Friday, 31 March 2023

Bangladesh: New frontier of financial inclusion during COVID-19 pandemic

5 min read

By Md. Touhidul Alam Khan

Bangladesh has achieved significant progress towards financial inclusion with a strong focus on 'Digital Bangladesh', to deliver service using technology. The recent developments in the country’s financial sector, the diversified tradition of credit and microfinance, and widespread acceptance of digital finance and mobile financial services (MFS) are recognised worldwide.

  • Stimulus package reinforced digitisation in payment system
  • Bringing unbanked people under the umbrella of banking channel
  • Access and usage of digital payments registered tremendous growth
  • Persistent financial inclusion efforts for inclusive and sustainable growth 

The pandemic has accelerated the use of digital financial services worldwide. For many low-income families, the ability to tap into financial resources and accept cash transfers from social networks determines whether there is food on the table. Bangladesh's well-developed digital financial services ecosystem, especially at the grassroots network of mobile money agents, has enabled millions of financial transfers at a time when physical movement was difficult.

In order to prevent the disease from spreading, the government imposed lockdowns and social distancing policy. It affected Bangladesh’s supply chain system badly, as small enterprises and marginal people suffered and impacted their livelihoods.

Stimulus package reinforced digitisation in payment system

The ‘Digital Bangladesh’ Vision 2021 is the country’s blueprint to implement digital technology in all activities, after 50 years of independence. The government engages information technology in management, administration and governance to ensure transparency and accountability.

When the pandemic hit Bangladesh, payments were integrated into some of its economic responses. The government’s BDT 956 billion ($11.20 billion) stimulus package, which is 3.3% of gross domestic product (GDP) helped revive the economy.  The stimulus package for the garment industry enabled factories to obtain low-interest loans from the government to cover workers' wages. The government required companies to disburse wages digitally to qualify for the loans.

Ready-made garment (RMG) factory workers received payments digitally. Some 1.9 million workers had opened accounts to receive their wages. Out of the more than four million RMG workers, more than half are women. In addition, the government has launched an emergency cash transfer programme for five million informal workers and vulnerable families.

Bringing unbanked people under the umbrella of banking channel

One of the biggest challenges was the opening of accounts for millions of unbanked people. Those with smartphones were able to open accounts remotely, but most people do not have this technology. The garment workers have returned to their villages and could not easily open accounts since they were in the factories.

Policymakers have addressed this issue by adopting a realistic know-your-customer (KYC) policy, which enabled garment factories to share public identification information directly with financial service providers resulting in mass account enrolment. Workers who lacked national ID were allowed to open accounts through this process. Between March and May 2020, more than two million garment workers opened their new financial accounts.

Access and usage of digital payments registered tremendous growth

Digitisation of wages and payments during the pandemic has done more good than the increase in account ownership. It facilitated crisis management in Bangladesh and there were other benefits to human life, some immediate and some lasting. A study found out that wage digitisation resulted in a 21% increase in RMG employees' regular savings in their accounts. The same study showed a 19% increase in women who expressed greater confidence in their ability to cope with unexpected financial shocks. Utility payments through mobile financial services increased by 234% from April to August 2020 alone, an increase of 37% over the same period in 2019.

Bangladesh Bank, the country’s central bank, continues to provide 2% cash incentives for remittances through legal channels and has encouraged migrant workers to send more money digitally. To encourage expatriates and their families to use authorised remittance channels, the government has introduced cash incentive scheme for inward remittance. In 2020, monthly domestic remittances grew by an unprecedented 419%. The country’s remittance earnings reached a record high of $22.70 billion at the end of 2021. 

Persistent financial inclusion efforts for inclusive and sustainable growth

Since the development agenda of the country needs to be realised properly, harnessing the transformative power derived from financial inclusion of the underserved and unserved enterprises and groups including the cottage, micro, small and medium enterprises is essential. Financial inclusion can bring the unbanked to the mainstream and formal financial sector through easy access to various products or services. Therefore, it is considered an essential pillar of the monetary policy to ensure equitable and sustainable growth of Bangladesh to achieve its sustainable development goals (SDGs).


Md. Touhidul Alam Khan is the chief risk officer and chief anti-money laundering (AML) compliance officer of Standard Bank, Bangladesh.

Views and opinions expressed in this opinion-editorial belong strictly to the authors/contributors and do not reflect that of The Asian Banker.

Country: Bangladesh
Guest: Md. Touhidul Alam Khan
Leave your Comments
Recent Comments