Digital transformation of MFIs in Bangladesh opportunities, challenges and way forward

• by Bhavana Srivastava, Ravi Kant, Ishita Sharma, Sivakumar Krishnan and Sonal Agrawal
• May 27, 2019
• 1 min
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With the entry of FinTech firms in Bangladesh and the government’s aim to build an inclusive digital financial ecosystem, it is now imperative for the microfinance sector in Bangladesh to move towards digital transformation. UNCDF SHIFT commissioned MSC to conduct a study on the status of digitization in the microfinance sector in Bangladesh. This report examines the status of digitization in the microfinance sector in Bangladesh, technology options, and the next steps towards digital transformation.

UNCDF’s Landscape Assessment of Retail Micro-Merchants in Bangladesh has shown that retail micro-merchants require access to financial services and credit in particular. Their need for financial services is high, and microfinance institutions are well placed to meet the growing credit needs of micro-merchants. These micro-merchants borrow predominately from microfinance institutions. With the introduction of digital technologies, microfinance institutions have a new opportunity to expand financial services further to micro-merchants by embracing digital and mobile technologies in their operations. In this context, UNCDF SHIFT commissioned MSC to conduct a study on the status of digitization in the microfinance sector in Bangladesh.

In the course of the research, we identified that while most MFIs use a loan management system, only a handful of MFIs have taken steps to digitize transactions. There are very few of these initiatives at pilot stages. Only three of the 16 surveyed MFIs have rolled out pilot tests to use the digital field application for loan origination. In conclusion, MFIs are on a digital journey but are yet to explore many more emerging technologies that would bring process efficiency and also increase the uptake of the products offered.

Keeping the micro-merchant market segment in mind, this report answers the questions of how and why microfinance institutions should make a switch to digital technologies to meet their customers’ needs better.