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Nagad Limited is poised to leverage the potential of digital banking, aiming not only to bring a large unbanked population into the banking network but also to provide small and micro enterprises with collateral-free loans at single-digit interest rates.

In a recent interview with ¶¶Òõ¾«Æ· at his office in the capital, Nagad Limited’s managing director, Tanvir A Mishuk, highlighted the suitability of digital banking in bringing the unbanked population into the banking system.

Mishuk emphasised that approximately 52 per cent of the country’s population still remained outside the banking network, based on findings by his company.

Nagad has already established itself as the fastest-growing mobile financial services (MFS) provider within its five years of operation.

During the interview, Mishuk discussed various topics, including the overall progress of MFS providers, the challenges they faced, the security aspects of digital transactions, the support required from the government for transitioning towards a cashless society, and the behaviour of MFS users.

According to Mishuk, MFS users prefer simplicity and dislike complexities.

He expressed his delight at the recent news of upcoming guidelines on digital banking, considering it a significant breakthrough for Nagad’s aspirations to obtain a digital banking license.

Mishuk stated that Nagad was committed to providing innovative services and had already won the hearts of many customers.

‘Since its establishment in 2019, Nagad has become a household name with a customer base of 75 million (7.5 crore) and currently holds around 40 per cent market share in the MFS market,’ he said.

However, Nagad faced initial struggles in its early years due to difficulties in attracting the expected number of cell phone users to its network.

The overwhelming majority of button phone users in the country were identified as the main obstacle to Nagad’s growth in the initial stage.

To tap into this large pool of mobile users, Nagad had to work diligently for approximately one year to convince the country’s cell phone operators to support the company’s verification system.

Once the cell phone operators approved Nagad’s easy verification process, the company’s remarkable journey began, the managing director said.

The COVID-19 pandemic proved to be a blessing for Nagad and other MFS providers, as people preferred using MFS amid movement restrictions implemented to curb the spread of the worst pandemic.

‘Nagad has also provided services to the government by facilitating cash transfers under social safety schemes and the stipend programme,’ he said.

Mishuk acknowledged the company’s success but stated that their ultimate goal was to serve the nation through digital banking.

He revealed that Nagad had been urging the central bank since 2020 to establish a digital banking system, even though some initially laughed at the concept.

‘However, the reality is now imminent, as the central bank is finalising guidelines to encourage fintech companies, tech firms, banks, financial institutes, and MFS providers to establish digital banks through joint-venture initiatives,’ he said.

Mishuk disclosed that Nagad would adopt a simple method within its current application to provide clients with the much-needed digital banking service.

‘For example, Nagad users will gain access to additional options such as savings and borrowing with the introduction of digital banking, which is expected to commence by the end of this year,’ he said.

‘Digital banking will prove to be a groundbreaking development for the country’s small and micro-entrepreneurs, who have so far remained excluded from the mainstream banking network,’ he added.

Mishuk highlighted that the informal sector, which comprised a significant portion of small and micro enterprises, faced challenges in borrowing from traditional banks due to complexities like collateral and documentation processes.

He also noted that traditional banks were limited in providing micro-credits due to high overhead costs.

‘In contrast, digital banks will face no such limitations and will be able to extend small loans, such as Tk 10,000, at low-interest rates,’ he said adding, ‘Additionally, digital banks will have minimal infrastructure costs compared to traditional banks, as almost everything in digital banking will be virtual, with only a central office required’.

Citing findings from market research, Mishuk revealed that many small enterprises were forced to borrow money from usurers at a 30 per cent interest rate due to a lack of access to traditional banking channels.

‘The implementation of a digital banking system will greatly benefit these enterprises and the country’s economy, leading to a considerable reduction in production costs for SMEs, he said.

When asked about the potential threat digital banks might pose to traditional banks, Mishuk responded in the negative.

He highlighted that traditional banks and digital banks could coexist harmoniously since their targets were different markets.

‘Digital banks will operate in areas where the traditional banking system is absent, and ultimately, the accounts of digital banks will be maintained by traditional banks,’ he said.

Mishuk further emphasised that digital banks would benefit traditional banks by bringing in funds from even the remotest corners of the country, where traditional banks had no reach.

Mishuk also appreciated the recent government announcement that at least 75 per cent of retail transactions would be settled through digital technologies by 2027.

He noted that this move would significantly boost the country’s digital transformation and transition it from a cash-based economy to a cashless one.

However, he acknowledged that this transition was not without challenges.

One major challenge, according to Mishuk, is the lack of trust among people regarding electronic accounts.

‘To encourage cashless transactions, people need to develop a habit of trusting that their money in digital form is safe,’ he said.

Referring to the commission on transactions as a major obstacle to encouraging businesses to adopt MFS, he emphasised the government’s significant responsibility in addressing this problem.

Furthermore, he suggested that the government could offer incentives to merchants to lower the commission.

He, however, recommended that such incentives should only be available for a period of two to three years.

Furthermore, Nagad obtained a license to operate as a non-bank financial institution (NBFI). In May, the Bangladesh Bank issued the license to Nagad Finance PLC, making it the 36th NBFI in the country.

Mishuk explained that the license would benefit the company by allowing it to serve the interests of corporate clients, while Nagad’s existing services were catering to the common people.

Mishuk also mentioned that Nagad was exploring opportunities to raise funds from the bond market to support further investments.

He stated that the bond market was the most suitable option for the company, as foreign investments were not accepted and bank loans would incur high-interest rates.

When asked about Nagad’s financial outlook, Mishuk stated that the company expected to achieve its first profitable quarter in the current calendar year.

However, he emphasised that there would be no celebration for this milestone, as the profits would be reinvested to meet the company’s ongoing need for additional investments.

Mishuk expressed the desire for shareholders to reinvest the profits for the next three years and highlighted Nagad’s aspiration to actively participate in the government’s future digitisation programmes related to the payment system.

‘For instance, Nagad aims to ensure its presence in the digital payment system for activities such as bridge tolls and metro rail fares,’ he said.

Additionally, Nagad hoped for a comprehensive awareness programme from the government to educate MFS subscribers about the importance of not sharing their secret codes with others.

‘The company is also diligently working to enhance the security of its MFS transactions and intends to introduce a biometric system soon to approve transactions initiated by its users,’ he added.

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Nagad at a glance

Nagad Limited, an arm of the Bangladesh Postal Department, commenced its operations as a mobile financial service provider on March 26, 2019.

Led by managing director Tanvir A Mishuk, the company has consistently offered services that have empowered thousands of people to overcome obstacles in accessing bank finance, solidifying its position in the country’s financial sector.

Since its entry into the market, Nagad has introduced competitive cash-out charges. In addition to making the ‘Send Money’ option free, Nagad charges Tk 11.49, including VAT, for cashing out Tk 1,000.

This strategy has instigated competition among MFS companies, resulting in revisions to market charges.

Currently, Nagad holds a 40 per cent stake in the MFS market, serving 75 million customers with an average daily financial transaction volume of Tk 1,200 crore.

During its early days, Nagad encountered several challenges hindering the digital financial inclusion of unbanked individuals. Recognizing that traditional solutions were inadequate, the MFS provider proactively sought innovative ways to connect more people, particularly those in remote areas.

One ground-breaking innovation introduced by Nagad is the simplified account opening process through Electronic Know Your Customer (e-KYC). This process eliminates cumbersome paperwork, allowing customers to open an account within a minute by capturing a photo of their national identity card and a selfie.

Additionally, Nagad has bridged the gap of financial inclusion for rural populations without smartphones. By dialling *167# from a feature phone, individuals can now open an account, expanding the reach of financial services to previously underserved communities.

Nagad’s commitment to innovation, product diversification, cost efficiency, and simplified transaction processes has propelled it to become the leader in terms of customers and the second-largest in transaction volume within a span of four years.

Furthermore, Nagad has played a pivotal role in digitising government disbursements.

In 2021 and 2022, the company facilitated 75 per cent of all social safety net allowances, while also revolutionizing education stipend payments, according to Nagad.

In FY22, Nagad disbursed stipends to over 14 million primary school children, streamlining the process and eliminating numerous hurdles faced by guardians.

On average, Nagad disburses Tk 10,000 crore of government funds to the public annually.

Within just three years of operation, Nagad has earned recognition as one of the top VAT-paying companies on the National Board of Revenue’s list for FY22.

As per its agreement with the Bangladesh Postal Department, Nagad shares 51 percent of its revenue. In the financial years 2021-22, 2020-21, and 2019-20, the postal department received Tk 4.5 crore, Tk 3.31 crore, and Tk 1.12 crore, respectively, from Nagad’s revenue earnings.

In the current year, Nagad launched remittance services, enabling Bangladeshi expatriates in various countries to remit money to their families at a reduced cost.

Looking ahead, Nagad aims to establish a digital bank that will provide comprehensive financial services on a single platform, eliminating the need for physical bank visits.

Over the next few years, all financial services will be accessible through mobile phones.

To further expedite the country’s financial inclusion drive, Nagad aspires to offer cash withdrawal services free of cost.

As Nagad shifts its focus towards skill sets, it has implemented a pioneering approach to employee recruitment, prioritising skills over educational certificates.

In recognition of its significant contributions to the expansion of Bangladesh’s financial market, Nagad has received numerous local and international accolades, including the Best Innovative Digital Financial Service Brand, WITSA Global ICT Excellence Award, Inclusive Fintech 50, Best Digital Financial Service Provider Award, Digital Bangladesh Award, E-Commerce Mover Award, and Best Marketing Communication Award, according to Nagad.