Mobile Banking Provides Lifeline for Bangladeshis

June 23, 2015

DHAKA, Bangladesh—On the first Friday of every month, Sabina Begum makes the short trip from her single-room shack in a crowded Dhaka slum to a nearby grocery. The grocer, in addition to selling her much-needed supplies, doubles as her financial-services provider.

Ms. Begum hands the grocer cash, and with a few clicks on a basic key-press mobile phone, he sends the money on its way.


At roughly the same time, in a village 300 kilometers away, Ms. Begum’s father, Bosir Uddin, partially blind and slowed by arthritis, walks to a tea shop in the village square, where he waits for the money transfer from Dhaka. It duly arrives in the form a text message to the tea shop owner, who pays out the money Mr. Uddin’s daughter sent.


For 70-year-old Mr. Uddin, who has no source of income and no bank account, the mobile money transfer system is a lifeline. His family of three, which includes his wife and Ms. Begum’s nine-year-old daughter, is entirely dependent on the remittances from Dhaka.


“If she doesn’t send money, we don’t eat,” he says.


The system Ms. Begum uses is bKash, by far Bangladesh’s most popular mobile-money service. Launched in 2011, bKash is now used by over 17 million Bangladeshis, and handles more than 70 million transactions a day, according to the company.


In cash-focused Bangladesh, mobile-money services are still a novelty, and some traditional bankers worry about potential security risks that users of private services like bKash face. But experts at Bangladesh Bank, the country’s central bank, describe mobile money as a key strategy to expand financial access in this nation of 160 million people, where fewer than 30% have a bank account.




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Four years after Bangladesh Bank started handing out mobile-money licenses, about $42 million is flowing through mobile banking systems daily. The number of registered mobile-money users has topped 23 million, around 15% of the total population, according to the central bank.


Because of a supportive regulatory framework that allows over-the-counter mobile money transactions and the efforts of companies like bKash, Bangladeshis can now use their phones like a bank account—depositing, withdrawing and transferring money with their handset. They can also pay utility bills and in a limited way, pay for goods and services. And local businesses can use their phones to provide these services for customers without accounts or phones.


For Ms. Begum, a seamstress who is part of Bangladesh’s 4-million-strong garment-factory workforce, mobile money has changed her approach to handling cash. Like many garment workers, who work long hours and struggle to save money, she has rarely seen the inside of a bank.


“I don’t have time to queue up at a bank,” she says. Her only day off is Friday, the weekend in Bangladesh. “Of course, the bank is also closed then.”


Instead, she saves money in a virtual wallet on the bKash platform. Before mobile money took off in Bangladesh, she had trouble sending money to her village to support her parents and her daughter, who has been living with her grandparents since Ms. Begum got divorced six years ago.


“I had to ask people to carry cash for me,” she said. “I used to give the money to bus drivers headed that way. Sometimes the money got lost or arrived late.”


Mobile money transfers are not only instantaneous, they also reduce the costs associated with handling cash, the service providers say. In a country where many factory workers and rickshaw drivers regularly send money to their families in the rural areas, this is a massive advantage, they say.


Mobile transfers allow people to send money instantaneously via text messages. ENLARGE

Mobile transfers allow people to send money instantaneously via text messages. PHOTO: SYED ZAIN AL-MAHMOOD/THE WALL STREET JOURNAL

People using the over-the-counter bKash service typically have to pay the agent 2% of the transferred amount as a fee. Muhammad Ershad, the agent Ms. Begum uses, says his mobile money transfer business earns him an average of 15,000 takas ($190) a month.


“It’s my best product after rice and cooking oil,” he said.


Although Ms. Begum has a mobile phone, she hasn’t been able to open her own bKash account, forcing her to use the agent’s services. With her own mobile cash account, she would be able to send money at one-fourth the cost. “You need documents, you need a national ID card. I don’t have those documents, so I couldn’t open the [bKash] account,” she said.


Kamal Quadir, the CEO of bKash, who also helped found the company four years ago, says his goal is to get more people to open their own accounts and carry out transactions with their own phones.


But, he says, “we understand that a lot of people don’t have the documents or feel they may make a mistake in sending the money, even though the system is really simple and can be done on a basic phone.”


Mr. Quadir says bKash grew quickly by focusing on serving the people overlooked by banks. “We’re not competing in the traditional space occupied by commercial banks—we serve the small fry who are unbanked,” Mr. Quadir says.


Although the central bank has pushed hard for commercial banks to open branches in the villages—one recent regulation requires banks opening branches in a city to open a corresponding branch in a rural area—it may simply not be viable for banks to operate branches in many villages.


Mohammad Abdul Mannan, Managing Director of Islami Bank Bangladesh Limited, one of Bangladesh’s largest private-sector banks, says mobile money is a much cheaper solution and could be the “perfect platform for Bangladesh to take financial services to the country’s largely unbanked population.”




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Bangladeshi banks have moved to provide mobile money services to customers—19 banks have taken licenses, although only a handful have launched.


Islami Bank’s mobile banking service, mCash, launched three years ago and has achieved modest success. Although it’s slightly cheaper than bKash, users say it lacks the vast network of agents built by bKash, limiting availability.


Mr. Quadir says the secret behind bKash’s growth has been the company’s focus on mobile money transfers and savings. Unlike countries like Kenya or Ethiopia, where mobile-money services are provided by banks or phone companies, Bangladesh’s bKash is a specialized company focused on providing financial services on mobile platforms.


Ahsan Mansur, executive director of the Policy Research Institute, a Dhaka-based think tank, says the bank-led model usually has slower growth because banks insist on more strictly regulated accounts.


“For banks, mobile cash transfers aren’t their main focus,” he said. “And, if the service is provided by phone operators, market fragmentation becomes a barrier.”


Mr. Quadir says his company represents the best compromise. “Today, bKash has become a Bangla verb for sending money,” he said.


Despite the runaway success of mobile money, experts say service providers still have a long way to go to achieve the objective of financial inclusion in Bangladesh. A lot of people are still not used to the idea of a mobile wallet. Cash is king in Bangladesh, and most people who receive money transfers tend to cash out immediately, instead of keeping the money in the system, something experts say limits the potential for mobile-money companies to provide broader financial services, such as a line of credit.


Mr. Mansur says although the bKash system is working well, “it still doesn’t give you full protection because there is no insurance mechanism in place for something going wrong, either for the vendor who is managing it streetside or for the person who is paying.”


In recent months, several bKash outlets have been robbed and experts also worry about the possibility of fraud.


BKash’s competitors say the company, which is backed by BRAC, Bangladesh’s largest NGO, may not be strict enough in collecting and providing customer information, something that could result in a security threat down the road.


Islami Bank’s Mr. Mannan says the banks are better placed to provide mobile money services in a safe and secure way. “The bank-led model, by focusing on savings and credit in addition to money transfers, can achieve the goal of financial inclusion through mobile financial services,” he said.


Critics of services like Islami Bank’s mCash say they have been held back by the policy of requiring customers to have accounts with the bank. Mr. Mannan says it is the only way to provide secure financial services and avoid money-laundering issues.


BKash’s Mr. Quadir says bKash’s approach is much more flexible and that the company has been diligent in collecting information about customers.


Bangladesh is known for its successful microfinance programs with millions of people taking out small loans for businesses. Mr. Quadir says it might be possible to use records of mobile money transactions to gauge the creditworthiness of individual users.



“In the future, people could apply for small loans on their phones and get approval and disbursement within minutes,” he says.


“All the money that people used to carry around or keep in their mattresses is now going into the banking system,” says Mr. Quadir. “Mobile banking has become a digital mattress for Bangladeshis.”