In the space of just four years, mobile payments service bKash has had a dramatic effect upon Bangladesh, bringing the unbanked into the formal economy, speeding up and simplifying the process of sending money from urban to rural areas, and even helping the country’s central bank monitor inflation levels. Stefania Palma charts its dramatic rise.


“Everyone uses it.”

This is how bKash – a mobile financial services company that has taken Bangladesh by storm – is described by numerous people in the country. From corporates to office cleaners, the service has made its presence felt in the big cities of Dhaka and Chittagong as well as in the most remote rural areas. Indeed, the service has arguably achieved the ultimate ubiquity litmus test, with ‘bKash’ entering the Bengali lexicon as a word simply meaning ‘to transfer money’. 

bKash is leading the Bangladeshi mobile finance revolution, a movement based upon socio-economic factors as much as it is on financial ones. It is moving the country away from a cash-based economy and is making real progress in reaching out to the unbanked – which make up about 85% of the country’s population. The rise of mobile financial services is reviving Bangladesh’s rural areas while modernising the corporate and banking sectors. Mobile payments now also allow regulators to monitor transactions that were previously excluded from the formal economy, thus helping the central bank measure monetary supply and shape more accurate monetary policy.

Bangladeshi potential

Bangladesh is one of the world's least developed countries. One-quarter of the population lives below the poverty line, according to planning minister Mustafa Kamal, and more than one-third is illiterate. With the majority of Bangladeshis living in the countryside and the banks centred on urban areas, only about 15% of Bangladeshis have a bank account. 

“Conventional banks did not spread beyond key towns and cities for a long time because a sophisticated banking system needs educated, literate customers who understand the nuances of banking,” says Abrar Anwar, chief executive of Standard Chartered Bank, Bangladesh. 

Yet Bangladesh has promising fundamentals. In a world where Western economies are barely growing at all, Bangladesh’s gross domestic product (GDP) grew by 6.5% in 2015. The population is young – half of it is aged 24 or below – and the country is macroeconomically stable thanks in part to its proactive regulators, among them the central bank, that have successfully pushed for environmentally and socially aware policy reforms.

“Bangladesh has very high growth potential and could become a middle-income country in the next five to seven years,” says Mr Anwar.

bKash entry

bKash is helping to fulfil this potential. It offers financial services through basic mobile phones. Considering there are more than 100 million mobile phone owners in Bangladesh – far more than there are banked individuals – mobile phones provide a link between financial services companies and consumers that bricks-and-mortar branches have failed to establish. But unlike in countries such as Kenya, where the impetus for mobile banking has come from the telecommunications sector, in Bangladesh the running is being done by mainstream banks. bKash is a subsidiary of Bangladesh-based BRAC Bank, a private sector lender focusing on small and medium-sized enterprises that is part of BRAC, the largest non-governmental development organisation in the world.

In just four years, bKash users have grown to 21.2 million, about 12.5% of the country’s population. There are almost as many bKash users as Bangladeshis in the formal banking sector. More than 1 billion bKash transactions were completed in 2015 alone. On average, 100 million bKash transactions are carried out per month and one million new customers are added in the same space of time. 

Providing financial services through a medium that is not a conventional bank branch is key to bKash’s success. “We needed to create a different arrangement for the unbanked people of Bangladesh,” says Kamal Quadir, chief executive at bKash. He argues that first, low-income individuals do not feel comfortable entering a classic bank branch. And second, catering to this segment of society makes no economic sense to conventional banks. If the average customer cost to a bank branch is $2, the bank must charge at least $2.10 to make the service viable. “But how can you do that if the client’s ticket size is $10? There is no way you can cater to common people in a low-income country such as Bangladesh through conventional banking,” says Mr Quadir.

bKash services include cashing in and out at convenience-type stores across the country; paying other bKash users or merchants through a basic mobile phone (smartphone penetration in Bangladesh is still low); buying mobile phone airtime; paying utility bills; receiving international remittances; and savings with interest rates up to 4%.

Building the network

bKash’s success hinges upon a capillary network of 117,000 agents across Bangladesh who act as a human version of an ATM. “Nationwide distribution of ATMs is difficult in a less developed country such as Bangladesh where investment scope is limited,” says Mr Quadir.

These agents offer cash-in and cash-out services to bKash users in convenience-type stores all over the country. Distribution companies that collaborate with bKash give agents electronic money to carry out these services. Agents act as a repository of electronic money while the transactions are carried out through a user’s mobile phone.

“The distribution network already existed. It was a matter of figuring out how electronic money could be channelled through this network. Retail agents were readily available and eager to offer bKash service at a very low cost because they were already doing it with Unilever, Coca-Cola or Procter & Gamble products. We just added electronic money to this selection,” says Mr Quadir.

Registering for bKash and cashing in electronic money are free of charge. bKash’s main revenue sources are a flat fee of Tk5 ($0.64) for every peer-to-peer transfer and a cash-out fee of 1.85%. Seven percent of the cash-out fee goes to the telecoms company used by the bKash client, 80% goes to the retail agent and 13% goes to bKash. Mobile networks are key in this system since they provide USSD (unstructured supplementary service data) technology. This involves carrying out mobile transactions using a messaging system on a basic phone without an internet connection. 

Some market participants argue that mobile payments companies are doomed to lose money because regulators do not allow them to lend, as in Bangladesh’s case, and because their fees tend to be low, as in bKash’s case. But bKash is not a loss-making franchise. The company broke even in May 2014, three years after its launch, and started generating profits in June that year, according to asset manager Jadara Capital. In 2014, bKash made Tk188.54m in profits. 

Mr Quadir argues that the sheer volume of bKash transactions makes up for the low fees. “[Scale] makes a viable business. There is strong potential for a viable business model,” he says. Indeed, bKash is looking to increase its 13% share of the cash-out fee. But its main goal remains helping economic development through the adoption of digital money and increasing its scale to help cut cash-out fees further, according to Mr Quadir.

Reviving rural areas

Simplifying the way in which money is transferred from urban to rural areas is one crucial way in which bKash is contributing towards the economic development in Bangladesh. Rural poverty in the country is almost three times that of urban areas, according to a World Bank report. 

Through bKash, rural migrants living in cities are now able to transfer money back home safely and instantaneously. According to Atiur Rahman, governor of Bangladesh Bank, the country’s central bank, about 80% of rickshaw drivers in Dhaka use bKash regularly. “Before, many of them could not send money to their families [in rural areas] and would wait for a month or send it through a middleman. Now, you can send money every other hour. This means families’ consumption is sustained and stable. It has rejuvenated the rural economy of Bangladesh,” he says.

Before bKash was established, money transfers were often reliant upon Bangladesh’s postal service, meaning the process could take up to 15 days. The money would be transferred to the post office closest to the recipient through a transferring agent, but with post offices few and far between the nearest branch could still be miles way from the recipient's home. Now, about Tk5000m is sent to rural areas via mobile transfers on a daily basis, according to Bangladesh Bank.

bKash is also generating new job opportunities in rural areas. Many rural dwellers have become bKash retail agents, small businesses such as convenience stores have flourished and wages have started to rise. “Labour supply is tightening so the real wage is increasing. Real wages have quadrupled over the past five to six years since bKash has come in,” says Mr Rahman.

Using a service such as bKash regularly also helps low-income rural dwellers build a credit history for the first time. As their financial literacy increases, these users are likelier to become conventional bank customers in the future and enter Bangladesh’s formal economy. “Shadow banking is disappearing,” says Mr Rahman.

Commercial benefits

It is not just the country’s poor that are benefiting from the likes of bKash, however. Mobile financial services are also modernising Bangladesh’s corporate world. Local corporates would generally pay employees in cash, but now tend to do so electronically, which means corporate costs are dropping and salary transfers are safer. 

Indeed, life is now easier even for banks servicing corporate clients in Bangladesh. “Before, we needed to have large amounts of cash going to factories and 20 to 30 people would sit there putting money in envelopes and distributing them. It was a nightmare. Some factories have 20,000 workers,” says Mr Anwar of Standard Chartered, which collaborates with bKash on salary payments.

Electronic salary payment is also increasing employees’ financial literacy and turning them into potential clients for conventional banks. “We will continue carrying out conventional corporate banking, but we want to focus more on servicing our clients' employees. They are all potential consumer bank customers to whom we could give home loans, personal loans and car loans in the future,” says Mr Anwar.

Growth potential when it comes to electronic salary payment remains significant. On average, only about 10% of a Standard Chartered corporate client’s workforce are white-collar employees who are paid through the bank’s accounts. The others do not have a bank account at all.

Banking change

The fact that conventional banks are at the centre of this mobile financial services revolution as opposed to telecoms or financial technology companies, as is the case in many developed and developing countries, is due to the stance taken by Bangladesh Bank. The central bank recognised that without support, conventional banks were not best placed to roll out mobile services to rural areas. Entities focusing exclusively on financial inclusion and poverty alleviation tend to have the facilities, technology and know-how needed to popularise the use of mobile financial services across the country.

However, Bangladesh Bank still wanted conventional banks to be involved in this new trend to ensure that mobile financial services firms were properly monitored and regulated. That is why the central bank obliges banks to have a majority stake in mobile payments firms, a move that has had the added benefit of helping to modernise Bangladesh’s banking sector, as mobile financial services firms are typically more tech-savvy than conventional banks.

Requiring existing banks to be majority stakeholders in mobile payments firms, instead of giving universal banking licences to these companies, also avoided the creation of new lenders in an already overbanked sector, according to Mr Rahman. 

“This has to be a bank-led model. Digitisation and mobile financial services are tools that can increase banks’ efficiency. And we want to guarantee customer protection. If there is any money laundering complaint, we have data to fall back on, which we can access and work with because we upgraded our own systems first,” says Mr Rahman.

To ensure customer protection, a mobile account cannot hold more than Tk150,000 at any given time and monthly mobile transactions have a cap of Tk25,000. The central bank has also implemented deposit insurance schemes for small mobile deposits.

“The central bank has developed effective guidelines defining different stakeholders and their roles. Such active engagement has provided order and discipline for mobile payments initiatives to grow and flourish,” says Mr Quadir.

Setting up 

Bangladesh Bank’s ‘bank-led model’ is showing signs of success. Today there are 32 million mobile finance users (31% of the total adult population) in Bangladesh, who generate more than 120 million financial transactions in a month with a value of about $1.5bn.

But Bangladesh Bank is keen to extend the number of participants active in the industry. It has so far granted 28 licences to mobile financial services firms and there are now 18 operating entities in the country. But bKash still dominates the market with a market share of 62%. 

Some market participants have lamented bKash’s strength, likening it to a monopoly. But Mr Quadir says: “It is natural for there to be a first mover that figures out a solution and for the competition to take some time to figure out how it works. They then adjust and emulate. It would be good to see more operators engaged in this space without compromising the consistency of regulation.” 

Other market participants argue that it could be hard to replicate bKash’s success. Its ability to secure high-profile stakeholders and investors was largely due to it having BRAC as its majority stakeholder, at 51%. The company’s founders also have access to international networks and talent that other Bangladeshi companies might struggle to emulate. The World Bank’s International Finance Corporation became a bKash equity partner in 2013 with a 12.5% stake, and the remaining stock (36.5%) is held by Money in Motion – a US-based financial services company owned by Mr Quadir, his brother Iqbal (founder of Bangladeshi mobile network operator Grameenphone) and Nick Hughes, the father of Vodafone mobile payments initiative M-Pesa in Kenya. The prestigious Bill & Melinda Gates Foundation is also involved in bKash, becoming an investor in 2014 and holding preferred shares. It also gave bKash a $10m grant back in 2010.

bKash also benefited from BRAC’s pervasive national network at first to build its network of agents, which gave it an advantage over conventional banks. “To be effective, you need to have thousands of agents at cash-out points to help open accounts and help customers cash in and cash out. You need to achieve critical mass to be successful,” says Mr Anwar.

And given how widespread bKash’s operations are, set-up costs to match its scale are high. Banks need to be ready to lose money at first. “The entry barrier [to the mobile financial services sector] has become higher because you already have players that have reached scale… The initial investment requirement has increased,” says Mr Anwar. This is why joint ventures could be the most cost-effective way for banks to start offering mobile services, according to some Dhaka-based bankers. Standard Chartered is currently working with bKash, but is looking to build a mobile business organically in the future.

Macro mapping

On a more macroeconomic level, the rise of mobile financial services in Bangladesh allows regulators to monitor money transfers that were previously in the informal economy. This is helping the economy to grow and regulators to set more relevant monetary policy.

According to Mr Quadir, having the unbanked enter the mobile finance sector contributes to the economy in the same way that bank deposits support investment in a country. “In the past, the middle class made deposits and industrialists used them to build industry. Today, very poor people putting money in a regulated system such as bKash using basic mobile handsets are also contributing to the country’s economic activity,” he says.

And since banks are majority stake-holders in mobile finance entities, it is easy for the regulator to keep track of these mobile transactions, and therefore money supply, in the economy. For instance, during Poila Boishakh, New Year’s Day in the Bengali calendar, the central bank identified a sudden burst in bKash transactions. It then used monetary policy tools to intervene and contain the subsequent oversupply of money in the country.

Policy implementation has also become easier. “Mobile financial services are making monetary policy transmission channels much smoother since money can reach any part of the country in a second. It helps me in my measures against inflation. If too much money is going into the economy and not getting collected, inflation pressure rises,” says Mr Rahman at the central bank.

Next steps

Not resting on their laurels, mobile financial services in Bangladesh are looking towards the next set of opportunities presented by this widening of the country’s banked population, including facilitating insurance premium or microfinance loan repayments. Repaying microloans electronically means microfinance firms no longer need to send debt collectors to remote rural areas. This could help slash microcredit costs and therefore interest rates, which are often at least twice the market rate. So far, bKash has facilitated at least $15m in microfinance repayments.

Mobile financial services’ potential could grow even further once smartphone usage picks up in Bangladesh. To this end, the central bank is advising mobile operators to offer long-term loans for users to buy smartphones. There is also room for improvement in the shape of stronger collaboration among competing mobile operators, which could help to simplify mobile transactions completed by users with two different mobile networks. This would have the added benefit of making monitoring and risk management easier for the central bank.

The streamlining of the process required to purchase sim cards in Bangladesh would also be beneficial to mobile financial services. Buying a sim card in the country requires a national ID card, a passport, a full-time address and a biometric test, due to anti-money laundering and anti-terrorist regulation.

In a less-developed country such as Bangladesh, where most of the population remains unbanked, scope for improvement in mobile financial services is still significant. But mobile services’ reach, speed of growth and role in improving Bangladeshis’ quality of life is so far unquestionable. ‘bKash’ is a play on words in Bengali. When pronounced quickly, it sounds like the word ‘bikasa’, meaning arising; development; blooming. Given the company’s meteoric rise, and the impact it has had on impoverished Bangladeshis, even bKash’s name appears to be right on target.


All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter