The State of FinTech In Bangladesh

A South Asian sovereign state, Bangladesh is world’s eighth densely populated country, which shares its geographical boundaries with India and Myanmar. Vulnerable to natural calamities like flood and cyclone due to its location at the top of the Bay of Bengal, Bangladesh has successfully tackled high population growth and improved health and education in the past couple of years.

According to worldmeters.com estimates, Bangladesh’s population as on November 21, 2016, is 163 million, which is equivalent to 2.19% of the total world population. 34.2% people reside in urban areas and about 30% population is in the age group of 15 to 29 and only 5% people are 65 years old and above. On the literacy count, it is ahead of many other countries, 75% population is literate which constitutes 77% male and 71.5% female. Dhaka, the largest city and capital of Bangladesh, has a population of 14 to 15 million with a density of about 19,000 people per sq mile.

Government studies suggest that every year 2 million young people are added to the country’s labor force. The majority of them migrate to other nations such as Saudi Arabia, United Arab Emirates (UAE), Qatar, Kuwait, Oman, Malaysia, and Singapore for employment. Foreign remittance inflow contributes to 11% of the country’s GDP. Reports hint that the migration of skilled workforce has declined however unskilled and semi-skilled workforce still prefers foreign employment a lucrative option.

Of late, development of entrepreneurship has emerged one of the key concerns of the government in Bangladesh. Both private and public institutions have launched Entrepreneurship Development (ED) programs to enhance the standard of living.

The startup scene in Bangladesh:

Bangladesh’s startup sector is at the nascent stage, and in the last two years, the country has made some excellent achievements in entrepreneurship. Youngsters back after studies from countries such as US, UK, Canada are leveraging their exposure, technical know-how and experience in identifying issues and trying to address it with innovative technology. The increasing population of mobile phone users has played a vital role in stirring the startup scene. With 131.1 million mobile subscribers and 50 million Internet users as on February 2016, the cell phone has emerged as a strong medium to do many other business activities besides interaction.

Data suggest that the mobile subscription went up by 11% in one year. 8.2 million people were using the smartphone by the end of 2015. From vehicle tracker app to job platforms, e-commerce sites, social media marketing, audio distribution platform, content management platform and a range of other subjects – which can make a difference to the day-to-day living – have influenced tech startups.

Startups such as Light Castle Partners, a consumer research and market insight; Chaldal.com, an online grocery shop; Dugdugi, an online legal distribution portal of Bangladeshi song, etc. have become very popular since their launches.

Unigigg and Glints are platforms to bridge the gap between education and employment. Track My Vehicle, a vehicle tracking system; Caretutors.com, an online tutor matching platform; Shohoz, the online travel service provider offering bus tickets, hotel reservations, etc. and dozens of other startups targeting diverse economic activities reflect an enthusiasm and variety which has attracted local and international venture capitalist firms. Angel investors have also come forward to support.

For instance, at the beginning of 2016, Ethohum – a Turkish investment firm – invested an undisclosed amount in BDcabs, a taxi/vehicle booking platform with mobile and web apps launched last year. The startup is valued at $6.5 million.

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Similarly, Y Combinator, 500 Startups and a host of angel investors funded Chaldal.com, which was launched three years ago. Experts say lack of mentors with global vision is a bigger challenge than funding.

Interestingly, women entrepreneurs are also coming up with innovative ideas and successful business model. Some experts say though the startups in Bangladesh lack innovation, but their execution is just flawless. For instance startups like NewsCred, a leading content marketing platform or Bikroy, the online marketplace reflects the business acumen on the part of the promoters.  Industry leaders say that a crowd-funded documentary titled ‘Startup Dhaka’ inspired a lot of youngsters towards entrepreneurship. The documentary – made by SD Asia, which creates content about startups, entrepreneurs, and business – had raised over US$9000 from 56 backers around the world.

How big is the FinTech pie in Bangladesh:

According to reports, Bangladesh has at present about 800 IT and ITeS (Information Technology Enabled Service) companies with an estimated turnover of around US$200 million. Except for mobile finance services continues to the lone torchbearer and other FinTech sectors are yet to see a strong player. Reports suggest that despite 32.2 million registered mobile banking accounts as on June 2016, cash is still the most prevalent form of financial transaction. Lack of awareness and trust in technology are a couple of the main reasons why 80% people are not adopting mobile wallet.

The two leading mobile wallet companies are bKash and DBBL. bKash, the market leader with 80% market share, is a subsidiary of BRAC Bank Ltd. It is the world’s second-largest mobile money company after Vodafone Plc’s M-Pesa in Kenya. SureCash is the new entrant in mobile finance services which received $7 million from Osiris Group, an emerging private equity firm from Asia which invests for social progress and economic development.

However, the value of transactions through mobile finance services in Bangladesh was 5.6% of GDP in 2015, which is far lower than Kenya’s 55 percent. Experts believe that cash transaction will reduce in another five years and mobile money will grow as more and more people will start paying money for private and government services through mobile wallet.

Launched in November 2012, CloudWell offers solutions in point of sale system, debit card and payment gateways under its brand PayWell, got $2 million funding in May this year. The Dhaka-based startup has clients across various sectors such as telecommunication, financial services, e-commerce, etc. The company claims to have a network in more than 30 districts in the country.

Status of policy regulation in Bangladesh

As far as mobile finance services are concerned, the Bangladesh Bank first issued guidelines in 2011, which it kept on updating. These guidelines define ownership structures and mobile network operator participations among other things.

Last year, the Central Bank of Bangladesh said that all financial transactions through mobile would be through bank-led companies which mean all existing mobile money platforms will have to be linked up with banks. The central bank has asked all the stakeholders to respond to the proposal. Experts believe that it’s a great move to bring the unbanked population into the mainstream of the financial system. Experts believe that it’s a good beginning but the further in-depth analysis is needed. As far as investing in a startup is concerned, the government doesn’t give any tax benefit. But investors demand tax relief to encourage the startup scene in the country.

Startup Incubators in Bangladesh:

Bangladesh startup scene is evolving with accelerators, incubators, startup events and some state sponsored programs. One of such events is Seedstars Dhaka which is a global seed-stage startup competition. The best startups give their presentations before venture capitalists and mentors. The winner gets $5 million equity prize. FinTech, TravelTech, and StarTech are the three major categories in which Seedstars Dhaka holds the competition. It has started in Dhaka from this year only.

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Grameenphone, the leading telecom operator who claims to have the highest number of subscribers & widest network in Bangladesh, organizes another accelerator program, GP Accelerator. It aims at providing tech startups with resources that they need to build and grow.

Founder Institute is another early stage startup accelerator, which has helped many tech companies to launch and operate successfully. A similar initiative is started by the Bangladesh Startup Lab, which runs the flagship acceleration program for women and youth entrepreneurs.

Some other startup contests such as Innovation Xtreme, Startup Weekend Dhaka and Get in the Ring Bangladesh have helped create a startup eco-system.

Along with these private initiatives, some government-sponsored programs such as Connecting Startups Bangladesh are also helping startups get in touch with the investors. It selects promising startups, and along with mentoring and incubation, they also provide workspace, logistic support, training opportunities and introduce them to multiple VCs and other funds.

Current status of financial institutions in Bangladesh:

46 ATMs per million inhabitants show a tremendous untapped opportunity for financial technologies in Bangladesh. The archaic banking system suffers from a lack of technological innovation. Even over-saturated banks haven’t leveraged technology for its customers’ benefits. The result is that the formal financial services cover only 17% to 36% adults. The expansion to rural or far-flung areas doesn’t look a profitable business venture, so a lot of banks don’t look towards rural population. Economists believe that financial inclusion is necessary to remove poverty and financial technology can play a fundamental role in bringing parity.

Conclusion:

The unexplored financial market of Bangladesh shows that there is a lot of scope for innovation in Fintech. A huge unbanked population is ready to join the mainstream financial system, but the lack of connectivity has remained a big hurdle. FinTechs can bridge the geographical distance and play a crucial role in the overall development of the country.

Alex Kong

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