worth Tk40,000 crore in the last two years, under two different stimulus packages.