Criticism as BD rushes into digital banking without rules

Awarding licences to digital banks before formulating regulations is like putting the cart before the horse, says Dr Ahsan H. Mansur.

At a media workshop on digital financial services, the renowned economist voiced concerns over the lack of formal rules and guidelines for digital banks, fearing that it could lead to "foul play".

"Starting a game without rules is unacceptable," he said at a session titled 'Digital Banks: Opportunities and Challenges' at the workshop organised by the Policy Research Institute of Bangladesh (PRI) in Dhaka on Sunday.

Dr Mansur also questioned the central bank's decision to not grant a licence to bKash, deeming it the most deserving candidate. "Those who have secured permission are ill-suited to pioneer digital banking," he commented.

According to the economist, digital banks would not pose a threat to traditional banks.

"Traditional banks will continue to play their roles, while digital banks will fill specific niches," he spelt out.

Dr Mansur elaborated on the distinction between digital banking and digital-only banks, tracing their evolution from the 1990s to 2009, respectively.

He also talked about the global market size and increasing demand for digital banks due to their accessibility, underscoring their high market penetration in emerging economies like China, India and Brazil.

Besides, the PRI executive director delved into the opportunities and challenges facing digital banks in Bangladesh.

In his opening remarks, PRI Chairman Dr Zaidi Sattar called for tax benefits on essential goods to ease the inflationary pressure.

The PRI chairman also highlighted the growing use of Artificial Intelligence (AI) and generative AI in journalism and digital financial services, noting the potential of AI in consumer protection in digital financial services.

Dr Sattar called for ensuring accessibility and affordability of digital financial services for all income levels to promote inclusive development.

In the second session, Dr Bazlul H. Khondker, director of PRI, presented the key findings and policy implications of a study titled 'Assessing the economic and social impact of financial inclusion in Bangladesh: An explorative study using Financial Social Accounting Matrix (FSAM) approach'.

The study, conducted as part of the 'Policy Initiative for DFS in Bangladesh' project, developed a 'Flow of Fund' table for the first time in Bangladesh.

In the study, the simulation results showed positive effects on agriculture, manufacturing, private services and public services due to increased financial flows, with manufacturing and private services having the highest impacts.

The study also advocated for expanding access to digital nano credit to promote economic growth, employment, investment, and poverty reduction.

In his session on 'Macroeconomic and trade issues of Bangladesh', Dr MA Razzaque shed light on Bangladesh's high concentration of apparel exports, particularly tee-shirts, with an annual production of around 8 billion.

While agreeing over the strength of this bulk production, Dr Razzaque cautioned against the vulnerability of an export-concentrated economy and renewed his call for export diversification to sustain growth and resilience.

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