For a long time, the banking industry has dominated the financial landscape of Bangladesh by providing its customers with a wide array of financial services. But the problem that persisted was the poor people of Bangladesh did not have access to financial services. This need for a simpler and easily accessible financial service gave rise to the Mobile Financial Service (MFS) industry in Bangladesh.
In keeping with the need, Bangladesh Bank released MFS Guidelines on 22 September 2011 for the first time and later revised the same in December 2011, which applied as the basis for the entire MFS industry. Two ownership structure-related models were permitted in these guidelines. According to that, an MFS provider can function as a bank wing or as a bank subsidiary where a single bank holds at least 51 per cent partnership.
Later, Bangladesh Bank issued the regulation titled 'Bangladesh Mobile Financial Services (MFS) Regulations, 2018' in compliance with Section 7A(e) and Section 82 of the Bangladesh Bank Order 1972 and Section 26 (cha) of the Bank Companies Act 1991 (amended in 2013). This new regulation replaced the previously released "Guidelines on Mobile Financial Services for the Banks".
These regulations aim to:
(i) Provide a regulatory structure to establish an enabling and competitive environment to cater cost-effective and real time MFS;
(ii) Promote affordable access to formal financial services at an affordable cost particularly for the poor and unbanked segments of the population;
(iii) Ensure compliance of AML/CFT requirements laid down by the AML/CFT rules, regulations, guidelines and guidance provided by the Bangladesh Financial Intelligence Unit (BFIU).
Regulations for the MFS Industry:
Bangladesh MFS Regulation 2018 and BFIU Circular 20 are the two predominant regulations/guidelines which dictate compliance compulsions of the MFS industry.
The MFS Regulations outlines the consolidated regulatory framework that incorporates necessary regulations and standards, to be ensured by every licensed MFS provider to follow prescribed provisions and discipline in the market. The document contains a detailed description of the products, services, and models that are permissible for MFS providers. BFIU Circular 20 provides guidelines for MFS business to strictly practice and maintain AMF&CFT compliance, follow KYC protocols and ensure security of data, to construct a safe transactional platform catering to the needs of their customers and other relevant stakeholders. The BFIU guidelines further include the requirement of recruiting compliance officers, maintaining proper due diligence while providing services to customers, reporting any activity that may seem suspicious (STR/SAR reports), and monitoring the agents and distributors within the compliance parameter of MFS organizations to reduce and mitigate AML&CFT risks. Furthermore, the transaction limits of the MFS industry are set by Bangladesh Bank in commensuration with 'Risk Based Approach'.
Current Market Scenario of the MFS Industry:
The mobile financial services (MFS) landscape of Bangladesh evolved multifold in 2019. This can be traced to the efforts of the Bangladesh government, the banking regulator, and policymakers. The country had 99.3 million registered MFS accounts as of December 2020, who, on average, performed 299.5 million daily transactions worth BDT 56556.88 crore. The major players in the MFS industry which are regulated by Bangladesh Bank include bKash, Rocket, MyCash, SureCash etc. of which bKash holds the majority of the market share.
The Journey of bKash, the trailblazer of mobile money in Bangladesh:
With the goal of financial inclusion of the unbanked population, bKash - a subsidiary of BRAC Bank was launched in 2011, in partnership with US-based Money in Motion LLC. Subsequently, the International Finance Corporation of World Bank Group, Bill and Melinda Gates Foundation, and Ant Group, an affiliate of the Chinese Alibaba Group became core investors in bKash. Within 10 years of its inception, bKash has successfully changed the entire landscape of the financial payment system in Bangladesh, making financial services accessible and affordable to all segments of the population.
bKash along with all other MFS providers are under off-site and on-site supervisions of the Payment Systems Department (PSD), Bangladesh Bank in offering mobile phone-based banking and other financial services (PSD Circular No: 04/2018 dated 30th July 2018).
In September 2019, bKash participated in the pilot of e-KYC conducted by Bangladesh Bank and BFIU. Through this e-KYC, customers can easily open a bKash account, which is verified through the Election Commission Database in accordance with BFIU Circular No:- 25, titled 'Guidelines on Electronic Know Your Customer'.
The issuance of the aforementioned regulations and strict monitoring by the regulatory authorities are testaments to the fact that the MFS providers which are licensed by Bangladesh Bank are given as much attention and regulatory oversight as any other financial institution. Strict adherence of regulatory compliance remains to be a hallmark of the success of the leading MFS provider, bKash.
The author is a retired major general of Bangladesh Army and chief external & corporate affairs officer of bKash. He can be reached at [email protected]