Individuals and tech-related businesses, particularly startups and outsourcing firms, are thriving in this fast-paced digital landscape. They are at the forefront of innovations, building up a smart country, generating foreign currency earnings, shoring up reserves, and thus contributing to economic growth. However, such tech-based businesses often encounter difficulties when seeking loans from conventional banks and financial institutions.
The reason behind this challenge lies in the unconventional nature of tech SMEs. Unlike traditional businesses with tangible assets, tech companies often lack the physical collateral that traditional banks require for loan approval. As a result, they've been unofficially sidelined and denied access to the financial resources necessary for their expansion and development.
Now, change is on the horizon. The emergence of digital banks promises to be a lifeline for these tech SMEs. The new-age financial institutions are set to transform the landscape for technology-driven enterprises, providing them with the much-needed boost they deserve.
We will considernot just physical assets but also transaction history, patterns, and reputation of tech companies that thrive on foreign currency earnings. Such a unique approach to evaluating a company's creditworthiness will set Nagad Digital Bank apart.
Bangladesh has already becomea hub for freelancers who offer services - from content development to graphic design to software development to digital marketing. Currently, there are at least 10,50,000 active freelancers in Bangladesh, according to the Bangladesh Freelancer Development Society sources.
To help such entities thrive further and get a bigger chunk of the pie in the global tech industry, wewant to recognise the inherent value of digital properties and intangible assets, which are often overlooked by traditional banks. We know that the heart of many technology companies lies in their intellectual property, their digital products, and their online presence. These factors, while not tangible in the conventional sense, carry immense value in today's interconnected world.
We have developed an AI-based credit rating system that will accurately assess a business's financial stability, growth potential, and ability to repay loans based on its unique digital footprint. This more inclusive evaluation process will allow tech companies to access much-needed capital for scaling their operations, investing in research and development, and expanding their market reach.
If we look at the lending industry across the globe, digital lending platforms offer faster loan processing and approval times. This has significantly reduced the lead time required to access funding for businesses as a whole, allowing them to manage their cash flow more effectively and invest in growth opportunities without having to wait for extended periods.
In digital banking, lead time for loan processing and approval will also see a significant fall, allowing businesses to access funding more quickly and efficiently.
At present, all kinds of businesses need to go through a lengthy and time-consuming process to secure a loan from traditional banks or financial institutions. This often involves filling out extensive paperwork and meeting strict eligibility criteria, which could take weeks or even months to complete. With Nagad Digital Bank, however, the entire process can be streamlined and completed online with ease.
We see digital lending platforms in different countries often have more flexible lending criteria, which means that small and medium-sized businesses that are struggling to secure funding from traditional lenders may now have more options available to them. This will help to level the playing field for smaller businesses and can be a significant advantage for those looking to grow and expand their operations.
Let us look at what other countries, such as China, are doing regarding digital lending to ease access to small ventures to finance. MYbank, a leading online commercial bank and an associate of fintech giant Ant Group based in China, has ventured into digital lending and gained a 50 percent share of the country's annual SME lending.
Leveraging its mobile app and cloud-based infrastructure, MYbank adopted the "310 lending model". Using this innovation, a SME owner can secure a collateral-free loan through just a few clicks on their phones and the entire application process can be completed within three minutes and be approved within one second. The more interesting fact is that such a process requires zero human interaction.
To shed light on how the "310 lending model" has become popular, I will mention four factors - mobile-first: borrowers apply with a few taps on a smartphone and receive money instantly if they get approval; secondly, three-minute approval, no human and banker interaction and lastly, low default rate.
In Bangladesh, we are preparing to launch digital loan products according to the needs of small businesses. Such lending promises customer acquisition at a low cost, minimal operational costs, and low default rate, unlike traditional lending by banks. Thus, we can increase credit flows to the SME sector, which will increase employment, and productivity thus, triggering the country's economic growth, apart from positively impacting the livelihoods of many people.
Almost 2 million people are involved in the micro-merchant retail sector in Bangladesh. While individually their businesses are small, together they transact more than $18,42 billion annually and interact with millions of customers every day.
The advent of digital banks is a game-changer for all businesses alike, such as technology-focused startups, outsourcing firms, and other businesses. With digital banks gaining traction, we can expect to see more tech enterprises flourishing and contributing to the global economy.
The writer is the founder and managing director of Nagad Ltd.
Reach him out through [email protected]
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