Harnessing fintech and mobile financial services to fight against imminent global recession 

While still struggling with the coronavirus pandemic, the world is facing another round of challenges in the form of economic depression. The World Bank has already predicted a strong possibility of global recession in the coming year due to a rapid deterioration of growth prospects, coupled with rising inflation and tightening financial conditions.

The current situation in Bangladesh is also not very different. An unprecedentedly high inflation rate, and unstable dollar rates at the Bangladesh Bank and private banks, alongside crippling power cuts, have been adding stress to people's daily lives, as well as the country's agricultural and manufacturing sectors.  

The nature of this recession is totally different from other recent recessions. Recent recessions  were mostly due to economic reasons, whereas this recession is going to be a mixed impact of the Covid-19 pandemic and the political effects of the Ukraine-Russia conflict, especially the economic sanctions imposed by the Western bloc.  

Bangladesh will face, and is already facing to some extent, multiple challenges due to the recession. Challenges will come in the form of a declining trend of export income, unstable fuel prices, a higher cost of essential foods and medicines, and a decrease in remittance income, etc. The lower and middle-income families are already feeling the heat as they struggle to manage their daily expenditures.

Digitising transactions generates massive amounts of detailed transactional data, which can be  used as a basis to estimate income, evaluate risk, and extend financial services. Digital  transactions help formalise SMEs in emerging markets, which in turn can lead to the increase  of overall economic output and the expansion of the tax base. Digital transaction data can be a  useful source to analyse the impact and nature of the recession. 

Md. Mokerrobin Mannan

Recently, the Prime Minister also warned about the economic crisis and a possible food shortage in the coming years. Being part of a globally connected economy, this crisis certainly  cannot be avoided. But the key to success lies in managing the recession through effective  financial management. There is no doubt that most countries of the world will face challenges, but those who can manage the crisis effectively will bounce back earlier than the others.

Fintech and Mobile Financial Services (MFS) companies could be an integral part of managing  financial services effectively during this economic crisis. Fintech companies offer a faster velocity of transaction, a greater convenience for the customers, and the saving of both precious time and cost for both consumers and financial institutions.

Harnessing such technical advantages in financial services would benefit all parties. Also, adopting digital financial services on a wider scale will help fight the economic crisis more effectively by bringing the advantages outlined below.

Digital loans to support mSME  

According to the 2013 BBS National Economic Census, there are 12 million micro, small and  medium enterprises (mSMEs) in Bangladesh. These mSMEs are the heart of the country's  economy, as these contribute about 25% of our National GDP, 31% of industrial sector  productivity, and about 30 million people are employed through these mSMEs. 

During the economic crisis, these mSMEs will be severely impacted as they have very little access to formal financial services. 

More than 60% of micro enterprises are not able to get credit facilities through formal financial channels. Those who can get credit facilities through informal or semi-formal channels pay even higher interest rates. 

Since Bangladesh already has a wide adoption of MFS among 180 million customers, providing small digital loans through fintech companies can serve as blessing to these mSMEs, as they can apply for a loan faster through electronic KYC without going through long documentation, wet signatures, and receive loans based on digital records of their past transactions and cash flow, without traditional collateral. Such financial support during an economic crisis will keep the  mSMEs alive and will help the economy to recover faster.  

Digitised disbursement of Social Welfare allowances through MFS  

The government adopted electronic disbursement of social welfare allowances in the direct, government to person (G2P) modality through MFS. It saw huge success as it solved some of the problems associated with the old system, such as ghost payments and ensuring the beneficiaries get an allowance within an acceptable time frame, all without any middleman. 

In 2021, G2P disbursement was approximately Tk5,136 crore. Digitising such payment streams has shown high potential to accelerate financial inclusion in Bangladesh, and at the same time improve digital financial literacy. With a global recession looming, low-income people will face hard times and will need even more support from the government. Digital disbursement will enable the government to support the beneficiaries in the quickest possible time and build a digital record of how funds are disbursed and utilised.

Easy inward remittance through MFS  

Currently, the Bangladesh forex reserve is under stress. Bangladesh's forex reserves were  down to $36.90 billion as of September 2022, despite the central bank's move of curbing imports and currency diversification in foreign trade. So, to keep the inflow of dollars, sending  remittances must be made very convenient for the workers who are working in different parts of the world. Sending remittances through mobile apps was adopted very warmly by non-resident Bangladeshis. 

According to Bangladesh Bank, inward remittances amounted to Tk380.97 crore in July 2022, which is 24.11% higher than in June 2022. A large chunk of remittances comes through an informal channel known as "hundi." Popularising remittances through MFS channels will not only reduce hundi, but will also boost the remittance flow through formal channels.

Agricultural incentives through MFS 

Due to the ongoing Ukraine-Russia war and high inflation, experts are warning about widespread global food scarcity, which may even lead to famine. To express the urgency, the prime minister emphasised increasing food production in preparation for the famine. Since increasing domestic food production is a priority, agricultural subsidies may be directly disbursed to farmers to buy fertilisers and seeds, bypassing the middlemen. 

Also, the government may buy crops from farmers and pay them through mobile wallets. Additionally, subsidies or incentives can be provided through MFS to boost agricultural mechanisation. MFS can even be expanded to give crop insurance support to the farmers.  

Micro savings through MFS  

Savings play a vital role in our socio-economic life. Savings provide a sense of assurance to  deal with financial uncertainties and emergencies in life. It also financially empowers people, especially women in rural areas.

If recession deepens, people in the lower income group will be more prone to avoiding formal savings, which need more time and paperwork, and instead prefer MFS or fintech based quick, short term micro-savings. Enabling millions of micro-savers, MFS and fintech based micro-saving services can contribute to dealing with recession in a wider domain.  

Digital transactional data to understand the nature of recession 

Digitising transactions generates massive amounts of detailed transactional data which can be  used as a basis to estimate income, evaluate risk, and extend financial services. Digital  transactions help formalise SMEs in emerging markets, which in turn can lead to the increase  of overall economic output and the expansion of the tax base. Digital transaction data can be a  useful source to analyse the impact and nature of the recession.

The more day to day transactions are channelled through MFS and fintech platforms, more granular data of financial behaviour can be studied and more informed decisions can be made. Thus, strategies and policies to overcome the recession can be drawn accordingly.  

As the maxim of neoliberalism goes, "Every crisis is an opportunity." The Covid-19 crisis propelled a massive shift toward digital markets and digital finance. Now, global recession is imminent and unavoidable. 

Bangladesh, as a nation of 170 million people with limited direct benefits from its abundant natural resources, needs to be prepared well. We already have a wide adoption of MFS and the fintech field is also growing fast. Harnessing MFS and fintech services would be a major step towards our preparation for the imminent recession and towards recovering quickly. Moreover, the benefit of adopting modern financial technologies lasts beyond recession days. 

Md Mokerrobin Mannan is Chief Digital Officer, upay (UCB Fintech Companies Ltd.) He can be reached at mokerrobin.mannan@gmail.com