In Bangladesh, cottage, micro, small, and medium enterprises (CMSMEs) are given special policy attention since they are key drivers of the country's economic growth and structural transformation. These are key sources of poverty reduction and employment generation. In recent years, CMSMEs are showing significant dynamism and flexibility and ability to adapt quickly to changing market demand and supply situations.
A recent development is the rapid adoption of technology and innovations by the CMSME entrepreneurs. The use of mobile phone for payments transfer has increased rapidly among these entrepreneurs, especially among the cottage and micro entrepreneurs. According to Bangladesh Bank's Mobile Financial Services (MFS) statement, around Tk. 6 billion worth of merchant payments have been made during the month of Ramadan in May 2019.
Why this rapid adoption of mobile technology by the CMSM entrepreneurs? One Institute for Inclusive Finance and Development ( InM) study on impact of mobile banking on cottage and microenterprises in 2014 concluded that enterprise's profitability and productivity rise significantly with the use of mobile finance. It escalates even more when the entrepreneur uses his/her own account for transaction rather than using others' account.
The study observes that businesses having access to mobile banking have 0.28 per cent higher labour productivity than that of businesses that do not have access to mobile banking. It further concluded that entrepreneurs transacting with own mobile account make on an average Tk. 2.20 million profit yearly against Tk. 1.80 million for entrepreneurs transacting using others' mobile account. On the other hand, entrepreneurs using no mobile account make on an average Tk. 0.80 million profit.
The study also observed that using mobile account makes the entrepreneurs more eligible for receiving loan from banks. Entrepreneurs using own mobile account have 20 per cent of their total capital funded by commercial banks through loans which is significantly higher than the average of all cottage and micro enterprises which have only around 4.0 per cent of their total capital coming from commercial bank loans.
The study further showed that only 30 per cent of the sample has access to mobile financial services and less than 10 per cent use their own accounts. These mostly include larger scale microenterprises. It has been observed that entrepreneurs having more experience in running business, who are more educated, registered with government or local government, having more organisation level buyer than individual buyer, having larger asset base and employing higher number of full time labour, are more likely to have access to mobile banking.
The smaller scale CMSMEs are mostly left out from accessing mobile banking services. This poses a challenge for the start-up CMSMEs. For many of these would-be entrepreneurs, existing mobile service charges are relatively high. Moreover, lack of technological literacy makes the situation more complex. Awareness is another reason for their unwillingness. Another InM study from 2014 has revealed that 56 per cent of the households do not have any idea about mobile banking or mobile financial services.
These findings indicate a strong need towards opting for policies that will boost financial literacy and education among the CMSME entrepreneurs and other potential and existing financial service holders. It is also important to create digital awareness among entrepreneurs by improving their understanding regarding the benefits of using own mobile accounts along with developing financial education.
As CMSMEs are important vehicles for diversifying economic activity and these have the ability to make significant contribution to economic well-being of the people, the policymakers should take timely action to promote expansion of MFS account for micro-merchants by developing innovative digital payment instruments, enabling digital platforms and providing training to the micro-merchants so that they can manage cash, accounts and inventories using mobile technology.
POSTCRIPT : The international FIN-B Financial Inclusion Conference scheduled to be organised on July 30-31 by Financial Inclusion Interwork-Bangladesh (FIN-B), an initiative of the Institute for Inclusive Finance and Development (InM), will discuss technological innovation in accelerating financial inclusion and its challenges, identify innovative solutions and share experiences among the representatives across all stakeholders while covering other demand and supply side issues of access to financial services.
Farah Muneer is Senior Research Associate, Institute for Inclusive Finance and Development (InM).