On the face of it, the 2017 Global Findex shows that Bangladesh has made great strides toward financial inclusion since the previous Findex was released in 2014. In that time, the percentage of adults with financial accounts rose from 31 to 50 percent — a gain almost entirely due to a 20 percent increase in bKash mobile money accounts. As remarkable as these advances are, the data also reveal some challenges Bangladesh faces around financial inclusion.
To start with, Bangladesh has a lot going for it that help explain these overall gains. Its economy has done well over the past decade, with annual growth of 5 to 7 percent. Roughly 20.5 million Bangladeshis escaped poverty between 1991 and 2010, more than halving the poverty rate from 44.2 to 18.5 percent. The increase in spending power likely fuels the growing demand for financial services. The fact that Bangladesh is one of the most densely populated countries in the world (three times more so than India) also works to its advantage when it comes to financial inclusion. Banks, mobile network operators and other providers can cover large portions of the country’s 161 million people with relatively little infrastructure. According to Intermedia, the percentage of the population living within 5 km of an access point jumped from 89 percent in 2013 to 92 percent in 2017, putting Bangladesh far ahead of other countries in South Asia. This is important because studies show that proximity to an agent greatly increases the likelihood of use of financial services.
Bangladesh also enjoys rapidly improving mobile phone and internet connectivity, which has no doubt fueled the remarkable 20 percent surge in mobile money account ownership. In 2010, just 32 percent of the population subscribed to mobile services. That number rose to 54 percent in 2017. Over the same period, mobile internet connectivity grew from 26 to 33 percent. Of course, there is still a lot of room for improvement. More than 70 million people still do not subscribe to mobile services at all. Nevertheless, the growing popularity of cell phones is creating new opportunities for a new class of providers like bKash to reach customers with mobile financial services.
For all of these impressive gains, Findex also points to significant challenges for Bangladesh. A stark gender gap stands out. As my colleague Mayada El-Zoghbi discussed in an earlier post, Bangladesh is among a number of countries like Pakistan, Jordan and Nigeria whose overall advances in financial inclusion have left women behind. In fact, Bangladesh’s gender gap in financial access grew a whopping 20 percentage points from 2014 to 2017. At 29 percentage points, it is now one of the largest gender gaps in the world.
Overall, Findex shows that 65 percent of Bangladeshi men have accounts while only 36 percent of women have accounts. Intermedia’s Financial Inclusion Insights survey bears this out, too. Of all its measured demographics, women saw the least growth in financial inclusion.
Why are women being left behind? It has often been noted that cultural norms play a role in Bangladesh, limiting women’s access to accounts and agents. While these constraints certainly play a big role, another related factor is the disparity in access to mobile phones. According to Intermedia, 76 percent of Bangladeshi men own a phone, but just 47 percent of women can say the same. Since most of the country’s gains in financial inclusion have been driven by mobile financial services, this is a significant constraint for women.
Another challenge in Bangladesh, and a likely reason why overall financial inclusion numbers are not even higher, is the fact that its mobile financial services ecosystem has yet to mature to the point where a stream of innovative offerings entice more people to use digital financial services. Although 18 mobile financial services providers are active in Bangladesh, bKash claims 80 percent market share. Its main competitor, Dutch-Bangla Bank Limited, has enjoyed moderate success but not enough to make much of an impression on the overall market. As Findex shows, having such a dominant player in the market is a blessing and a curse. bKash has considerably increased people’s access to financial services. At the same time, the lack of competition has stifled innovation. There are few compelling mobile financial services in Bangladesh beyond person-to-person (P2P) transfers, which are the bread and butter of bKash’s business. The lack of use cases beyond P2P transfers may be one of the reasons why over-the-counter transactions — in which people use agents’ accounts to transfer money so they don’t have to sign up for their own accounts — comprise 70 percent of total transactions, even though they are officially not permitted. People just don’t see good enough reasons to sign up for their own accounts.
Government policy has played a significant role in both driving these advances in financial inclusion and holding them back. On the one hand, the government’s “Digital Bangladesh” initiative and government-to-person (G2P) digitization programs have increased the number of people with financial accounts. For example, in just six months, payments provider SureCash and the Ministry of Education enrolled 10 million poor women with accounts, into which they receive stipends. Programs like this can help close the gender gap. Even more encouraging, the government has been exploring interoperable payments infrastructure that works beyond G2P. There is also momentum to clarify electronic know-your-customer requirements, which would make it easier for providers to use biometric identity verification and extend services to the poor.
On the other hand, mobile financial services regulations have been partly responsible for the lack of competition and innovation in the mobile financial services space. The market is open to banks and bank subsidiaries, but not nonbanks in general. For instance, mobile network operators have a long-standing interest in directly providing mobile financial services to customers but have not been allowed to do so. As a result, bKash sits atop the market with only lackluster competition from banks.
A key question for the future of financial inclusion in Bangladesh will be to what extent FinTech players will be allowed to capitalize on the country’s generally favorable conditions around connectivity, scale and distribution. Another important question is to what extent international actors will shape the market. Ant Financial’s recent stake in bKash may shake up the entire space. If their entry into other Asian markets is any indication, they take an active approach to their investments and will inject a much-needed stimulus into Bangladesh’s sleepy digital financial services space.