Stipends worth Tk120 crore meant for primary students are stuck in about 19 lakh SureCash accounts as the subsidiary of the state-owned Rupali Bank has yet to approve the registration of those accounts.
The students who registered with the mobile financial service cannot draw the money as their accounts have been pending for four years.
SureCash has not even properly informed the Ministry of Primary and Mass Education that the students are not getting their stipends.
A Bangladesh Bank inspection finds that SureCash is conducting business in serious violation of its mobile financial services (MFS) rules.
Even though it is obligatory for an MFS company to use the national identity (NID) card database to verify a customer while opening an MFS account, more than one-fourth of the active accounts have no NID data.
Additionally, NID was not used in opening many in use agent accounts, the inspection report has revealed.
Again, although there is a legal requirement to open one account against one NID, there are multiple active SureCash accounts against over three lakh NIDs each.
The system platform of the MFS provider also has no business logic built in to check opening of multiple accounts using one NID.
Launched in 2015, SureCash currently has around two crore subscribers and 1,80,000 agents.
In the light of its inspection report, the Bangladesh Bank has sought an explanation from the management of Rupali Bank regarding the violation of the law by SureCash.
Rupali Bank has not made a reply to the Bangladesh Bank yet as it has not received any information from SureCash even though it was supposed to provide an explanation by 31 December 2020.
The Bangladesh Bank also sent its inspection report to Asadul Islam, senior secretary of the financial institutions department of the finance ministry on 4 January this year.
The Business Standard contacted Shahadat Khan, chief executive officer (CEO) of SureCash, for comments on the report and it seems that all the irregularities pointed out in the inspection report were valid.
However, SureCash is reluctant to take responsibility for these irregularities. He said these irregularities had taken place before the Bangladesh Bank issued the MFS guideline.
Asked about the huge amount of student stipends being stuck, Shahadat Khan told The Business Standard, "We send stipends to 10 million students every year. In this case, our success is more than 98%.
"18 lakh accounts among so many students is not a big deal. We distribute Tk1,200 crore stipends annually. Therefore, it's not a big deal to have Tk120 crore in a pending state for four years."
He went on to say that many people in the rural areas use feature phones. "If the text message regarding the stipend is deleted for any reason, they think the money will no longer be available. That is why the students are not withdrawing their stipend money.
"Moreover, many families do not want to spend stipend money."
Regarding the reasons for keeping accounts in pending status, he said those accounts have been kept in pending at the request of head teachers of the schools. If someone's SIM is lost or damaged, the headmaster of their school requests to keep the account in pending status.
As per the rules, there is no scope for transaction from pending accounts, except for cash in and mobile recharge. But the private to business and cash-out from the pending SureCash accounts has been around Tk76 lakh.
In this regard, Shahadat Khan said students withdrew the money before the accounts were made pending. There were no irregularities here, he claimed.
Over one-fourth of the accounts are without NID
The inspection report of the Bangladesh Bank states that there is no NID against about 59 lakh active accounts out of the two crore customer accounts of the company.
In addition to that, there are no NIDs against around 10 lakh agent accounts.
Asked, the SureCash CEO said, "Rupali Bank is responsible for not having NID against the account. Rupali Bank is responsible for customer KYC. SureCash is not willing to spend any money to do KYC. We are only providing software support."
He said, "The Directorate of Primary Education has provided us with the mobile numbers, names and addresses of students and asked us to send the stipend money to those MSF numbers.
"Rupali Bank has told us that the government's list is a kind of KYC. We sent money according to that list. Existence of NID has not been verified for each account."
Opening multiple accounts using one NID
Although the law says that only one account can be operated against one NID, multiple accounts have been opened against 3,16,893 NIDs each.
According to the central bank's inspection report, SureCash does not have a built-in business logic to prevent the opening of multiple accounts against the same NID.
Denying the allegations, SureCash authorities however, said, "There is nothing wrong with our system. A customer initially opened an account using an NID. At that time they might have made a mistake with the NID number. Then, they may have opened another account using the correct NID number and therefore our system could not flag that."
When asked how such a mistake could be made if the customers' information was verified from the national database, he did not comment.
The Bangladesh Bank has found that 37 customer accounts of SureCash have negative balance. In other words, the customers have cashed out or transacted more money than what was available in the account.
The central bank thinks such unusual transactions would indicate that there are major design flaws in the system of SureCash.
The CEO of SureCash said, "The accounts had a negative balance of Tk1-1.5. There might be some problems while operating a system of two crore customers. However, this problem has been resolved."
Rupali Bank has no control over SureCash
According to Bangladesh Bank's inspection report, Rupali Bank has no effective control over SureCash's system hardware, software and database, which is very risky for the MFS businesses.
According to the report, the Bangladesh Bank's directives and guidelines regarding the maximum transaction limit and the maximum balance in mobile wallets are also not being followed in many cases.
According to MFS regulations, it is obligatory to have e-money equal to or less than cash at the end of the day. But the Bangladesh Bank during its inspection found this rule being flouted.
A discrepancy of over Tk5 crore was found between the amount of cash deposited at the end of the day against the e-money issued by the agent wallet and the distributor wallet.
The inspection report described the incident as "similar to illegal money laundering and serious irregularities".
Senior officials of Rupali Bank have admitted that they do not have any control over SureCash despite it being the bank's subsidiary.
Obaidullah Al Masum, CEO and managing director of Rupali Bank, could not comment on this because he was sick.
Monirul Hoque, the bank's deputy general manager (mobile banking), told The Business Standard that the Bangladesh Bank gave a no objection certificate (NOC) to Rupali Bank for setting up SureCash but the bank has no control over the MFS company.
He said, "The Bangladesh Bank has asked us to explain the irregularities in SureCash by 31 December. Since then, we have been trying to get some response from SureCash related to its software. We also had a meeting with them and they promised us to provide some documents. But they are yet to provide us with any."
Monirul Haque said, "SureCash on Wednesday (6 January 2021) verbally informed us that the officer in charge of providing information was in isolation as his wife had tested positive to Covid-19. So, it will take them a week or two to submit the documents."
SureCash started its journey in 2015 as a subsidiary of Rupali Bank. The current company has about two crore customers and about 2,00,000 agents. The company provides mobile banking services to First Security Bank, Bangladesh Commerce Bank, National Credit and Commerce (NCC) Bank and Jamuna Bank.
According to research firm Business Haunt, after bKash, Rocket and Nagad, SureCash is the fourth largest MFS platform in the country.