Digital banking for financially inclusive Bangladesh

Bangladesh, a nation of over 175 million people, stands at a pivotal juncture in its economic journey with an opportunity to utilise its burgeoning domestic market and a demographic dividend active till the next decade. Despite notable progress in poverty alleviation and economic growth, a significant portion of its population still remains excluded from the formal financial system. Under these circumstances, globally prevailing digital banking presents a transformative solution, poised to unlock the potential of Bangladesh’s dynamic economy, ready to leapfrog leveraging its existing digital infrastructure.

Meanwhile, Bangladesh Bank’s decision to reopen the application process for digital banking licence is a necessary course correction as the previous attempt was marred by controversy. This time, the central bank aims to impose stricter standards, requiring a higher degree of financial and technological aptitude for applicants, to ensure successful establishment of new digital-only bank.

When fully operational, digital banks will ensure 24/7 banking access for all, promoting cashless transactions and enhancing financial inclusion. The use of advanced security measures, such as multi-factor authentication, biometric verification, advanced encryption etc., will make digital banking more secure, transparent and traceable, helping to combat issues like fraud, corruption and money laundering.

RELEVANCE OF DIGITAL BANK IN BANGLADESH: Digital banking can be crucial for Bangladesh’s financial landscape due to the model’s ability to provide comprehensive banking services without high operational costs in comparison to physical branch-based banking. This type of banking has the potential to go great length to serve rural and underserved populations.

Though the mobile financial service (MFS) providers have already revolutionised mobile money in the country, their services are limited as they can’t receive deposits and offer loans. Unlike MFS providers, digital banks, also known as neobanks globally, can accept deposits and offer loans, thus fulfilling a critical gap in financial services. Digital banks can also focus on financing small businesses, a segment often neglected by conventional banks that prioritise mostly large-scale clients.

Let’s delve into the country’s socio-economic landscape to uncover why digital banking is needed in Bangladesh-

• Disparity in financial inclusion: The most potent argument for digital bank in Bangladesh is the stark reality of its unbanked and underbanked population. According to World Bank’s Global Findex Database 2025, about 57 per cent of the people over 15 don’t have formal banking account. However, this gap is not uniform as it is most pronounced in rural and remote areas, where high cost of operating physical bank branches has left millions without access to finance. Now, this where proposed branchless digital banks can thrive serving all demographic at lower cost, eliminating the financial divide.

• Hefty cost of cash management: The central bank governor recently noted that the country spent about Tk 200 billion every year on currency printing and circulation, storing and transporting, operating ATMs and currency sorters etc. The introduction of digital banks can certainly help dropping dependence on paper notes, thus, reducing the cash management costs.

• Digital infrastructure already in place: The good news is that the foundational atmosphere for digital banking already exist in the country – nationwide mobile network coverage, about 188.8 million active mobile users with half of them having smartphones, about 136 million internet users3, orientation to basic digital financial services popularised by MFS providers, growing digital payment ecosystem, etc. This widespread coverage of digital technology embraced by citizens, creates a fertile ground for digital banks to operate efficiently at scale.

• Scope of bridging MSME financing gap: With nearly 10 million micro, small and medium-sized enterprises (MSMEs) accounting for about 25 per cent of GDP, are the lifelines of Bangladesh’s economy. According to the International Finance Corporation (IFC), MSMEs in the country face a funding deficit of US$ 2.8 billion. Major reason for this is that traditional banks are hesitant to lend to MSMEs due to lack of documents, formal collateral or credit history.

• Utilising alternative credit data: Utilising alternative data sources, such as transaction history from MFS, e-commerce platforms, mobile recharge or even social media engagement, digital bank can develop more accurate credit risk profiles for individuals as well as MSMEs. This data-driven approach allows for more inclusive lending, providing much-needed capital to entrepreneurs who were previously locked out of the formal credit market, as noted in a report titled “Bangladesh: Country Private Sector Diagnostic” by International Finance Corporation (IFC) of the World Bank Group. The government also has taken initiative to establish private credit bureaus so that credit profile of individuals and businesses can be created.

CHALLENGES ASSOCIATED WITH ESTABLISHMENT OF DIGITAL BANK: New digital bank licences should be granted to institutions that have proven experience in the financial technology sector. This approach ensures they can assemble right people, build necessary infrastructure and attract global investment.

Given the macroeconomic and structural factors of Bangladesh, it is not a question whether Bangladesh needs digital banks, it’s a question of preparedness. When it comes to establishment of digital bank, creating and maintaining state-of-the-art, secure and reliable technology infrastructure is the most crucial factor for building and maintaining peoples’ trust in technology-driven banking.

Issues like formulating effective regulatory framework as well as ensuring quality internet, especially in rural areas, penetration of smartphones, collaboration among financial institutions should also be addressed to remove obstacles towards establishing a cashless ecosystem.

REFINED LICENSING PROCESS FOR DIGITAL BANKS: To accept new applications for digital bank, the central bank has already reformed the ‘Guidelines to Establish Digital Bank 2’, incorporating new provisions involving tougher scrutiny and elevated financial and technological benchmarks for the applicants.

The central bank has already raised the paid-up capital for setting up digital bank from Tk 1.25 billion to Tk 3.0 billion. By raising the required paid-up capital and demanding a higher degree of financial and technological aptitude, the central bank is not just setting a new standard; it is protecting the public and ensuring the long-term viability of these ventures.

WHY NEW LICENSING ON THE TABLE: The authorities suspended previous licence obtained by Nagad Digital Bank, as there were strong allegations of political influence, financial anomalies, violating regulatory frameworks, frauds etc. A IFC report stated that corruption, political interference, and regulatory ambiguity are major impediments to the progress of the country’s private sector. The report further highlighted, “A lack of transparency and accountability in awarding contracts and licences hinders innovation and entrepreneurial activities.” At that time, Nagad and Kori were selected from 52 applicants to receive digital banking licences in 2023.

Based on the above, it can be concluded that a favourable environment persists in Bangladesh for transforming into a cashless or at least less cash-based economy with the commencement of further digitisation of banking. The country’s large unbanked population, tech-savvy youth, widespread mobile network, thriving mobile payment ecosystem, remittance-dependency, significant financing gap in MSME, etc., — all indicate a positive outlook for neobanks to flourish. It is not just about technology, it is about building a financial ecosystem that can truly unlock the potential of every Bangladeshi citizen, from the smallest village to the bustling city. The central bank’s second attempt at licensing digital banks is not merely a procedural step; it is a critical opportunity to lay foundation for the country’s financial sector to get compatible with access to finance for all digitally with transparency.

Razya Akter is a banker and IT Specialist. razyaakterasha@gmail.com