Wednesday, 1 February, 2023

Scitech Special

Fintech innovations by TallyKhata founder Dr Shahadat

The financial technology (FinTech) has changed landscape of business through innovations in the age when the lifestyle of people is mostly driven by digital services,  said TallyKhata founder and CEO Shahadat Khan.

“We will also see a similar impact of digitalization on financial services. Access to financial services plays a key role in creation of new opportunities, improving the state of businesses and enriching the lives of people,” he said.

Fintech expands and improves financial services using technology. There are four key categories of financial services - payments, savings, credit and insurance.

“Fintech can provide these services at scale efficiently and cost effectively. For example, if we want to provide banking services to one hundred thousand people, we need to have 30 branches and 300 officers. With the help of technology, all we need is only two computer servers to serve these people,” added the founder of TallyKhata. 

The entrepreneur mentioned that the country has made significant progress in implementing digital technologies inspired by Digital Bangladesh vision adopted in 2008.

“We have established a countrywide coverage of mobile phone network, wide support for 4G cellular network service, and strong fiber optic network. More than 10 million people are using the internet for communication, information and entertainment. A lot of government services are digitized. People can access government services from their phone, computer or at Union digital centres.  However, although we made progress at consumer as well as large enterprises and government services, the micro, small and medium enterprise (msME) sector has been lagging behind in use of technology,” he said.

Mobile financial services (MFS) received widespread popularity in recent years. More than 80 million customers are doing 20 billion takas worth of transactions every day. The MFS is mainly used for local money transfer along with mobile recharge and bill payments. But there is a lack of suitable Fintech solutions for small businesses. 

There are more than 11 million small businesses that contribute 25 percent of the GDP and digitalising this sector will accelerate the speed of realising Digital Bangladesh.

Dr Khan further mentioned that opportunities that Fintech can provide to small businesses such as business bookkeeping, digital payment and access to credit.

“Small businesses such as corner shops do their transactions in cash. Most of them do not keep any business books. Majority of these shops do not have bank accounts, and cannot get credit from the formal sector because they are weak on paper and cannot offer required collateral.” Fintech can solve these problems. We have seen that nationwide small businesses adopted TallyKhata, a digital solution for their day-to-day bookkeeping. Millions of transactions are recorded daily. Now we can assess credit eligibility of our 4.5 million users. We have provided a digital wallet through TallyKhata a few days ago. Very soon, we are going to provide a digital loan facility in collaboration with banks, he added.

Bangladesh Bank (BB) has taken some strong initiatives to grow this msME sector. Banks were instructed by BB to offer 25 percent of their loan portfolio in the msME sector. Now small businesses can also open bank, MFS or digital financial services (DFS) accounts without a trade license using an all-digital electronic know your customer (eKYC) process.

BB is also working on a real-time interoperable payment platform Binimoy that is expected to be launched later this year. This will revolutionize the payment system in Bangladesh. It will enable any person to pay any shop, person or utility company directly from the mobile phone. It will strongly encourage digital payment at merchants and shops, and we will move towards a less-cash society, on our way to a cashless society. 

Recently BB has published a circular encouraging bank to offer end-to-end digital lending. BB has also established a refinance fund of 100 crore taka available for banks at a reduced 1 percent interest rate.

This is expected to create momentum among banks to use digital data and due diligence to acquire new customers, and implement automatic risk assessment and lending decisions using advanced artificial intelligence technologies. If msMEs get better access to credit, it will have a strong impact on employment generation and GDP growth.

“It may be interesting to compare with and learn from our neighboring country India. They have developed the UPI payment system - one of the best real-time payment systems in the world.”  India launched the Digital India campaign in 2015, 7 years after the launch of Digital Bangladesh program. India has established a ministry for msME and has taken a program to increase msME sectors’ contribution to national GDP from current 29 percent to 50 percent by 2026,” added Dr Khan.

The Indian msME ministry launched the Digital msME scheme in 2019 and the ministry operates using a digital dashboard of data for different programs and schemes they have. It started the registration process for msMEs through a single-window paperless process requiring no additional documents or certificates in 2020. If an msME is registered in this system, it can get a few benefits including easy access to bank loans with very low interest, minimum alternate tax benefits, and priority for training and skill development. In one year, they have registered 3.6 million msMEs in this programme.

“We have a great potential to expand and improve our financial services using mobile phones, software technology and digital data. However, all stakeholders - government, regulators, banks and Fintechs - need to work in a concerted way to achieve its full potential. We need proper government policy and regulatory initiatives to encourage adoption of fintech, and to establish financial systems and public infrastructure such as an efficient real-time interoperable payment system, a safe and secure data sharing mechanism, and a unified and efficient credit information bureau for all lenders in the country,” he said.

Dr Khan is optimistic on development of fintech in Bangladesh. “When the proper policy and infrastructure are in place Fintech platforms and banks can develop innovative and beneficial financial products and services for all customer segments with better service, better customer experience and better price. It is possible to expand services to underserved segments at affordable prices, and impact the livelihoods of millions of families,” he added.