Developing a roadmap to expand youth financial inclusion in Bangladesh

With the median age of the population at 28, Bangladesh is still blessed with a demographic dividend. However, it is expected that this blessing will soon start to fade. 

Thus, it is important for us to harness its benefits before it ends. Empowering this group can help the country utilise the benefit. And accessing financial services can help this populace empower through acquiring new skills, pursuing higher education, or starting entrepreneurial ventures. 

It will also help them climb the economic ladder.

Unfortunately, the percentage of youths accessing financial services in Bangladesh is low. Only 33.62% of Bangladeshi young people aged between 15-24 have a bank account. 

Whereas, in our neighbouring countries India and Indonesia, the number of youths having bank accounts stands at 66.86% and 50.04%, respectively. The contrasting numbers between them and us show what a long path we have yet to walk. 

Hence it is imperative for us to emphasise financial inclusion of the youth.

Improving school banking

To date, the only policy initiative for youth financial inclusion taken in Bangladesh has been the school banking initiative of Bangladesh Bank (BB). Launched in 2010, it is now conducted by 55 of the 61 scheduled banks in the country. 

As per the Annual Report of BB in 2021, there are almost 30 lakh student banking accounts with deposits worth Tk2147.8 crore. 

However, there still seems to be a lack of awareness about the service among many school-going children and youths in the country. One study in 2018 conducted among 100 students found that 72 were unaware or had very little knowledge about the service. 

With the hope of improving the situation, BB has encouraged banks to conduct awareness-raising campaigns. Conferences on school banking are being held all over Bangladesh, in each of its 64 districts. 

Moreover, banks are taking the initiative to teach financial literacy to students.

Digital literacy 

Policymakers need to consider digital literacy as part of financial literacy. 

In Bangladesh, mobile financial services are widely prevalent and often the first entry point to financial services for a lot of people. However, most mobile financial services uses are confined to basic cash-in and cash-out transactions, as people still depend on agents as opposed to using their own devices. 

In comparison to urban youths, rural youth appear to be especially less acclimated to digital financial services. According to a recent BRAC Institute of Governance and Development study titled "Digital Literacy in Rural Bangladesh," rural households continue to lag behind in the adoption and utilisation of e-services as a result of inadequate access to the necessary devices and the skills necessary to utilise such devices.

Utilising BB's regulatory sandbox

BB's 'experiment-then-implement-widely' approach for its financial literacy roadmap is also a part of its planned "regulatory sandbox."

Under the regulatory sandbox, it is permitted to experiment with various finance technology innovations. Once the challenges are identified, regulations will be installed before launching the innovation on a massive scale.

Any innovation in the financial space may be prone to a scandal that will reduce trust in the corresponding financial service. For example, in the 2021 e-commerce scam, young professionals in the age range of 20-40 were fooled into departing with large sums, with some even losing their life savings. 

E-commerce transactions also fell from Tk1,277 crore in June 2021 to Tk741 crore in July 2021, suggesting a fall in trust. 

Providing financial support for entrepreneurs

A lack of capital and financial support often dissuades people from pursuing entrepreneurial ventures.

Documentation issues often prevent many small and medium enterprise owners from accessing finances. This problem is often even more acute for youths, since they in particular are often unaware of the necessary documentation. 

Female entrepreneurs face another hurdle when they must prove collateral, since they often do not have the ownership documentation of their rightful property. 

In the start-up space, BB created a Tk100 crore fund for startup financing to be distributed through banks. However, the initiative was a failure because banks assessed the startups in the same way as already established businesses. 

Under their criteria of judgement, even a big startup such as Shopup had difficulty acquiring capital through the initiative. 

Designing financial products targeted at the youth

One proposed solution is a savings product for students through which they can place their savings into the account and after 2-3 years, can withdraw it to purchase laptops or other educational materials.

Youth Policy Forum conducted research, which found an Indian insurance company named Toffee, whose offerings can be emulated by Bangladeshi youths. 

Toffee is demand-based insurance that targets urban youth with products such as bicycle theft insurance, backpack insurance, and even coverage for dengue fever. 

For rural youth who migrate to urban areas like students and delivery workers, such insurance programs can be appealing.

In addition, it may be important for there to be products designed for migrant workers at different stages of their employment.

These products can be launched under BB's regulatory sandbox initiative before being deployed full scale. 

Another possible solution may be to launch a peer to peer lending system for youths in Bangladesh through BB's regulatory sandbox. 

Though a similar product was not successful in countries such as India and China, Bangladesh could try it through BB's sandbox and observe the results. 

In order to work towards youth financial inclusion in Bangladesh, Youth Policy Forum (YPF) and BRAC have been exploring the topic of youth financial inclusion in Bangladesh as part of their "Fin-Fit Future for Youth" webinar series and these discussions emerged from the webinars. 

Farhan Uddin Ahmed is the Team Lead of Around the Globe. Moumita Mallick is the Deputy Lead of the Jobs and Economic Network.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.