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Micro Credit Needs Policy Attention For Digitisation

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13th-Sep-2020       
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Faruk Ahmed :
People almost all over the world have severely been affected by the pandemic of coronavirus that has led the global economy to an unexpected disaster. In case of Bangladesh, it is more severe as it has also been sandwiched in flooding that results in a socioeconomic crisis of loss of livelihoods and jobs. People's hopes here have been shattered not by the Covid-19 alone; their aspirations have been broken down by the devastating floods too. When people across the country are battered by coronavirus pandemic, weeks of torrential rains have destroyed the thousands of homesteads and livelihoods of millions of people.
Thousands of poor street vendors, booksellers, hawkers and merchants are facing a very tough time to run their business and maintain their livelihood. Economists often identify these people as micro-merchants- the next drivers of economic growth of South Asian countries like Bangladesh. More than 1.31 million micro-merchants, who together transact more than $18.42 billion annually, are playing a vital role in economic growth momentum across the country, according to the United Nations Capital Development Fund.  
Many cottage and micro-industries are on the verge of permanently shutting down as they have no working capital to survive. Such industries are not getting a share of loans from the government's Tk 20,000 crore stimulus package. If they are not provided with stimulus, the earnings of around 2.06 crore families will decrease significantly and many enterprises could be shut down which will push up unemployment rate in the country as well as poverty.
As the government has eased restrictions, consumers are moving on the streets and buying goods, micro-merchants and micro-entrepreneurs are seeing light at the end of the tunnel. However, the light may fade away soon as they have no money in hands to invest. If the government fails to revive micro economy --- the main actors of informal front, Bangladesh may have to face an economic slowdown in the short term while there might be a recession in the long term and bringing down more people below the poverty level.
To revive the economy, the government can introduce soft loan for micro-merchants and micro-entrepreneurs involved in the cottage and micro industries. Very awfully they remained out of focus in the stimulus packages announced by the government in the pandemic. Banks are disbursing most of the loans to medium industries. But loans for the micro-merchants as the right beneficiaries should be delivered quickly.
Micro-merchants wish to grow their businesses and earnings, but access to finance is among their biggest concerns. They need a tiny amount of money to conduct day to day business. The government can help them with digital credit through a collaborative model comprising of banks and mobile financial services. In this regard, the best way would be credit digitalization. The task would be easy for the government as well as banks, as almost all micro merchants use mobile phone and accustomed to use mobile financial services.
Micro credit disbursement through digital financial service (DFS) channel is not new in this digitalized world. South Africa is one of some bright examples. Digital credit offers are growing rapidly in mature DFS markets in Kenya, Tanzania, Uganda and parts of West Africa.
Over the past decade of market development, DFS has diversified from basic money transfer and bill payments to credit, cross-border remittances, savings, insurance, merchant payments, bulk disbursements and other value-added services like pay-as-you-go (PAYG) energy, crowdfunding, savings group and value chain digitization. Here, Bangladesh is moving ahead thanks to pro-active regulations with its robust tool --- bKash, the leading mobile financial service providers with more than 5 billion subscribers across the country, along with Nagad, Rocket and some other digital financial services of various banks.
In Bangladesh, a total of 16 mobile financial services (MFS) operators are transferring nearly 6 billion takas a day who have disbursed Tk1,250 crore aid package to poor people within a short time. With these MFS operators, the government can support micro-merchants with the tinny amount of digital credit and help micro-entrepreneurs with small amount of credits at very low rates.
Very hopefully, a private bank, The City Bank in association with bKash has started such an initiative. With the help of artificial intelligence, the bank will reportedly select customers based on credit history and will give a small amount of money to applicants instantly. The government can help the MFS tool to disburse digital credit among micro-merchants and micro-entrepreneurs perfectly introducing KYC norms in the credit process.
Microcredit is truly a win-win proposition for economic development, boosting income and adding jobs for individuals, diversifying the regional economy while lowering government support costs and increasing government revenues. As most micro-merchants and micro-entrepreneurs use MFS tools in their day to day operations, policymakers should put an urgent focus on credit digitalization for micro merchants through mobile financial service tool to disburse quickly and transparently.

(Faruk Ahmed is a senior journalist and Chairman, Bangladesh Journalists' Foundation For Consumers and Investors (BJFCI). E-mail: dhakamoney@yahoo.com.)

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