IFC inks deal with BFIU to develop eKYC infrastructure

To create a secure digital banking environment and to accelerate financial inclusion, IFC has signed a cooperation agreement with Bangladesh Financial Intelligence Unit (BFIU) for implementing an Electronic Know Your Customer (eKYC) project in Bangladesh, where only half the adult population has access to a formal financial system.

BFIU, an independent government agency tasked with investigating suspicious transactions and money laundering, is also the central agency for ensuring KYC/eKYC compliance.

Under the agreement, IFC and BFIU will work together to develop and adapt eKYC infrastructure, which is a foundational regulatory arrangement for conducting customer due diligence during new client on boarding process for collecting and verifying customer data electronically during opening of new accounts at banks, non-banking financial institutions, mobile financial service providers, insurance companies, and capital market intermediaries, said a press release of Bangladesh Bank.

According to central bank, an efficient digital on boarding infrastructure is one of the major building blocks for fast-tracking financial inclusion in Bangladesh.

Under the current KYC protocol for opening new accounts, customers need to present their national identity (NID) cards in person and financial institutions (FI) must authenticate and keep a record manually printing the NID.

The process is time-consuming, costly, and inconvenient for both clients and FIs. Moreover, in-person account opening has become more difficult amid the COVID-19 pandemic and the development of eKYC will help in social distancing.

Once in place, the eKYC infrastructure will not only cut time and cost of client on boarding, but it will help reach more customers digitally, thus, reducing the number of unbanked people, particularly the underserved such as small business owners and women entrepreneurs.

The project will contribute to the financial inclusion agenda of the government of Bangladesh as well as IFC’s target of including an additional 30 million unbanked adults in the country by 2030.

BFIU is expected to issue a comprehensive eKYC regulatory guideline for the financial sector by December 2024.

Along with establishing a regulatory infrastructure, the eKYC project will also deliver data analytics, case studies, knowledge creation and dissemination and awareness building in the financial market. IFC estimates that 500,000 people will be covered by the e-KYC system by end of the project implementation period in 2025.

“Financial sector especially financial institutions are experiencing a drastic process of digitalization.

This digital transformation enables easy access of customer, even from the remote location, into the financial services.

This may pose some underlying risk of money laundering, terrorism financing and related criminal activities by abusing financial institutions and its services.

To minimize such risk of financial sector e-KYC can be one of the most optimal solutions” said Md. Masud Biswas, Executive Director & Deputy Head of BFIU.

“Promoting financial inclusion is one of the priorities for IFC’s work in Bangladesh. The implementation of eKYC infrastructure will offer seamless experience for end users and support the financial sector to reach out to last mile customers in Bangladesh, significantly increasing access to financial services”, said Qamar Saleem, IFC’s Regional Manager Advisory Services for Financial Institutions Group in Asia and Pacific.

IFC helps advance financial inclusion through investments in the financial sector, advisory services to investment clients and other private sector clients, and through advisory services to stakeholders in financial infrastructure.

Earlier, for conversion from manual KYC to eKYC, BFIU ran a small-scale testing by opening 1,500 accounts using eKYC technology, such as biometrics, and the results confirmed its effectiveness.