In the wake of the recent political regime change, Bangladesh stands at a critical juncture, requiring comprehensive reforms across various sectors to improve the functioning of the economy. A key expectation from the interim government is the implementation of these reforms, particularly those aimed at advancing financial inclusion.
Financial inclusion—the process of providing individuals and businesses with access to affordable and effective financial products and services—is crucial for reducing poverty and fostering sustainable economic growth. It has the potential to offer underserved and marginalised populations the financial tools they need to improve their economic standing, thereby reducing inequality and contributing more meaningfully to overall economic growth and stability.
Bangladesh has made notable progress in the financial inclusion process, particularly through the expansion of mobile financial services (MFS), which have integrated millions of previously unbanked individuals into the financial system. Despite these advancements, significant gaps persist. Key challenges include improving digital infrastructure, enhancing regulatory oversight, addressing gender disparities, tackling digital divides, expanding rural access, and promoting higher remittance flows through formal channels. These limitations hinder the full potential of financial inclusion efforts.
Urgency of Addressing Inequality in Financial Inclusion: The issue of inequality in financial inclusion has become more pressing in light of Bangladesh’s recent political shifts. The “July Revolution” highlighted deep-seated public dissatisfaction with inequality in access to resources and services, including financial services. The political upheaval underscored the need for urgent action to reduce economic disparities, particularly in financial inclusion, which remains uneven across gender, geographic locations, and income levels.
The Current State & Challenges: According to the Global Findex 2021, 53 per cent of adults in Bangladesh held formal financial accounts—either an MFS account/digital wallet or a traditional bank account—in 2021. This represents an increase of 21 percentage points compared with 2011. However, much of this growth occurred between 2011 and 2017, with account ownership rising by only 3 percentage points since then. In 2011, formal financial account ownership in Bangladesh (31 per cent) was comparable to countries such as India (35 per cent) and African nations like Ghana (29 per cent) and Kenya (42 per cent). However, those three countries achieved much faster progress than Bangladesh, increasing account ownership to 78 per cent, 79 per cent, and 68 per cent, respectively, compared to Bangladesh’s 53 per cent.
The progress in financial inclusion in Bangladesh has largely been driven by the rapid expansion of mobile financial services (MFS) platforms such as bKash, Rocket, and Nagad. Government initiatives, such as the digital transfer of social protection programme benefits via MFS, also contributed to this progress. The growth of agent banking has further expanded financial services in rural and remote areas. With over 230 million registered accounts, including about 135 million male and 96 million female users, and more than Tk 400 billion in cash-out transactions in August 2024, MFS have brought financial services closer to various underserved population groups. With close to 16,000 agents, agent banking generated Tk 400 billion in deposits and Tk 187 billion in loans disbursed. Regulatory facilitation by Bangladesh Bank, such as simplified Know Your Customer (KYC) requirements and the provision of digital infrastructure for settling transactions, has been an important enabler of the financial inclusion process so far.
Nevertheless, the vast potential of financial inclusion remains unexploited, and the momentum needed to address the relevant barriers has been lacklustre. Key challenges likely hindering the expansion of financial inclusion in the country include:
1. Regulatory Gaps. A key issue is the lack of consistent regulatory oversight for financial service providers. For instance, Nagad, one of the largest MFS platforms, for long operated without full regulation by the Bangladesh Bank for an extended period, leading to concerns about security, consumer protection, accountability, and a level-playing field for the service providers. Recently, under the interim government, the central bank has taken measures to bring it under a proper and effective regulatory framework.
2. Usability Issues with Digital Platforms. Digital platforms like Binimoy, which aim to streamline financial transactions, have faced significant usability challenges. Complex interfaces and integration issues with existing financial systems have hindered widespread adoption. These obstacles must be overcome to maximise the potential of digital financial services in reaching underserved populations.
India’s success in boosting financial inclusion through the development of its interoperable system is a prominent example in this respect. The ‘India Stack’, a unified digital infrastructure, includes Aadhaar (India’s biometric identity system), UPI (Unified Payments Interface), and other components that ensure seamless access to financial services across all MFS and DFS platforms. The India Stack has allowed the government to link digital identity with financial services, creating a broader financial inclusion ecosystem. This integrated digital approach has been crucial in enabling India to reach underserved populations at scale. Transactions through UPI crossed 2 billion in October 2020 and rocketed to almost 14 billion by June 2024. This growth in volume was matched by an increase in transaction value, which reached a staggering Rs 20.07 trillion in June 2024.
Similarly, in Tanzania, interoperability led to massive growth in transactions from 174,000 in 2014 to over 6.9 million by 2017. Ghana saw cross-network mobile transfers rise rapidly, with monthly transactions growing from 93,000 to 280,000—a 200 per cent jump—while the transaction value surged from US$ 68 million in 2018 to nearly US$ 4 billion by 2021.
In contrast, Bangladesh’s financial inclusion efforts remain heavily focused on money transfers (mobile money), without a comparable digital infrastructure and interoperable financial system. This has resulted in slower progress in achieving national-level financial inclusion goals.
3. Persistent Gender and Rural Disparities. Financial inclusion remains highly uneven across different demographic groups. Women, particularly in rural Bangladesh, face substantial barriers in accessing financial products. Though female account ownership increased from 36 per cent in 2017 to 43 per cent in 2021, it remains quite low compared to the averages for South Asia (66 per cent) and the world (74 per cent). Barriers such as social norms, lack of access to financial literacy, and limited product offerings designed for women continue to exclude many women from financial inclusion. Closing the gender gap in financial access and usage is critical for fostering economic empowerment and reducing inequality.
4. Limited Innovation and Product Diversification. While mobile financial services have expanded, there is a need for innovation in financial products and services to meet the diverse needs of underserved populations. Expanding the range of financial products—such as micro-insurance, digital savings accounts, SME-targeted loans, and youth-specific services—will be essential for improving financial inclusion in both rural and urban areas. The underlying challenges need to be addressed if the country is to achieve equitable financial access for all citizens and to enhance the country’s growth potential.
5. Ensuring Security and Trust in the Digital Financial System. One of the major challenges in protecting consumers of digital financial services (DFS) is ensuring the security of their personal data and financial transactions. Fraudulent activities such as identity theft, phishing scams, and unauthorised use of sensitive information can significantly undermine consumer confidence. Additionally, loss of internet connectivity during transactions often causes confusion and concern, further discouraging many users. When individuals experience data breaches, financial losses, or transaction disruptions, it erodes their trust in the system, discouraging broader adoption of DFS and potentially stalling progress toward financial inclusion. Robust security measures and consumer protection frameworks are essential to maintaining trust and safeguarding users in the digital financial ecosystem.
The Need for Continued Stakeholder collaboration: To effectively address these challenges and determine the path forward, stakeholder engagement and continued collaboration are crucial to help build consensus on the key issues affecting financial inclusion and to identify the immediate implementation priorities for addressing them. The Policy Research Institute (PRI), in collaboration with the Bill and Melinda Gates Foundation (BMGF), which has been undertaking policy research and advocacy to promote financial inclusion, now aims to set the momentum for critical reform measures. Taking stock of the current system and financial inclusion efforts, and identifying immediate priority actions, will be the immediate focus of this initiative.
Key areas of work under the PRI-BMGF partnership will include: (a) Providing support to the central bank in strengthening the regulatory framework to ensure all financial service providers operate under a unified, transparent system; (b) Enhancing digital infrastructure and addressing usability issues to expand the reach of platforms like Binimoy; (c) Promoting gender-inclusive financial services by developing products that cater specifically to women, particularly in rural areas; and (d) Encouraging innovation in financial products and services, including youth-targeted offerings, to meet the evolving needs of underserved populations.
The collaborative initiative also focuses on working with all relevant stakeholders to develop a potential roadmap for accelerating financial inclusion through coordinated efforts between the government, financial institutions, the private sector, and development partners. The expected outcomes of the initiative are as follows:
(a) Identification of Immediate Implementation Priorities. Based on various stakeholders’ perspectives on the current state of financial inclusion, the aim is to identify immediate priorities for implementation, such as improving regulatory frameworks, making the interoperable system functional, addressing digital infrastructure issues, and promoting remittances through formal channels by leveraging the digital financial system.
(b) Engagement with the Interim Government. Establish a process for proactive engagement with the interim government, especially with the central bank and other regulators; the Ministry of Finance; the Planning Commission; and the ICT Division, etc. to accelerate reforms that strengthen financial inclusion and reduce inequality.
(c) Helping Achieve Targets for Financial Inclusion. Review the current strategy and assess clear, actionable targets for expanding financial inclusion, including setting an expected level of financial inclusion and outlining the necessary steps to achieve these targets.
(d) Collaboration among Stakeholders. Considering the roles and responsibilities of different stakeholders, including the government, private sector, and financial institutions, in fostering financial inclusion, and working to consider a timeline for implementing key reforms.
(e) Innovation and Youth Engagement. Explore the introduction of innovative financial products, including those designed specifically for the youth, such as digital savings platforms, microloans, and financial literacy programs to promote responsible financial behaviour.
(f) Undertaking analytical research and dissemination: Generating evidence to support policy initiatives and their dissemination is important for informed decision-making. By facilitating open discussions among policymakers, financial institutions, researchers, development partners, and other stakeholders, sustained consultation aims to generate critical inputs for concrete actions. The consultation is expected to open avenues for further research and advocacy on financial inclusion.
Dr Abdur Razzaque is a Director at Policy Research Institute of Bangladesh (PRI). [email protected].
The piece is based on his keynote presentation at ‘Stakeholder Consultation on Revitalizing Financial
Inclusion in Bangladesh’ held in Dhaka on Thursday.
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