Why is it that the mention of mobile banking creates such a polarising set of reactions among many people? For some, it seems to be the next best thing to sliced bread. Yet, for others, it seems to represent the next big disaster waiting to happen. Let us remember that mobile banking is still really quite a new phenomenon – barely four years old. The fact that something this new can instigate such strong emotions (excitement or fear) at least should warrant a close look. 

If we look at the global experience with mobile banking, we see 200+ live deployments around the world across two predominant models: an MNO-led model and a bank-led model. Globally, about 70% of the deployments are MNO-led models, while 30% are bank-led models. Some countries are experimenting with hybrid models too. Sri Lanka allows both MNO-led and bank-led models to co-exist. Earlier this year, India introduced the "payment bank" model where non-bank entities are allowed to operate special purpose mobile banking services. And most recently, Bangladesh has put forward a set of draft regulatory guidelines last month that seems poised to encourage yet another hybrid model. This article takes a closer look at these proposed changes.

The new draft guidelines may have emerged from the best of intentions, but they practical implementation measures and leave a lot of room for clarity and improvement. This was my first reaction in reading the document. Subsequently, over the last few weeks, I spoke to a number of well-recognised industry experts and practitioners, both local and global, and everyone I spoke with echoed my reaction. I was not the only one puzzled. Let me illustrate with three key examples.

First, the new draft guidelines allow no more than 15% ownership by a single entity (bank or non-bank). This means a mobile banking operation needs to have about seven different equity partners. Even if you leave out the coordination costs associated with this proposal, getting seven organisations, some of whom will be direct competitors in their traditional businesses, to agree on things will not only be difficult, but it will be an ineffective governance structure. Moreover, with limited equal shares, the incentive for one organisation to take the lead on anything will be almost nonexistent. This has the risk of running an operation only half-heartedly.

Second, the new draft guidelines indicate that this multi-player approach is intended for encouraging interoperability in mobile banking. This is truly confusing. While it is true that interoperability would help the mobile banking ecosystem to grow further, restructuring the ownership structure to do so is befuddling. We have interoperability in the banking sector today – if you write a check from one bank and deposit it into another bank, the cheque clears within 24 hours. We have a national payment switch for this. We also have interoperability in the telecom sector today – you can call your sister with a Robi number from your GP number. That connection is made in seconds. Do you really need to change the ownership structure to ensure interoperability? This would be like asking a bank to own shares in all other banks so that their cheques are cleared by others, or asking an MNO to own shares in all other MNOs so that people can place calls across networks. How silly would that be? A much simpler and far more efficient way to ensure interoperability in the mobile banking sector would be to have them connected to the national payment switch.

Third, the new draft guidelines state that acceptance of an MNO as equity partner is conditional on its extending reliable telecom access to all mobile banking platforms at the same effective standard of access and pricing. The first part of this is good. But expecting a firm to offer the same pricing to its competitors as it offers an organisation it partially owns, is counterintuitive to the principles of competitiveness. If your organisation owns shares of a firm, it is only natural that you would take steps to maximise its return on investment. Pricing, one of the three "Ps" in business nomenclature, is often a critical component of a differentiation strategy. Banks, MNOs, airlines, and practically all sectors are allowed to set their own pricing. Why would we treat this differently for mobile banking?

There are two sides of a coin. The new draft guidelines certainly have some positive changes too. The risk-proportionate simplified KYC requirement for limited purpose Mobile Accounts is definitely one of those. Another is the opening up of equity stakes to MNOs. Yet another positive change is the further expansion of the categories of transactions allowed through mobile banking.

The mobile banking sector in Bangladesh is truly at a crossroads today. What is clear is that it is not the next best thing to sliced bread (just yet), and nor is it another disaster waiting to happen (just yet). What is also clear is that more of the same is really not going to serve us well in the future. At a holistic level, I view the new draft guidelines as recognition of this reality and a positive step towards finding the right balance between overly prescriptive and too laissez faire approaches. It now requires due consultations with various stakeholder groups to arrive at the best path forward.

The writer is Managing Partner at pi Strategy Consulting, a management consulting firm.

It's heartening to see the government acknowledge the importance of having an independent central bank. Reportedly, the authorities are set to amend the Bangladesh Bank Order, 1972 to supposedly align it with global best practices and give it more autonomy. The development comes at a time when the economy is going through one of the worst downturns in recent memory, with inflation continuing to break records. As experts have pointed out, failed government policies have been a major factor for the runaway inflation and other economic problems we are currently experiencing. And the role of government-controlled Bangladesh Bank in this debacle is particularly notable.

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A former governor’s unpleasant truths about the banking sector

It is reasonable to assume that many of our problems could have been avoided or better addressed if we had an independent and courageous central bank. The government-imposed interest-rate caps on both the lending and deposit rates—at 9 and 6 percent—is a perfect example of this. Perhaps a more independent central bank would have realised—and indeed listened to experts—that this was a flawed policy that would only end up fuelling inflation. The decision to artificially inflate the value of the taka was another disaster that, too, could have been avoided.

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The concept of a public institution eludes our central bank

Even before the recent economic crisis began, the unchecked "looting" of our banking sector—under political patronage—had damaged our economy beyond comprehension. Those cracks are widening today as the government, including the central bank, fails to curb default loans with the policies for defaulters continuing to be relaxed. The government's decision to provide continuous loan rescheduling facilities and interest rate waivers to loan defaulters has not been beneficial whatsoever. Therefore, we hope the Bangladesh Bank is given autonomy to pursue stricter policies with regard to wilful defaulters, without political interventions.

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Roadmap for banking reforms: Old wine in a new bottle?

In its technical assistance report regarding the Bangladesh Bank, the IMF said that the bank "order needs to be substantially amended so that price stability is the overriding objective of the new monetary policy regime, and governance arrangements are aligned accordingly." We cannot agree more. What's concerning, however, is that a provision of the order called for establishing a council comprising finance and commerce ministers, the bank governor, and others. This will ultimately constrain the bank's actions in times of pressure.

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How default culture plagues Bangladesh’s banking sector

Therefore, while the amendment initiative may sound good, its success in terms of making prudent economic decisions will be determined by the degree of autonomy ultimately granted to the central bank. Previously, despite talks of providing it with autonomy, we have seen the government do the exact opposite. Hence, we hope the amendment is not simply an eyewash amid pressure for reforms. It must be able to address longstanding concerns about the bank's function and mandate. An expert-driven Bangladesh Bank that protects the nation's best interests is the need of the hour.

Former Bangladesh Bank governor Mohammed Farashuddin today alleged that large-scale irregularities are taking place in financial transaction across the country through mobile banking.

“Corruption is being committed in the mobile banking and e-commerce sector due to absence of regulatory framework,” Farashuddin brought the allegation while addressing a function in Dhaka this noon.

Anti-Corruption Commission (ACC) organised the function at the Bangladesh Shilpakala Academy marking its 13th founding anniversary with its chairman Iqbal Mahmud in the chair.

Farashuddin claimed that the discipline in fund transferring through mobile has been brought as the Bangladesh Bank has taken some strong steps in this regard.

“But the wealthier are purchasing goods through e-commerce without paying tax. Except Bangladesh, it is rare in other countries,” he said.

The former Bangladesh Bank governor said corrupts people will indulge in corruption in the market economy and it is very simple matter but the institution like Anti-Corruption Commission will have to come forward to curb it.

ACC Chairman Iqbal Mahmud said the commission’s aim is to halt the speed of the corruption in the country and endorsed its failure in touching the influential corrupts people in the society.

“We will not backpedal if we step up with a move to catch the influential corrupts people,” he expressed his boldness against corruption.   

The newly appointed Bangladesh Bank (BB) governor, Dr Ahsan H Mansur, has effectively started the reformation of the country's banking sector without delay. This is most hopeful as it has long been overdue. The new governor, being a strong proponent of macroeconomic governance, started his day with the bitterest task of swooping down on the top financial hooligans who simply emptied the banking sector through a wholehearted pairing with corrupt politicians in power. An objective assessment of what is happening at the central bank heralds the advent of a dark chapter for the oligarchs who plundered both the capital market and numerous banks simultaneously under the interest of the past rulers.

What the governor has kicked off is no less than a renaissance since his actions have begun to storm the castles and forts of the economic mafia who never thought of being caught red-handed because they governed the government. His prime actions endorse the importance of correcting institutions before talking about theoretical aspects. Dr Mansur is a sound pro-market economist who has equal respect for Smithian ethical doctrines, and he has not deviated from that: his market-based rules for exchange and interest rates are a testimony to that. He has remained different from his predecessors by signalling to the market that he will go after the money launderers and bank looters before fixing theoretical macro irregularities.

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Can the new leadership save the economy?

The revival of Bangladesh Financial Intelligence Unit (BFIU) is also a significant move. BFIU was like a cat without teeth under the two previous governors, while the Anti-Corruption Commission (ACC) was like an anaemic tiger without claws. Both the institutions are prerequisites for the well-functioning of Bangladesh Bank. The political domestication of both BFIU and ACC impeded BB's desired actions in many regulatory aspects. The judicial tardiness of default litigations at higher courts eventually made BB dysfunctional as a financial regulator. That is why many economists advocated for BB to have some magisterial powers to punish the wrongdoers at its own discretion.

The political domestication of both BFIU and ACC impeded BB's desired actions in many regulatory aspects. The judicial tardiness of default litigations at higher courts eventually made BB dysfunctional as a financial regulator. That is why many economists advocated for BB to have some magisterial powers to punish the wrongdoers at its own discretion.

Although the new BB governor has infused blood into the BFIU, pairing with the ACC or higher courts remains beyond his capacity. And that bureaucratic labyrinth will again give refuge to the wrongdoers when the next elected regime begins. The time has come to make some reform so BB can complete the task of judgement and punishment within the financial regulatory framework. Going to the ACC or courts for straightforward financial verdicts is just a waste of time and energy—a rigmarole which eventually helps the culprits. This injustice induces new entrepreneurs to default wilfully since dishonesty pays better. People want an end to this culture to make the banking system fair and self-propelled. We believe the banking commission, which is presumably under construction, will figure out what to do in this respect to remove the trap of judicial bureaucracy.

The institutional damage done by the immediate past BB governor, who was forced to resign after the collapse of the Awami League regime, may be vast quantitatively, but qualitatively it is perverted and infectious. The lax rules he endorsed for the loan delinquents—such as getting rid of the stigma as a defaulter by only adjusting 5-10 percent of defaulted loan—are hard to reverse. The past governor, a retired bureaucrat with no background in economic scholarship but noted as a lobbyist, endorsed a Chattogram-based business group to engulf a couple of banks, as the BB has recently revealed.

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Implementation of a banking commission to address challenges in the sector

The new governor's day dawns with the fight against that vicious conglomerate, which syphoned off millions of dollars from their possessed banks through terrible malpractice and the judicial impunity of the past government. This crusade will give the Bangladesh Bank a tough time. Economists who believe in ethics and politicians who respect minimum fairness must stand beside the new governor so he can bring some semblance of order in the country's banking system and punish the culprits by seizing their assets to adjust for their thefts. He wants to treat the cancer first before giving vitamins to the patient. And that makes him different from other policymakers.

We hope that the BB governor will continue the momentum and spirit to bring order and promote the economy. The prime objective of the central bank is to maximise employment and growth subject to maintaining a moderate level of inflation. The governor should require the banks to report their internal employment figures as well as annual profit figures. The banking administration will remain half-broken if the Financial Institutions Division (FID) at the finance ministry is not eliminated. The pay structure at banks is highly hierarchical and unfair. That must be addressed too. The interim government should appoint a competent leader at the competition commission, which is another example of a domesticated species with a retired bureaucrat at its helm. Institutional leadership must be merit-based, not just qualified for clerical work with unquestionable obedience.

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Issues our banking sector must address

Finally, Economic Adviser Dr Salehuddin Ahmed and BB Governor Dr Ahsan H Mansur must step in a highly measured way to form the banking commission, which will delink political clout from banking affairs for the sake of establishing a corporate culture so the financial sector can see some light at the end of the tunnel. To make it happen, the governor's position must be made constitutionally powerful to strike the final note of the renaissance.

Dr Birupaksha Paul is a professor of economics at the State University of New York at Cortland in the US.

Views expressed in this article are the author's own.

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