Microfinance institutions may get a digital bank

The Microcredit Regulatory Authority (MRA) is considering a proposal to establish a digital bank owned by microfinance institutions (MFIs) to modernise the sector and cut operational costs.

Prof Mohammad Helal Uddin, executive vice-chairman of MRA, said the authority would assist MFIs in developing the proposal and seek a licence from Bangladesh Bank once the plan is finalised.

"It is now essential to digitise this sector in Bangladesh. But if every institution has to build its own digital infrastructure, it will be very expensive. If there is one digital bank with a shared infrastructure, then the MFIs associated with it can use the system, while others not directly involved could also avail services by paying a nominal fee," Uddin said.

He made the remarks today at a views-exchange meeting with chief executives of MFIs from the Chattogram Division, held at the auditorium of microcredit organisation MAMATA in Halishahar of the port city.

According to Uddin, the proposed bank would be owned collectively by a group of MFIs and operated with surplus funds from their institutions. It would allow them to mobilise savings, finance their operations, and extend loans to small and medium organisations.

"One MFI knows another MFI, but a conventional bank does not know them in that way," he said, suggesting that the bank could serve as a trusted intermediary within the sector.

He disclosed that he has asked officials of some MFIs to find other institutions interested in setting up the bank and to jointly submit a concept note outlining the plan. "If you all submit a comprehensive proposal together, we will refine it further through our research wing."

The MRA official added that he would personally advocate for the proposal. "I will inform the governor that one digital bank licence should be allocated to us. Even before applying, I will ensure that the licence is granted for the MFI sector. But I will still apply officially."

He, however, noted that as five or six MFIs showed interest in the bank, some others are forming groups within the sector to do the same, which can cause problems. "Bangladesh Bank cannot issue so many licences. Hence, letters have already been sent to the top 30 MFIs. They will attend a meeting in Dhaka tomorrow."

The initiative marks a potential turning point for Bangladesh's microfinance landscape. The MRA vice-chairman said the plan would be easy to implement once finalised, as the central bank governor will have enough time to issue a licence even after the election.

"The governor has an open mindset and understands these issues. You have all said that getting funds from banks is difficult," he also said, indicating that a digital bank would be able to solve that problem.