Financial inclusion through digital inclusion: Changes and challenges for banking system in Bangladesh

Sheikh Abu Taher"Financial Inclusion" and "Digital Inclusion" -- two common words -- have frequently been used in today's digital economy. While the former defines as the accessibility of appropriate financial services in order to manage money effectively, regardless of income levels or social status, the later focuses on the accessibility of digital devices to connect the unconnected. Several scholarly researches have identified that a country's economic growth substantially depends on digital inclusion. To understand the importance of digital inclusion, it is essential to consider the implications of Information and Communication Technology (ICT) to be applied in every step of our life. From my limited understanding, the piece of writing simply discusses some explanatory issues on financial inclusion through digital inclusion that has been observed in recent changes of banking system in Bangladesh. Currently, about 45 per cent of the country's inhabitants have access to mobile connection either in voice-only functions or in voice-and-data functions. Through data communications, several new applications have been taking shapes to provide better services to mobile subscribers. Simply defined, those services are called technology and service innovations for mobile phones and are classified into banking, health, entertainment, education and social networking services (SNS). Mobile banking (m-Banking) -- a new way to reduce financial exclusion -- is a prime concern for Bangladesh for its un-banked inhabitants to be covered under banking facilities. In terms of current situation, only a few percentages (13%) of the country's population have access to some kinds of formal banking systems while the rest depends on informal ones. At present, the potential changes of mobile (m)-Banking have been observed through mobile remittances (m-Remittances) and mobile payments (m-Payments). m- Remittance includes national and international remittances via mobile phones while m-Payment includes bill payment, online ticketing and so on. These two services help reducing financial exclusion substantially. A horizontal relationship between mobile operators and content providers has essential roles to explore the issues of increasing banking services for the poor. Now, the changes and challenges have seen in traditional banking system while several extra-hours need to spend only for a single transaction. For example, a couple of years back while local remittance among students became a major task to receive money from their counterparts. Time, charges for remittance and extra-hassle were the key obstacles as noted. Now, bill payment processing, balance checking in the account, international money transfers etc., have all become possible through mobile phone access. While 45 per cent of the country's inhabitants have access to mobile phones or digitally included, the same phenomena can be applied for financial inclusion through m-Banking system. The factors identified for the highest penetration of mobile phones (digital inclusion) are competitive charging systems, innovations in contents, lower hand-sets price, regulators role and need for communication. In line with the factors promoting mobile phones, m-Banking adoption factors need to be identified. Several international and national treaty organisations along with government bodies have attempted to measure the key success factors to promote m-Banking services in the world, especially in developing countries. As such, developing countries are backward linkage to provide sophisticated financial services through current banking infrastructure. In Bangladesh, for example, only few banks provide ATM services and have ATM booths nationwide. This is because of huge investment at the initial stage. But for m-Banking, the challenges include handsets operability, security, reliability and customisation of services. This requires a fresh knowledge of m-Banking and "know-how" procedures to get acquainted with the services. Implementation complexity includes m-Apps, m-Payment and m-Money + transfers. Firstly, m-Apps involve typical banking interactions over medium like account balance, previous transaction, payment of mobile bills. Secondly, m-Payment which is one part of m-finance landscape, can be further broken up into; m-Commerce and bill payments. Thirdly, m-Money + transfers involve un-banked transactions, money transfers and micro-payment. The most important solutions for reducing financial exclusion that have currently been used in Bangladesh are money transfers, i.e., m-Remittance (local or international) via mobile phones access. To sum up the issue, I should say financial inclusion is necessary to strengthen the country's economic performance. Let alone the other emerging issues such as m-Health, m-Education and m-Entertainment, m-Finance or m-Banking has potential roles to explore the unexplored issues among policy makers who are thinking to expand banking services nationwide. ........................................................... Dr. Sheikh Abu Taher is Lecturer, Dept. of Finance and Banking, Jahangirnagar University. Courtesy: 'Bangladesh at 40: Changes and challenges,' a publication of Faculty of Business Studies, Jahangirnagar University (JU) to mark its holding of a three-day seminar on the afore-mentioned theme from December 09 to December 11, 2011 at the JU at Savar. The Financial Express is the media partner of the event