Bangladesh enters the era of digital microcredit

Users of the country’s leading mobile financial service bKash start availing microcredit instantly from Wednesday.

Private City Bank Limited is providing loan to the customers digitally, thus Bangladesh enters the era of digital microcredit.

With the introduction of this loan, City Bank is reaching innumerable people in the country as bKash has about 55 million (5.5 crore) customers. Customers will not need to go to any branch, sub-branch, or agent of the bank. City Bank and bKash officials termed this service as ‘digital nano loan’.

The service was officially launched at a hotel in Dhaka on Wednesday

Speaking to Prothom Alo, City Bank managing director Mashrur Arefin said, “Till today, transfer and deposit of money have been conducted in the name of financial inclusion. All banks focus on deposit collection from rural area. As a result there was moral problem in financial inclusion. Now, loan from City Bank will reach everyone through bKash. It will meet demand of instant demand and free people of the country from paying high interest. And, implementation of digital Bangladesh will advance by one more step through this initiative and economy of the country will change.”

This loan will require no document. Money will be credited to bKash account in a couple of seconds after applying for it through app or USSD. One can avail a loan ranging from Tk 500 to maximum Tk 20,000 at 9 per cent interest. And, maximum term for loan is three months.

If this service expands across the country, it will end people’s dependency on others for less amount of loan. Now, people borrow money from NGO at an interest rate of up to 25 per cent. Lenders also give loan with very high interest.

Speaking to Prothom Alo, former chief economist of Bangladesh Bank and Institute for Inclusive Finance and Development (InM) executive director Mustafa K Mujeri said, “Such micro and instant credit are very necessary for the country. Because, people still depend on loan with high interest in rural area. It is necessary to provide policy support to make this initiative successful. Besides, if banks are interested in such initiative, people of the country will be benefited.”

Sources said digital credit was first introduced in Kenya in 2012. It then spreads in various countries in Africa. For small amount of money, digital loan is popular in various countries.

In July last year, Bangladesh Bank allowed City Bank to provide loan to bKash users on a test run. Since then, City Bank provided 35,000 users of bKash with loans ranging from Tk 500 to Tk 10,000. About Tk 70 million (7 crore) has been provided at 9 per cent interest and 2 per cent processing fee. Some 96 per cent of these loans were recovered and only 4 per cent of it was defaulted.

Later, Bangladesh Bank gave City Bank the final approval to launch the digital loan at a 9 per cent interest annually and 0.5 per cent processing fee.

City Bank officials said artificial intelligence (AI) fixes whether a user is eligible for loan considering the transaction reports and usage of a bKash account. City Bank provides this nano credit to eligible users instantly. When a user of bKash applies a loan, credit will be added to a bKash account once it passes the review of the AI.

To receive a loan, a user will have to press on ‘loan’ icon in bKash app, followed by sharing KYC (know your customer) information with City Bank. Then the user will choose amount of loan and it terms, followed by giving consent to terms and conditions of the loan. After that, user will have to enter bKash PIN and then loan money will be added to account in a few seconds.

However, all users are not eligible to receive the loan. Those are eligible will receive it instantly. No one will require reapplying or contacting anyone.

Speaking to Prothom Alo, bKash CEO Kamal Quadir said, “A vegetable vendor needs current capital every day. The vendor will take a loan in the morning, purchase vegetables from wholesale market and then sell those throughout the day. After that, the vendor will repay the loan. And, no guarantor will be required for the user of bKash to receive this microcredit service of City Bank.”

*This report appeared in the print and online edition of Prothom Alo and has been rewritten in English by Hasanul Banna