The financial landscape of Bangladesh has undergone a remarkable transformation over the past decade, thanks to the rapid growth and adoption of Mobile Financial Services (MFS). The emergence of MFS platforms has revolutionised the way people engage with banking.

Of particular importance is the collaboration between traditional banks and MFS providers, which has expanded the reach of banking services to underserved groups, such as the unbanked, women, and people in remote areas. This article delves into how this collaboration has reshaped Bangladesh's banking landscape, fostering financial inclusion and making banking more accessible than ever before.

The Rise of Mobile Financial Services in Bangladesh

Mobile Financial Services (MFS) were introduced in Bangladesh in 2011, with the central bank setting the framework for these services to be offered by both banks and non-bank financial institutions (NBFIs). Initially, MFS was seen as a solution for facilitating simple payment transactions such as money transfers. However, over time, the scope of MFS has expanded significantly, and today it covers a wide range of financial services, including person-to-person (P2P), person-to-business (P2B), government-to-person (G2P), business-to-person (B2P) transactions, as well as remittance disbursements.

MFS platforms like bKash, Rocket, Nagad, and Upay have emerged as crucial players in this ecosystem, providing an easy and efficient way for people to perform a variety of financial transactions directly from their mobile phones.

With a user base now exceeding 200 million registered customers and over 1.5 million agents, MFS has become an indispensable part of daily life for many Bangladeshis. This vast network of agents and customers has proven vital in driving the expansion of financial inclusion, which remains a key challenge in a country where over half of the population still lacks access to traditional banking services.

According to the latest data from Bangladesh Bank, the total number of MFS transactions in November 2024 reached 652,101,737, with a transaction value of 1,567,877.4 million Taka. In comparison, in November 2023, the number of transactions stood at 542,074,508, with a total value of 1,196,691.9 million Taka.

Financial Inclusion: Bridging the Gap

One of the primary benefits of MFS is its ability to provide financial services to the unbanked. A report by the World Bank defines financial inclusion as the ability of individuals to access and use appropriate financial services that meet their needs. In Bangladesh, MFS has helped bridge the gap between the formal financial system and the vast unbanked population, offering services such as savings, payments, and remittances. As Lila Rashid, Former Executive Director of Bangladesh Bank, points out, MFS has been particularly beneficial for financially disadvantaged groups, women, and people living in rural or remote areas.

"Mobile financial services have empowered individuals to conduct transactions from the comfort of their homes, eliminating the need to visit a physical bank branch," says Md. Arup Haider, Deputy Managing Director and Head of Retail Banking at City Bank. "This has significantly eased everyday financial activities, especially for the unbanked population."

The impact of MFS on financial inclusion can be seen in the rapid adoption of these services. For instance, bKash, the market leader in Bangladesh's MFS sector, has played a pivotal role in this transformation. With nearly 80 million verified users, bKash offers a comprehensive range of services, including money transfers, bill payments, mobile recharges, utility payments, e-ticketing, and even payments for educational institutions.

The Role of Banks in MFS Integration

While MFS has traditionally been viewed as an additional service rather than a core banking service, many banks in Bangladesh have recognised its potential and are actively integrating it into their offerings. Banks and MFS providers are working together to create a seamless digital ecosystem, improving service delivery and expanding access to financial services.

Dhaka Bank, for example, has partnered with MFS providers to offer digital deposit products through mobile wallets. This has enabled customers to make small deposits easily, helping them secure their financial futures despite high inflation and low savings rates. "We are seeing a significant response to our deposit schemes through MFS platforms, which allow users to deposit money conveniently from home and access it directly in their wallets," says Mosleh Saad Mahmud, Head of the Liability & Cash Management Unit at Dhaka Bank.

Over 3.5 million DPS accounts have been opened by bKash customers with IDLC Finance, Mutual Trust Bank, Dhaka Bank, City Bank, and BRAC Bank, all conveniently managed through the bKash app from the comfort of their homes.

City Bank, another key player in the bank-MFS collaboration, has gone a step further by integrating digital loan products into the MFS ecosystem. Through its partnership with bKash, City Bank has provided digital loans to customers, offering a convenient and accessible way to access credit. As of the past two years, City Bank has disbursed approximately Tk 1,565 crore in loans to 500,000 unique customers through this platform. This partnership highlights how the integration of banking services with MFS can create new opportunities for customers to access loans and build financial security.

Al-Arafah Islami Bank obtained its MFS license in 2012 and launched its MFS platform, Hello Cash, in 2015. Later, in December 2019, the service was rebranded as Islamic Wallet.

"We support both USSD and app-based services, which are fundamental for MFS. Our USSD code, *434#, allows users to access Islamic Wallet services, including regular cash-in and cash-out operations. Other popular features include fund transfers, mobile recharges, person-to-person transactions, credit card bill payments, and utility bill payments, particularly for Dhaka's DPDC," says Md. Salah Uddin Tanvir, First Assistant Vice President and Head of Strategy & Business Planning for Digital Financial Services at Al-Arafah Islami Bank.

Challenges to Widespread MFS Adoption

Despite its significant success, MFS adoption in Bangladesh faces several challenges that need to be addressed to unlock its full potential. One of the primary issues is the lack of sufficient infrastructure to support the growth of MFS. In particular, the high cost of IT infrastructure and the need for stronger technical literacy among users pose significant obstacles for MFS providers. Furthermore, limited access to smartphones, unreliable internet connectivity, and high data costs hinder the ability of many people to fully benefit from MFS.

According to Sabbir Hossain, Deputy Managing Director of Brac Bank, "The growth of MFS is constrained by the lack of infrastructure and a limited understanding of the financial products available. Additionally, the cost of data and limited internet connectivity are significant barriers for many users." This suggests that in order for MFS to reach its full potential, the government and private sector must collaborate to improve the country's digital infrastructure.

Another critical challenge is the gender gap in MFS usage. As Lila Rashid highlights, many women in Bangladesh still face barriers to accessing MFS services due to the lack of mobile device ownership in households. In many cases, male family members tend to own the devices, which limits women's ability to engage with mobile financial services. This gender disparity is compounded by lower levels of digital literacy among women.

To address these challenges, it is essential to promote financial literacy and digital education, especially for women and marginalized groups. Providing training on how to use MFS platforms, coupled with initiatives to improve access to smartphones and internet connectivity, can help bridge the digital divide and ensure that MFS benefits reach a wider audience.

The Future of MFS and Banking in Bangladesh

The future of MFS in Bangladesh looks promising, with continued growth expected in both the number of users and the range of services offered. According to Bangladesh Bank, the number of MFS transactions has been steadily increasing, with transaction volumes growing by over 34% in 2023 alone. This trend is expected to continue as more people embrace digital financial services.

To further expand the reach of MFS and promote financial inclusion, it is crucial to focus on enhancing the services provided through these platforms. MFS providers must continue to innovate and integrate new features that cater to the diverse needs of customers. For example, integrating credit scoring systems and offering more financial products such as insurance and pension schemes could help users build financial security and reduce their dependence on informal financial channels.

Moreover, collaboration between banks, MFS providers, fintech companies, and the government will be key to expanding the reach of MFS and addressing existing challenges. By working together, these stakeholders can create a more inclusive and efficient financial ecosystem that benefits everyone, from the unbanked population to small businesses and large corporations.

"Our vision is to seamlessly integrate traditional banking with mobile financial services to meet the evolving needs of our customers. By embedding MFS into our core operations, we aim to create a holistic financial ecosystem that enables customers to effortlessly navigate between digital and physical banking touchpoints," shares M Jamal Uddin, Managing Director & CEO of IDLC Finance.