Thanks to the successful marriage between the MFS and the banking sector, borrowing has become easy for about one-third of Bangladesh’s population
The banking industry of Bangladesh has long been in the business of providing customer satisfaction and product dynamism in the country’s financial market. To that effect, it has, from time to time, unveiled product and service offerings that have exceeded customer expectations. Holding true to the same motto, its new offering, the Digital Nano Loan, aims to acquire the very green and untapped market segment of the unbanked of Bangladesh. Mobile Financial Services such as bKash and Rocket, among many others, have also taken huge strides to make life easier for the average person and cater to their financial solutions. Unlike banks, the MFS has kept the unbanked population of Bangladesh in mind and have hitherto offered services to include them in their target segment. The digital nano loan is the logical intersection between the banking sector and the MFS. But what is digital nano loan?
Like all novel concepts, nano lending, too, needs some picking apart and making sense of. Linguistically speaking, the word nano means ‘one billionth of a unit.’ The figurative meaning of this has been adopted, and anything minimal in quantity can be called nano. Nano lending or nano loans, therefore, means very nominal loans in monetary amounts.
A step towards financial inclusivity, the scheme aims to offer small, collateral-free loans to marginalised individuals who do not have the wherewithal or the inclination to get themselves attached to a bank account. The global popularity of digital nano loans soared when Ant Group, an affiliate of Alibaba, introduced micro-lending some five years ago through the Alipay app. The app helped some 730 million active Chinese users obtain microloans and other services. Besides, Alipay has services like a virtual consumer credit card service, an online cash loan service targeting individual borrowers and an online credit service for SME businesses.
The newly rolled out service from the major banks in Bangladesh is expected to aid the government in the economic recovery of the country post the pandemic slump and to take under their reliable wing the persons who, until now, had no one except aggressive loan sharks and money lenders to fall back on for their urgent monetary requirements.
The digital nano loan was given the nod of approval by the Central Bank last year, and for a while, there were speculations as to whether the scheme would overlap with those in place for microcredit lenders. Waving away such concerns, Executive Vice-Chairman of Microcredit Regulatory Authority (MRA), Md Fashiullah, mentioned that microcredit was more than just a loaning scheme – it was a personalised solution for the rural level in which the lender must take up a consultation and other supplementary roles along with lending money. Fashiullah was confident in the microcredit market share and assured stakeholders that one would not cannibalise another. The Microcredit Regulatory Authority has asked microcredit organisations to observe the situation from their line of vision and report back their views.
A step towards financial inclusivity, the scheme aims to offer small, collateral-free loans to marginalised individuals who do not have the wherewithal or the inclination to get themselves attached to a bank account.
The City Bank launched the digital nano loan on the 15th of December in collaboration with bKash, and the move is making an impressive, albeit expected, splash across media. The groundbreaking initiative targets small borrowers like cottage, micro, small and medium enterprises (CMSMEs), and individual needs. Any bKash user can avail them, and the amount available on credit is between BDT 500 and 20,000 at a time, payable in three equal instalments from their bKash accounts. Interest is charged at 9% per annum. The loan receiver would only have to pay interest until he fully pays off the loan. The sooner they pay, the lower their accured interest. As a launch incentive, no loan processing fee is being charged on the nano loans until further announcements. Once announced, it will not be more than 0.5% of the value of the loan.
Mashrur Arefin, the Managing Director and CEO of The City Bank, said that while it is undeniable that the MFS had included the population outside the formal banking channels into their target market, the platform had largely been used for making deposits and transferring money digitally. Consequently, the need for emergency borrowing was not addressed and therefore complete financial inclusion was not being offered. However, with the digital nano loan’s arrival, this necessity has been fulfilled.
To take advantage of these digitally available short-term loans, eligible bKash users, as cleared by City Bank based on its credit risk management policy, need to click on the ‘loan’ icon on the bKash app and simply enter their desired credit amount within the credit limit mentioned previously. The banks then check borrower credibility against their digital credit assessment criteria. The borrowers are advised to read the terms and conditions of the loan carefully before going forward. The PIN will then have to be entered, and the loan amount will be disbursed immediately to the borrowers’ bKash account, avoiding the hassles of a traditionally lengthy borrowing process. Three EMIs will have to be paid to pay back the loan, and they must be paid from the same bKash account. There are no costs associated with early loan settlements, and borrowers are reminded of their due instalment dates from time to time on their mobile devices. Officials from the bank mentioned that the response for the newly rolled out product had been more than satisfactory since the launch, servicing around 12,000 borrowers per week, with the loan amount averaging to almost four crores.
Three EMIs will have to be paid to pay back the loan, and they must be paid from the same bKash account. There are no costs associated with early loan settlements, and borrowers are reminded of their due instalment dates from time to time on their mobile devices.
Other banks are also supposed to follow suit, with eRin coming from Dhaka Bank, which aims to disburse small loans between 10,000 and 3 lacs without asking for paper documents and a similar loan disbursement set up from Prime Bank for garment workers, a move that will be the first of its kind according to the bank. Bank officials from Prime Bank commented that the digital nano loan called PrimeAgrim is designed solely keeping blue-collar workers in mind. This AI-based app will cater to customers who have salaries in a particular range set by the bank, who will then be able to avail up to 30% of it as loans within seconds. The app makes optimal use of machine learning and alternative credit scoring. The service will be available 24 hours of the day for its eligible users. The pilot project for this app was run from the 8th of November, 2021, with Ananta group, where 1000 loans were processed and disbursed amongst the garment sector workers. Prime Bank plans to expand this service for blue-collar workers in other sectors, too, in the near future.
State Minister for ICT, Zunaid Ahmed Palak, urged the Central Bank to raise the limit of loans provided to 5 lacs. He was confident that such a move would align with the government’s agenda to set up a gig economy by 2041. The business is data-driven, and since retail or consumer banking is the norm now, the small loans will support the SME sector, which the government is keen to help. Bangladesh Bank Deputy Governor Abu Farah Md Nasser said that while deposits amount to Tk 5,000 crore, marginalised people are not getting enough lending. He mentioned that this loan system aims to change that, and about 25% of the total lending is being reserved for the SME sector within the next two years to speed up financial inclusion.
Thanks to the successful marriage between the MFS and the banking sector, borrowing has become easy for about one-third of Bangladesh’s population. The collaboration has opened up avenues for banks to digitally design more creative and inclusive services by taking advantage of the large customer base of the MFS sector. According to Bangladesh Bank, banks are also supposed to expand their services to the unbanked population by offering the Nano Deposit Pension Scheme to them. Economists have hailed this idea with enthusiasm as they had long been advocating to increase lending to CMSMEs to give wings to the business sector and boost the economic health of the country post-Covid. The initiatives are being called a major leap in the government’s vision of a digital Bangladesh.
