Bangladesh has come a long way in digitising its financial sector amid the fast-moving world of Industry 4.0. With the inception of online banking, followed by mobile financial services (MFS), we stepped into a new era of finance powered by technology.
According to a Bangladesh Bank report, by the end of December 2020, there were around 3.23 crore active mobile wallets carrying out transactions worth Tk1,824.42 crore on an average, every day. In that same month, around Tk8,092 crore was transacted through online banking.
Bangladesh is significantly advancing in fin-tech. However, the world of fin-tech has more to offer than just digital wallets and internet banking.
The Covid-19 pandemic is pushing banks to digitise their systems. Financial institutions are now looking for tech-enabled solutions to tap the massive untapped lending market.
To address the market and financing gap, Dana Fintech, a start-up, built an AI-driven digital scoring engine to assess borrowers' creditworthiness based on their digital footprints and transaction data.
Partnering with financial institutions
This fin-tech start-up has partnered with a commercial bank and non-bank financial institution (NBFI) to pilot an alternate credit scoring (ACS) engine. This ACS engine can be used - by any bank, micro-finance institution (MFI), NBFI, and insurance company - to assess borrower's credibility and evaluate their eligibility for loans.
Dana's ACS engine is powered by artificial intelligence that combines data from multiple sources.
This engine uses machine learning to carry out data scoring by going through transaction alert messages sent by various financial institutes to users' smartphones. No private or sensitive information of the applicant is accessed or moved out of the mobile phone.
Dana also uses a set of questionnaires to assess users' financial psychology - how they manage their money. The parameters of Dana's ACS can be modified based on any financial institution's preference.
"When a potential borrower applies for a digital loan, within three minutes, financial institutions can access their information and disburse the requested loan amount to the borrower's bank account or digital wallet," said Gazi Yar Mohammed, co-founder and CEO of Dana Fintech.
Dana's ACS engine does not need any human touch to assess anyone's credibility and its accuracy level lies within the data being collected from the borrowers.
"A borrower's digital footprints and behaviour do not mislead. For instance, out of a total limit of 850, borrower's transaction and device data carry the maximum score. These score parameters and ranges can be customised based on the lender's choice. This data does not lie as it cannot be manipulated," said Gazi Yar.
How does Dana have technical leverage?
While approving small business loans or personal loans, traditional financial institutions assess borrowers' credit worthiness by assessing their bank statement, income document, and existing loan repayment behaviour.
According to Dana founders, a huge number of potential borrowers do not have strong bank statements and transactions patterns. Borrowers' bank statements do not always cover all transactions. Hence, banks cannot assess borrowers' willingness and ability to pay due to lack of data or alternative credit scores which is now prevailing in a good number of markets.
"Since financial institutions in different markets are focusing on digital financial services by teaming up with fin-techs, our financial institutions can use Dana's ACS engine to enter an untapped market segment - the unbanked and underbanked demographic. It is an end-to-end digital and low-cost driven revenue line for lenders that can benefit both lenders and borrowers." said Zia Hassan Siddique, co-founder and COO of Dana Fintech.
Starting from sourcing small loans to processing to loan disbursement, the cost of operations is not economically viable for banks. The current process requires a lot of paperwork in order to disburse a small loan. Hence banks and financials do not focus on small ticket loans.
With an ACS engine offering digital loans can become easier for financial institutions. Users can apply for loans through their current banking app or wallet or can apply using Dana app as well.
A solution to a diverse community
Credit-excluded groups such as micro retailers, RMG workers, farmers, sales force, and gig economy workers, with limited options, often turn to non-traditional sources for loans but with Dana's digital lending process, they can easily borrow money. Dana is collaborating with employers to avail employees' data and FMCG distributors to avail micro retailer sales data that can be used to assess borrower's digital credit scores.
Dana also built a credit scoring model for farmers based on assisted models where social officers or field officers on behalf of borrowers can fulfil digital application and based on pre-set score parameters of farm profile, agricultural activities, and crop financials, lenders can assess and make credit decisions faster.
"Formal financial institutions are not able to tap such a market but this is our country's biggest segment. We are not competing with anyone, we are just complementing lenders' current process or system with our technology," said Gazi Yar.
Dana has the potential to introduce a new channel of revenue for financial institutions and expand their customer base.
There are about 3.23 crore active users of mobile wallets in the country. It is a good sign that people have become accustomed to mobile wallets. But founders at Dana think that access to finance still stands as a big challenge.
"We are lagging behind in loan processing, and instant digital lending is out of the question as for now. This is why we thought it was the right time to introduce Dana," said Zia.
Most financial institutions, having been built upon legacy infrastructures, are a little stuck with their pace of innovation. But now, especially since the Covid-19 pandemic, financial institutions have driven innovations at a faster pace.
For a start-up like Dana Fintech, the present and future prospects can be promising only if financial institutions begin adapting to the new form of finance infused with technology.
For fin-techs like Dana, another challenge is limited data. "That is why we are also bringing 'Optical Character Recognition' bot - a technology that can convert different types of documents into usable data. We are working on this AI-driven bot to assist borrowers in uploading income or bill documents on our app that will upgrade borrowers' credit score," said Zia.
The legacy of the founders
Founders of Dana Fintech, Gazi Yar Mohammed - former executive vice president of ONE Bank with 18 years of banking exposure and Zia Hassan Siddique - former senior manager of Standard Chartered Bank with 10 years' experience, led multiple areas of banking - retail banking, retail credit and collections, branches, cards, digital wallet, and agent banking.
Both the founders began their careers as management trainees at Eastern Bank Limited. They blended their expertise and insights to build this venture.
As of now Dana Fintech is working with its AI-driven digital credit scoring engine. This fin-tech start-up plans to introduce API Banking service - buy now pay later platform for non-credit card holders, and one stop financial wellness programs that include payroll services to salary advance options for employees, by August this year.