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Pacing the bandwagon of Digital Banking : Why The MFS Find Incentives!

Digital banking is a convenient alternative to the traditional banking system and has gained popularity in Bangladesh’s evolving payment landscape. This sector, governed by the Bank Company Act of 1991 and the Bangladesh Payments and Settlement System regulation of 2014, has committed to offering a banking service that is both cashless and convenient. At present, there are 52 applications awaiting approval for the license, including four state-owned banks – Sonali, Agrani, Janata, and Rupali. Although the majority of the candidates are now not financially stable, what motivates them to be so eager to obtain the DB license?

The prominent offering for DB can be seen in the capital requirement, 125CR of paid up capital. Whereas, to establish a conventional bank, the amount tops 500CR. For individual or institutional shareholders, the maximum holding is capped at 10% of the paid-up. 

Bangladesh Bank Prohibits any usage of physical instruments for transactions. This drags the restrictions on over the counter services, no agents, ATM/CRM/CDM of its own. Albeit, the digital banks have to comply with the CRR (Cash Reserve Ratio), ADR (Advance Deposit Ratio) and SLR (Statutory Liquidity Ratio) percentages set by the Central Bank. 

To mitigate the burgeoning risk of data breach and customer privacy, the Cenbank mandates DBs the usage of Cryptography mechanism where applicable. For financial infrastructure, audit by internationally accredited firms and the submission of reports is compulsory to facilitate the licensing process. 

Lately, there has been a growing interest among MFS (Mobile Financial Services) providers in obtaining the Digital Banking license. Due to the nature of digital banking, customers are unable to immediately deposit physical currency into their accounts. In order to become a member of a digital bank, individuals must deposit their money through a financial institution, such as a traditional bank, agent banking, or mobile financial services provider, that has a partnership agreement with the digital bank license-holder. 

MFS businesses such as bKash and Nagad have an advantage in this competition, as they can effortlessly transition their current consumers into digital banking. Furthermore, they have existing infrastructure distributed throughout the entire nation.  With comparatively lower capex to license and in the enigma of financial deepening across the country, the MFS see this licensing of Digital Banking as an opportunity and hence are more forward in this bandwagon.

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