Pros and cons of MFS regulations 2018 August 03

2018

Mobile banking has now become the most popular medium for monetary transactions in
Bangladesh because of its ease and speed. This concept of mobile financial services (MFS) has
brought under its fold a huge unbanked segment of the population, especially in rural
Bangladesh, within a span of seven years after its launching in 2011. Whereas the proportion of
MFS account holders in the population was only 3.0 per cent in 2014, it rose to around 38 per
cent this year. This is higher than the South Asian average of 33 per cent and the global lower
middle-income country average of 27 per cent. This phenomenal success is transforming the
rural economy in many ways and has made Bangladesh the regional leader in the field of mobile
banking. The issuance of the Bangladesh Mobile Financial Services Regulations, 2018 by the
Bangladesh Bank on Monday has been the latest step in this gradual unfolding of a narrative that
has huge potential for promoting socio-economic dynamism, mobility and growth. Although the
issuance of the regulations may have been laudable, it seems to have some limitations and
drawbacks.

According to the latest figures from the Bangladesh Bank, the number of banks currently
providing MFS services is 18. Registered clients in June 2018 were 618,000, while the number
of active accounts was 272 thousand. The number of agents, on the other hand, was around 830
thousand. The average number of daily transactions in June was 192.59 million, while the
average value of daily transactions was over Taka 11 billion. Significantly, the number of active
accounts grew by 18.8 per cent and the average number of daily transactions rose by 7.3 per cent
in just one month. Apart from cash-in, cash-out and person-to-person transactions, the MFS
services are also being utilised for utility bill payments, salary disbursements, merchant
payments, government payments and inward remittances.

Originally, the central bank provided the framework for MFS operations and their ownership
through issuing a guideline on MFS for banks in September 2011. This was followed by a
revised guidelines in December 2011 and then regulatory guidelines in July 2015. The recently
published regulations appear to be an updated version of the earlier guidelines, which some may
even label as 'old wine in a new bottle'.

As in the previous guidelines, the latest regulations stipulate that the MFS providers will be led
by only the scheduled commercial banks. The banks already running MFS operations have been
allowed to hold on to their existing licence or form a subsidiary for the purpose. On the other
hand, the new applicants shall have to form a subsidiary. It is not clear, why the banks that
already provide MFS could not be asked to open subsidiaries instead of providing the services on
their own. It certainly violates the principles of uniformity and equality. The regulations also
stipulate that the parent banks have to own at least 51 per cent of the subsidiary's equity; but they
are permitted to take equity partners from other banks and non-bank financial institutions,
NGOs, investment and fin-tech companies. The mobile network operators (MNOs) have been
kept outside the list of permitted partners, but have been allowed to become distributors or super-
agents along with NGOs and the postal department. This appears to be justified as the BTRC,
and not Bangladesh Bank, is the controlling authority of MNOs.