Digital loans in Bangladesh | All you need to know

Bangladesh is one of the fastest-growing countries in digitization. With the vision of Digital Bangladesh, it is moving fast to reap the opportunities of the digital ecosystem. Banking, payment, mobile financial services, etc., have already made the journey sustainable. digital loans in Bangladesh started last year as a pilot project. It has the final nod to take the fullest out of the cashless society. Let’s explore all about the City Bank digital loan with Bkash as a strategic partner.

Commercial Launching of Digital Loans in Bangladesh

After the successful completion of the pilot phase, the commercial digital nano loan came to light on December 15, 2021, in Hotel Sheraton in Dhaka. It is a milestone achievement for digital Bangladesh in the fintech sector. It launched just one day before the 50th year celebration of the victory of Bangladesh. The prominent participants on occasion were:

1. State Minister for ICT Zunaid Ahmed Palak, MP, was the chief guest
2. Deputy Governor of Bangladesh Bank, Abu Farah Md Naser
3. Chairman of City Bank Aziz Al Qaiser
4. Managing Director and CEO of City Bank Masroor Arefin and 
5. CEO of BKash Kamal Qadir
6.  Head of Digital Financial Services of City Bank, Md Zafrul Hasan
7. CMO of bkash, Ali Ahmmed

What the speakers think?

1. Commenting on the commercial launch of Digital Nano Loan, Zunaid Ahmed Palak, MP, said: “The opportunity for people outside the formal banking channel to get collateral-free instant digital nano loan from banks talks about the success story of Digital Bangladesh. This innovative initiative of City Bank and bKash, with the policy support from the central bank, is another step towards implementing the government’s vision of going digital in every sector. The convenience and availability of getting digital nano loan will play a major role in uplifting the living standards of the people of the country.”
2. Abu Farah Md Nasser, deputy governor of Bangladesh Bank, said: “Bangladesh is now moving fast forward on the highway of development with the help of the government’s strategy of an inclusive economy. As a result, the banking sector of Bangladesh is becoming more people-centric and digital in a steady way. For example, the City Bank’s Digital Nano Loan through the bKash app is groundbreaking. The support of Bangladesh Bank for launching this new service was always there and will continue to be there.”
3. Aziz Al Kaiser, chairman of City Bank, said: “This digital Nano loan will play a big role in making Bangladesh fully digital, as envisioned by our honorable Prime Minister. Customers need not have a bank account to take this loan. They will be able to take and repay their loan by their bkash account. No collateral requires for this loan. So this will help the business sector grow.”
4. Mashrur Arefin, MD, and CEO of City Bank said: “Financial inclusion in Bangladesh so far meant banks and mobile financial services companies taking the deposit and making money transfer digitally for the mass population. It was never about giving loans to the masses. Hence, there has always been this ethically wrong approach towards financial inclusion, which finally sees it resolved with this launch of Digital Nano Loan.”
5. Kamal Quadir, CEO of bKash, said: “The integration between Bank and MFS has opened up multitude of opportunities where banks can design more creative and inclusive services through digital platform leveraging the large customer base of bKash. This initiative further validates the complementing arrangement that banks and bKash developed over the years through cooperation and confidence in each Nano Loan will broaden the scope of financial inclusion.”

485 bkash users took the loan on the first 12 hours of the launching day. They had to go nowhere to avail the loans. There were no documents or signatures for the loans too. And most importantly, they received the collateral-free loans instantly.

Digital Loan Eligibility

As of now, all the users of bkash are not equally eligible for the digital credit services offered by City Bank in collaboration with bkash. Therefore, most users watch the writing when accessing the Loan icon in their bkash app.

‘দুঃখিত, আর্থিক প্রতিষ্ঠানের ঋণ প্রদানের নীতিমালা অনুযায়ী আপনার বিকাশ হিসাব এখনো ঋণসেবার জন্য উপযুক্ত নয়।’ এ জন্য নিয়মিত বিকাশ ব্যবহার করতে বলা হচ্ছে।

When contacted the bank and bkash authorities about the message, they confirmed that all the bkash users are not eligible users for the loan. There are some set criteria for loan approval. Some of the criteria are as follows:

Biometric E-KYC: Bkash users using the service with biometric and e-KYC are only eligible for loan facilities as per the direction of regulator and decision from the City Bank and bkash. 

Those who participated in bkash with NID only are not eligible so far. However, the bkash authority is considering reregistration with biometric for more coverage in the coming days.

However, Bkash is now offering all users the loan facility with the condition of KYC update. To update your KYC, you need to visit anywhere, you can do it digitally. Bkash app automatically leads you to the update process if you select so.

Apps Users: The bkash instant loan is for the users of the bkash app. Users without the bkash app are not eligible for the microloan. However, there might be opportunities for non-app users.

Regular Transactions: To avail of the instant loan, users must be frequent users of bkash for versatile aspects. As Artificial Intelligence approves the loans by analyzing the transaction patterns and history for alternative credit scoring, irregular users can not avail the loan.

How to get digital loans through bkash

• Step-1: Login to your bkash app
• Step-2: Click on LOAN icon
• Step-3: Select loan amount and terms
• Step-4: Provide consent for terms and conditions( including KYC sharing)
• Step-5: Enter bkash PIN
• Step-6: Receive the loan amount in bkash mobile wallet

Features and advantages of the digital nano loans

The digital nano loan is not simply a loan product. It features lots of implications, potentials, achievements, and dreams. Some of the vital aspects of the instant and digital microloan are presented in brief:

Aligned with Digital Bangladesh Vision: In the form of a loan product, it is a milestone ahead to achieve the vision of digital Bangladesh. Reaching the doorsteps of the unbanked and remote people with digital loans is a major achievement for the government project of go-digital. The process for the loan application to approval is completely digital. Nothing to worry about the physical location.

Financial inclusion: So far, the financial inclusion was the savings and transfer focused. Now, it will provide access to credit and funds. So the real financial inclusion for the unbanked population including the micro-entrepreneur starts now.

Instant: The digital loan is instant in the real sense. Users are a few clicks away from the fund. So you need not be in any queue that keeps waiting for approval.

24/7: Time does not matter for the loan. The digitized process is not dependent on working or office hours or weekends. You are set to take the loan or repay it any time of the day or week.

Collateral-free: One of the major benefits of the digital loan is that you need no security or collateral for the bkash instant loan. If you have frequent transactions and a good history, you can take the collateral-free digital loan without hassle.

No early settlement fee: Another great positive feature is that you can repay the loan and save your interest charges anytime. You will need no early settlement charges for repaying early.

Greater Outreach: Digital loan facilities may reach more people in remote places at ease with lower costs. More users may be a good option for selecting eligible borrowers. 

Low processing costs: Processing digital loans require less time and human interference and are less costly. Providers can extend loans with lower costs on loan origination and decision. 

Improved service: Digital loan approval and disbursements are personalized. Users enjoy good experiences as customization is possible. 

Portfolio Diversification: Providers can diversify their investment portfolio with a new dimension. The loan amount is very meager and has diversified users that minimize default risks.

Additional Revenue sources: Digital loans open doors for both the providers and loan receivers. Providers earn the processing fees and interest, and the users can utilize the loaned fund for earning potentials.

Lower charges: Users can take loans at lower interest charges than the microfinance institutions and local lenders. Even the repayment is easy and cost-saving. The overall costs are much lower than informal sources.

More participants: With the launch of City Bank and bkash and its success journey, there will be many providers in digital credit operations for nano loans. Microfinance institutes, MFSs, banks, and many more will try to serve this area. The microfinance sector is expected to grow to a great extent with the digital footprint in financial transactions. 

Eco-friendly: Digital lending is environment-friendly. Lots of paperwork and party visits are not required for loan approval and recovery. So, paper usage and fuel consumption reduce environmental pollution.

Emergency Fund: The digital Nano loans may be a savior in the time of emergency. It works as the friend in need when you are out of cash but need it urgently.

Challenges and Risks of Digital loan

Every potential may have some sorts of challenges and risks involved. The drawbacks that may come with the digital and mobile-based nano or microloans include the following:

High interest

Digital loans are prone to charge higher interest rates. The amount is small and the rate is ignored but if you consider the reality, the overall rate is high. However, the rate charged by the CBL and Bkash is reasonably low.

Investment on Infrastructures

Digital loan processing and management require sustainable infrastructure. It needs investment heavily. The first-time investment may be large but the benefits will be for a long time in versatile ways. However, collaboration with existing MFSs like bkash may be a good decision as none of the providers need to invest in infrastructure.

Data Security 

Data security is a great concern as the processing and everything is digital. Keeping the users’ data secured matters a lot. There is the necessity to formulate policies to regulate the data the providers use.

Indebtedness Trap

Easy loan facilities may lead to the indebtedness of the users. As a result, users may proceed for loans for unnecessary issues and get in trouble during the repayment of loans. The utilization of loans needs to be assessed for ensuring smooth loan repayment.

Privacy

Artificial intelligence is responsible for loan processing. It will use lots of personal data. So there are risks to personal data privacy. Privacy issues must be regulated with professional ethics and integrity.

Tiny amount

The loan amount is very insignificant. Average disbursement is around BDT 3,000 though the maximum amount may be BDT 20,000. Considering the realities of Bangladesh, such small amount may not serve major financial needs.

Non-performing loans

The easy and instant access to loans may result in higher NPL. The experience in Kenya and Tanzania shows that digital loans have higher NPL than loans in banking channel.

Why is digital lending important?

Digital lending matters a lot for ensuring financial inclusion, remote financing at lower costs, fast approval, flexible and personalized loans, emergency fund supply, and many more.

The history of digital microloan

Digital nano loan originated in Kenya in 2012 with the hands of M-Shwari(M-PESA). Instant microloans are now popular worldwide. 

There started some apps based lenders in Bangladesh with very high-interest rates and without regulatory approval. They are now gone for the regulatory restrictions. 

Bangladesh Bank allowed the City Bank to collaborate with bKash a pilot project in July 2020 to ensure financial inclusion is a widespread way that enables users to request and receive loans instantly. As a result, city Bank’s instant digital loan pilot initiative successfully met emergency personal or business needs.

Launched in July 2020, City Bank provided 35,000 users of bKash with loans of about Tk 70 million (7 crores) at a 9 percent interest rate. The recovery rate was 96 percent of these loans, and only 4 percent faced default.

Features of the pilot project launched in 2020 were

• Loan: BDT 500 – BDT 10,000
• Tenor: 3 months (in installments)
• Interest rate: 9% per annum
• Interest calculation: daily basis
• Processing fee: 2.3% (charged during the disbursement)

Frequently Asked Questions

What is the minimum Digital loan amount I can take?

You may take a Digital Loan of a minimum of Tk 500.

What is the maximum Digital loan amount I can take?

You may take a Digital Loan of a maximum of Tk 20,000.

Can I get the exact amount I apply for?

The AI will fix your maximum loan amount. So, you may not avail of the amount you desire.

What is the duration or tenure of the Digital Loan?

Digital nano or microloan is available for three months, 

Is there any installment for repayments?

Your loan is repayable in 3 installments (monthly)

What is the interest rate for Digital Loan?

As per the Bangladesh Bank guidelines, the interest rate is yearly 9%.

If I take a Tk 1000 Digital Loan for three months, what is the amount of interest I have to pay?

For a Tk 1,000 Digital Loan for three months, you will repay approximately Tk 1,025 (The processing fee is now free for launching offer). Later, you will need to repay Tk 1,030 (processing fee Tk. 5 and interest at 9% for 3 months Tk 25).

How frequently will interest be charged?

The interest rate is yearly but charges on a daily basis. Therefore, it implies that you will save money through lower interest charges if you repay early before the due date.

Is there a loan processing fee?

Yes, City Bank charges a Digital Loan processing fee of 0.5% during the loan disbursement, based on Bangladesh Bank guidelines. For a Tk 1000, the Digital Loan processing fee is Tk 5.

What will happen if I fail to repay the Digital Loan?

According to the Bangladesh Bank regulations, the City Bank has the right to take steps against you.

Can I take two loans simultaneously if I have a sufficient loan limit?

No, you can avail yourself only one at a time. However, you may take another loan after fully repaying the existing loan.

Who is providing the loan? City Bank or bKash?

You are taking a loan from City Bank Limited. BKash App is facilitating the loan application and repayment processes.

Why am I not eligible for a Digital Loan?

The commercial launching of the digital micro/nano credit started on December 15 after a successful pilot project initiative of more than a year. However, the facilities are not open for all bkash users for regulatory and functional aspects. There are criteria for availing of the digital loan facility. The authorities are trying to incorporate more users in the coming days.

Will there be any notification for the coming installment?

Yes, there will be in-app notifications as SMS regarding the installment before being due date.

Last words

The launching of digital loans in Bangladesh is a great milestone before the Golden Jubilee of Bangladesh. It is a gigantic step to the vision of digital Bangladesh. The instant and collateral-free digital loans are available anytime, anywhere without and documentation and physical interference. It will open opportunities for the digital payment ecosystem in more flexible ways. Microcredit will be faster, cheaper, and easier with such a groundbreaking initiative.