BANGLADESH - Financial Inclusion Insights by Intermedia

BANGLADESH

QUICKSIGHTS REPORT FOURTH ANNUAL FII TRACKER

SURVEY

Fieldwork completed in September 2016

December 2016

BANGLADESH

Key definitions

Access ? Access to a bank account or mobile money account means an individual can use bank/mobile money services either via their own account or via an account of another person. Active account holder ? An individual who has a registered account and has used it in the last 90 days. Active user ? An individual who has used any financial services account for any type of transaction in the past 90 days via his/her own account or somebody else's account. Adults with DFS access ? Adults (15+) who either own a DFS account or have access to someone else's account. Advanced use of DFS ? Advanced use of digital financial services includes activities beyond basic cash-in/cash-out and person-to-person transfers (e.g., savings, bill pay, investment, insurance, etc.). Below the poverty line ? In this particular study, adults living on less than $2.50 per day, as classified by the Grameen PPI. Cooperative ? Typically, a business or other professional organization that is owned and run jointly by its members, who share the profits or benefits. Cooperatives can release some of the profits/funds as loans to its members. Digital financial services (DFS) ? Financial services provided through an electronic platform (mobile phones, electronic cards, the internet, etc.). Dormant accounts ?Registered accounts that have never been used or that have not been active (e.g., used in the past 90 days). Grameen Progress out of Poverty Index (PPI) ? A poverty measurement tool from the Grameen Foundation wherein a set of country-specific questions are used to compute the likelihood that a household is living below the poverty line.

Informal lending or saving group ? These are informal financial services offered by individuals or groups at the community level. These services are a part of the NBFI group of services, but do not offer a full suite of financial services and, therefore, are not a part of formal finance. Microfinance institution (MFI) ? An organization that offers financial services to low-income populations. Almost all give loans to their members, and many offer insurance, deposit and other services. Mobile financial service (MFS) or mobile money (MM) ? A service in which a mobile phone is used to access financial services. Nonbank financial institution (NBFI) ? A financial organization that is not formally licensed as a bank or a mobile money provider, but whose activities are regulated, at least to some extent, by the central bank within the country. Such financial institutions include microfinance institutions (MFI), cooperatives, Post Office Banks and savings and credit cooperatives (SACCOs). Post Office (Savings) Bank ? A bank that has branches at local post offices. Registered active user ? A person with a registered account that has used it in the last 90 days. Services beyond basic wallet ? DFS transactions that go beyond simple deposits, withdrawals or money transfers. Unregistered/over-the-counter (OTC) user ? An individual who has used a financial service through someone else's account, including an agent's account or the account of a family member or a neighbor. Urban/rural ? Urban and rural persons are defined according to their residence in urban or rural areas as prescribed by the national bureau of statistics.

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BANGLADESH

Country context

? Bangladesh is going through a period of high economic growth, which is expected to continue in the near future. o The GDP growth rate averaged 6.5 percent over the past five years; the GDP growth rate in 2016 was the highest in the past decade at 7.05 percent.

? Bangladesh Bank, the central bank of Bangladesh, maintained a strong focus on financial inclusion in 2016. o The Bangladesh Bank successfully enacted a number of financial inclusion initiatives despite a major institutional setback in March 2016 when hackers stole millions from the central bank, which resulted in the resignation of the then-governor. o References to inclusive finance in the Bangladesh Bank's 7th Five Year Plan FY2016-2020 and the Strategic Plan (2015-2019) indicate the importance of financial inclusion as a primary goal. o In July 2015, a dedicated Financial Inclusion Department was established within the Bangladesh Bank. The aim of the department is to "further consolidate and better coordinate the financial inclusion initiatives in the central bank and of other public and private sector stakeholder [...]." o Draft Regulatory Guidelines for Mobile Financial Services released in August 2015 are yet to be finalized. These included limited ownership stakes in mobile financial service providers to 15 percent per entity, and a requirement that at least four banks must form a consortium to achieve a 51 percent majority-ownership share. o In an attempt to stop the use of mobile phones for criminal activities, the Bangladesh Telecommunication Regulatory Commission announced a mandatory "mobile phone SIM reregistration" campaign to increase biometric identification of SIM card holders. Immediately after the reregistration deadline of May 2016, all unregistered SIM cards were permanently deactivated without any prior notice. This deactivation may have played a role in reducing mobile phone sharing and borrowing, as individuals are less likely to share SIM cards registered in their names. It also had an effect on increasing overall SIM card ownership.

? With respect to digital finance, according to Bangladesh Bank statistics, as of October 2016 there were more than 13.8 million active MFS accounts and approximately 39 million registered MFS accounts. o Bangladesh Bank statistics measure the number of accounts, not the number of individuals as is the case with FII data. Both reflect a clear growth in the mobile money market and suggest that a substantial minority of the population is utilizing the services. o Based on the central bank's supply side statistics, active account use grew in 2016, which closely mirrors the FII growth in active mobile money account holders (from 8 percent of adult Bangladeshis in 2015 to 10 percent in 2016). o The agent network in Bangladesh has continued to expand, from fewer than 400,000 agents in May 2014 to 671,300 in October 2016.* o Despite the large number of mobile money providers, bKash remains the clear market leader, trailed by DBBL, in visibility and customer base. Many licensed providers have yet to make any impression on the market.

* **

Source: InterMedia Bangladesh FII Tracker survey Wave 4 (N=6,000, 15+), August-September 2016.

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BANGLADESH

Notable statistics

? Mobile money continues to see strong growth in Bangladesh, whereas the prevalence of

2016: Financial Inclusion*

(Shown: Percentage of Bangladeshi adults, N=6,000)

nonbank financial institution (NBFI) accounts dropped significantly, primarily due to a decline

in the use of microfinance institution (MFI) accounts.

o In 2015, mobile money access surpassed NBFI access (33 percent vs. 26 percent) but mobile money registration (9 percent) remained lower than NBFI registration (24 percent).

o In 2016, NBFI access decreased by 10 percentage points to 16 percent, vs. 2015. At the same time, mobile money access increased by 7 percentage points, from 33 percent in 2015 to 40 percent in 2016.

34%

are financially included

o For the first time in the four years of FII research, there are more mobile money registered accounts than

NBFI registered accounts, although the number of registered bank accounts still surpasses that of either

mobile money or NBFI accounts. However, registered mobile money accounts and active use grew between

2015 and 2016 (9 to 13 percent, and 8 to 10 percent, respectively), whereas bank account registration slightly declined.

13% have a

? Access and registered use of MFIs dropped from 2015, resulting in an overall decline in financial inclusion numbers.

registered mobile money account

o The percentage of adults having access to full service MFIs dropped from 23 percent in 2015 to 14 percent in 2016, with the decline in access higher in rural areas, males, and individuals living below the poverty line.

o A likely explanation is that MFI loans, a primary use of MFIs, are historically used as "insurance credit" (i.e., individuals seek out MFI loans in times of economic uncertainty and downturns). However, along with the recent surge in economic growth, with an average GDP growth of 6.5 percent between 2014 and 2016, there may have been a simultaneous decline in the demand for loans. This is likely the reason for the drop in MFI usage.

o This is reflected in the decrease in MFI account holder borrowing, which dropped from 19 percent in 2015 to 6 percent in 2016.

*Financial inclusion is defined as the percentage of individuals with a registered bank, mobile money or NBFI account. Overlap representing those who have multiple kinds of financial accounts is not shown. Source: InterMedia Bangladesh FII Tracker survey Wave 4 (N=6,000, 15+), August-September 2016.

17% have a

full-service bank account

12% have a

full-service NBFI account

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BANGLADESH

Registered mobile money account use and ownership increased; NBFI access and registration contracted considerably, decreasing overall registered financial service use from 2015

Financial account access

Registered financial service users

Active* financial service users

(Shown: Percentage of Bangladeshi adults for each year)

Any financial service

35 49 58 55

Any financial service

20 37 43

34

Any financial service

14 28 34 27

Mobile money

22 23

33 40

Mobile money

3 5

9 13

Mobile money

3 4

8 10

20

Bank

19

20

19

18

Bank

18 19

17

12

Bank

12

13

13

Nonbank financial institution

NA

22 26

16

Nonbank financial institution

0NA 20 24

12

Nonbank financial institution

0NA 16 19

9

2013 (N=6,000) 2014 (N=6,000) 2015 (N=6,000) 2016 (N=6,000)

NBFIs were not included in 2013 survey. Types of account ownership are not mutually exclusive. *A registered account used in the last 90 days.

Source: InterMedia Bangladesh FII Tracker surveys Wave 1 (N=6,000, 15+), September-November 2013; Wave 2 (N=6,000, 15+), June-August 2014; Wave 3

(N=6,000, 15+), August-September 2015; Wave 4 (N=6,000, 15+), August-September 2016.

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