As mSTAR’s project in Bangladesh comes to a close this fall, mSTAR/Bangladesh staff write on their perspectives from four years of a successful project, where mSTAR/Bangladesh helped enroll over 24,000 individuals—most of whom are women—into digital financial service accounts and helped USAID IPs and beneficiaries transact around $1.83 million digitally. The activity brought two new financial products to market with Bank Asia and IFIC Bank, including micro-credit to farmers with lower interest rates and more favorable repayment terms than any other alternative on the market today. Through this effort, mSTAR/Bangladesh facilitated loan disbursement to 795 farmers. Both banks are interested in scaling up these efforts.
By Md. Majidul Haque, mSTAR/Bangladesh Technical Lead for Digital Financial Services
Digital financial services (DFS) are playing a key role in achieving financial inclusion objectives worldwide, and Bangladesh is no different from global trends.
The mSTAR/Bangladesh team has been working in the DFS space in Bangladesh since September 2013 and has seen firsthand the phenomenal growth in DFS adoption, particularly mobile financial services (MFS), in the country over the last couple of years.
While the adoption of DFS has increased rapidly, barriers to DFS uptake remains a concern for traditionally marginalized and financially excluded populations in Bangladesh. DFS usage in Bangladesh is mostly composed of cash-in and cash-out services, which is in part due to limited availability and awareness of additional use cases. Marginalized and financially excluded populations, however, require a wider range of financial solutions and serving them presents both unique opportunities and challenges in the design and delivery of these solutions. There is no single solution. Innovative DFS products and services are the only way to address those unmet needs.
mSTAR/Bangladesh (mSTAR/B) has helped to successfully pilot test two completely new DFS innovations (see more here and here) in Bangladesh to provide smallholder farmers with access to agricultural loans, savings, transfers and merchant payments. These pilots are the first examples to date in Bangladesh where a bank and MFIs have partnered to extend micro-credit agricultural loans to farmers. Farmers are also able to use such micro-credit to securely and easily purchase inputs from participating retailers through a digital channel, in particular through mobile phones and NFC-enabled debit cards. Farmers are now able to access micro-credit at rates less than half of what they had previously had access to and with extremely flexible re-payment terms and conditions, with repayment due in full after six months, as opposed to weekly repayments from other sources.
While implementing those DFS innovations, there were few areas where we had to give some distinct concentration to successfully support optimal results from these pilots so that these initiatives can be scaled up in future. We found the following to be particularly important in that regard.
- Needs Assessment: A needs assessment is very important before designing and implementing any innovations through any channel, whether DFS or not. In case of the above-mentioned innovations, we conducted DFS assessments for Agricultural Value Chains (AVC) and separately Rice Value Chains (RVC) to understand the needs, capacity and aspirations of the different value chain actors.
- Selection of DFS Provider and Target Base: Selecting a DFS provider is not always easy. DFS providers have different service offerings, pricing, interest, reach, and customer service. Successfully deciding which DFS provider is the right fit for the pilot requires planning and research. Similarly, it is also recommended to start off pilots in one or two areas on a small scale at the beginning. Learnings and experiences from such pilots can be used to design large scale transitions. For these two pilots, we partnered with Bank Asia Limited and USAID’s Agricultural Extension Support Activity (AESA) project, implemented by Dhaka Ahsania Mission (DAM), as well as IFIC Bank Limited and the USAID RVC project, implemented by IRRI/Bangladesh.
- Product Design & Defining Service Delivery Channel: Throughout the product design process and service delivery channel identification, strong involvement of all partners is essential to shape and guide the development of product concepts. In our case, through active participation from all partners, they were able to deliver flexible micro-credit solutions tested through both mobile phones and NFC-enabled debit card for two groups of target customers.
- Setting Pilot Goals and Expectations: It is important to set goals and expectations of the pilot, which eventually helps to determine focus, define specific measurable targets and offer motivation. Before starting these pilots, we worked with the partners to define all the parameters that should be achieved and how we would define success.
- Coordination among Stakeholders: Synchronization between stakeholders carries a huge importance to make an initiative successful. In our pilots, all partners were very clear and agreed in writing to pilot objectives, their roles and benefits, the operating model and other relevant issues.
- Training and Field Readiness: Providing field forces and the targeted customer base with training and capacity building on how the services work and their potential benefits are critical, as is thinking about how to communicate these messages to other relevant parties. Along with our partners, we helped to conducted several trainings and workshops before implementing those mentioned pilots.
- Capturing Pilot Impacts: It is very important to capture impacts from pilot testing to measure whether the pilot was successful and actually met the needs of the target base, as well as to identify possibilities to scale up the initiatives. For both our pilots, we conducted pre- and post-assessments with 109 farmers, six ag-input retailers and one MFI. Based on those assessments, it appears that in addition to the better interest rates and repayment terms, the loans have also enabled farmers more flexibility in the types of inputs they purchase. Thanks to these products, farmers are no longer dependent on credit from retailers, who would often push them to buy certain products. In addition, for farmers who previously had higher interest loans with rapid repayment, these products offer more flexibility on when they can sell their crops as the flexible repayment terms enable them to sell their crops later at a higher price, rather than rushing to sell.
The mSTAR/Bangladesh team, along with all other partners, is now working to scale up those initiatives. More than 3,100 farmers and 50 ag-input retailers have already registered through these initiatives in just 10 months since they launched. While this is only a drop in the bucket of a country with more than 160 million people, we hope that these ground-breaking innovative products will serve as inspiration to catalyze a revolution in agricultural financing in Bangladesh.
Md. Majidul Haque has just under a decade of experience in the technology and financial services sectors that include telecom, banking and international development organizations with a focus on new business, product development, project management, action research and business development related to digital financial services (DFS), financial inclusion, e-commerce, payment gateway & value-added services (VAS). Majidul has successfully introduced DFS to a wide range of segments, including smallholder farmers, ag-input retailers, local government officers, community health workers, ultra-poor women, slum dwellers, ready-made garment workers and field staffs. He served as the technical lead – DFS with FHI 360 from April 2016 until July 2017.