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16th-Nov-2020

Mobile Financial Service Piggyback Riding Coming To An End!

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After a long silence, Posts and Telecommunications Minister Mustafa Jabbar has broken the ice disclosing the fact that the government will form a joint-venture company to carry out operations of Nagad, the mobile financial service (MFS) of Bangladesh Post Office (BOP) in order to comply with the central bank's regulations as regulation of the money market is under its jurisdiction. This has sparked a green light in the country's mobile financial service (MFS) industry landscape where Nagad was a big concern for all as it started its operation by a private fintech firm Third Wave Technology (TWT) without valid license from financial regulator -- Bangladesh Bank. As a result, the operations of this new entity became a big concern for all for rule violation several times that prompted the Ministry of Finance to request Posts and Telecommunications Minister Mustafa Jabbar to place Nagad under the regulatory suvervision of Bangladesh Bank and form a joint venture company in line with the regulations. So, the formation of a joint venture to carry out operations of Nagad is no doubt a good news for all.
The government's move to place Nagad under the central bank's rules is a welcome move as it is necessary for consumer rights protection and to restore discipline in the financial system. A financial system can protect consumer rights if it can offer transparency and appropriate choices. But Nagad that remains outside the very oversight of the country's central bank continues to be in the market without a valid operating license so far violating standard norms outlined in Bangladesh MFS Regulations-2018.
It appears that it's a smart and devious way of bypassing the legality issues by posing to be an operator under the Bangladesh Post Office (BPO), which is a state owned body with a glorious century old heritage. The users of Nagad services as well as the employees of BPO are made to believe that they are dealing with a state owned entity and all the advantages and security thereof. But the fact was different.
The government finally has realised that the TWT has raided on BOP to make money through Nagad as the existing relationship between BOP and TWT is not favourable to it and is not allowed under the existing financial regulations for Mobile Financial Service (MFS) operators. Currently, Nagad is running its operations as a service of BPO based on a memorandum of understanding signed with Third Wave Technologies Limited with a 51-per cent profit sharing model under the Post Office (Amendment) Act, 2010. BPO should have a central monitoring cell in relation to Nagad. But there is no such cell or monitoring, physically or otherwise. There is no such cell or manpower, documents and logistical support for it. We all know that audit and inspection are the fundamental principles abided for all banks, NBFI and MFS providers, and remains to be a key responsibility of the Central Bank and Bangladesh Financial Intelligence Unit (BFIU) as part of the international obligation to Asia Pacific Group (APG) and Financial Action Task force (FATF).
Even under the so called arrangement by BPO with Third Wave Technologies, the latter should have a Board of Directors. For any private organization partnering with a government body or autonomous government body, such a Board is compulsory. But there is no such body in Third Wave Technologies to speak of a mandatory government representative in it in the rank of at least Joint Secretary of the Government. Under these circumstances, the operations of Third Wave Technologies have remained in the dark.
Creation/generation of electronic-money must be allowed only under the supervisory oversight of Bangladesh Bank to ensure equal amount of cash deposit in commercial bank as a mandatory requirement, which helps in controlling inflation. For consumer protection, any form of banking transactions should be regulated and strictly supervised by the central bankers, who control the money supply ensuring financial stability. For mobile banking, it is more important, as its products are more sophisticated and complex and delivered via mobile channel, in some cases without face to face interactions like bank counters.
In Bangladesh, MFS is popular as it serves customers through agents within close proximity. More than 250K Agents (poor retailers) livelihood depends on the painstakingly built MFS industry under close oversight of Bangladesh Bank. Any MFS entity remaining outside of Bangladesh Bank oversight, audit and inspection can cause serious injury to the globally reputed MFS ecosystem - a distinct achievement of the current government.
The government's move to form a joint venture company to run Nagad operations under the regulatory oversight of Bangladesh Bank is a good initiative. It will end its piggy back ride on the government's organisation and increase fair competition. The sooner the better.

(The writer is a senior financial journalist and the Chairman of Bangladesh Journalists' Foundation For Consumers & Investors-BJFCI. He can be reached at dhakamoney&yahoo.com)