This document summarizes the future of digitalization among microfinance institutions (MFIs) in Bangladesh. It finds that the bottom 20% of the population earns only 8.6% of total income, showing increasing inequality. MFIs have expanded significantly, serving over 32 million clients. The document outlines a six-stage process for MFI digitalization and discusses partnerships with fintechs and challenges around costs, management, and regulations. It recommends that MFIs develop internal tech capabilities, partner with payment providers, facilitate ecosystem development, and advocate for policies to support digital transformation.

1. Prepared by
The Future of MFI Digitalization in
Bangladesh
Zahedul Amin
Co-founder and Director
LightCastle Partners
March 16, 2021
Prepared for

2. All
rights
reserved
by
LightCastle
Partners.

3. All
rights
reserved
by
LightCastle
Partners.
• BOP population is expected to have higher spending power and likely to be more tech savvy.
• Inequality expected to increase further with rising Gini coefficient. Currently, bottom 20% of
population earn 8.6% of total income, while top 20% of the population make 41.4% of the total
income.

4. All
rights
reserved
by
LightCastle
Partners.
Loan Disbursement Contribution by MFIs (%)
724
Total MFIs
3.6Bn
Savings
USD
162,000
Total Employees
18,977
Active branches
32.3Mn
Total Clients
9.27bn
Outstanding Loan
USD
15.68Bn
Loan Recovery
USD
16.51Bn
Loan Disbursement
USD

5. All
rights
reserved
by
LightCastle
Partners.
Stage 1
Loan management
system and central
database
Stage 2
Financial accounting and
HRIS
Stage 3 Digital field applications
Stage 4
Cashless disbursement
and repayment
Stage 5 Digital Credit
Stage 6
Artificial Intelligence and
enabled tools, CBS

6. All
rights
reserved
by
LightCastle
Partners.
48 %
28 %
21 %
1.06mn Number of Agents 32.3mn Active Accounts 299mn
Monthly total
transactions

7. All
rights
reserved
by
LightCastle
Partners.
Number of accounts (in millions) associated with Agent Banking
Number (in million) and Volume (in BDT billion) of Agent Banking Transaction
Share of accounts (Sept 2020)
39.5%
32.3%
11.8%
3.5%
2.7%

8. All
rights
reserved
by
LightCastle
Partners.

9. All
rights
reserved
by
LightCastle
Partners.
• Launched in 2007 by Vodafone and Safaricom for facilitating mobile based fund transfer, payments and
micro credit.
• Customers can deposit and withdraw funds from the MFS agents spread across the country.

10. All
rights
reserved
by
LightCastle
Partners.
Dana allows banks to make their lending
solutions more agile, transparent and efficient.
This helps financial institutions to simplify the
processes for achieving cost savings and
improved customer experience as a loan
management solution.
A scalable, mobile loan and payments platform
for emerging market small- medium enterprises
(SMEs) that requires no smartphones or loan
applications.
Their platform can read digital footprints such
as transaction history with large suppliers to
grant instant digital credit lines that SMEs can
use to purchase inventories from our selected
suppliers.
ShopUp was established in 2016 to support online F-commerce
businesses in Bangladesh. However, they pivoted in 2020 and has
started catering to retail businesses across the country, with delivery,
sourcing, re-selling and micro-credit services.
The company raised USD 23 million funding in the 4th quarter of 2020
for revamping their businesses.

11. All
rights
reserved
by
LightCastle
Partners.
BRAC Digitization Model
BURO Digitization Model
Sajida’s Digitization Model

12. All
rights
reserved
by
LightCastle
Partners.
Increased Efficiency:
• Reduction of time spent in loan disbursement
and collection
• Reduced time spent in cash management
• Reduction in cost of branch operations
• Efficiency in processing documents
Strong Internal Control:
• Better control over malpractices
Increased Accessibility:
• Increase in number of members per credit
employees
Ease of Consumers:
• Reduction of cost of travel for clients
Possibility of Improved Interest Rates:
• With improved operational
efficiency, and reduced
malpractices, the per transaction
cost will decrease
• By building a better customer
experience, the number of active
clients are expected to increase

13. All
rights
reserved
by
LightCastle
Partners.
Operational Challenges:
• Cost of transaction is crippling for MFIs and
borrowers
• Lack of proper IT infrastructure is challenging for
bridging MFIs and DFS providers and disbursing
loans digitally.
Management Challenges:
• Decision-makers need evidence of local cost savings
• Field officers’ duties are in need of revision
Client Challenges:
• Branch employees have expressed that borrowers’
accountability to repay the loan has decreased.
Regulatory Challenges:
• Low cash-out limit remains the major bottleneck to
implementing digital loan disbursement
• Mobile wallet is still hard to open and maintain

14. All
rights
reserved
by
LightCastle
Partners.
Digital Transformation
Develop in-house technological capability for ushering in end to end
digitalization.
Partnership Development Partnerships with FinTechs and other payment aggregators.
Behavior Change and Tech
Adoption
Enable capacity development as well as disbursing micro loans for
purchasing smartphones.
Ecosystem Development Facilitate ecosystem development by enabling payments using MFS.
Advocacy Facilitate special cash-out rates for BOP population
Digital Transformation Fund
The Central bank should encourage digital transformation of MFIs by
providing a low interest loan to them.

15. Thank you!
LightCastle Partners
Level 5, House 10/12, Road 1, Block B, Niketan Gulshan 1
Dhaka 1212, Bangladesh
Email: info@lightcastlebd.com
Mobile: +88 01711 385988, +88 01747 353438
Web: www.lightcastlebd.com
Data on Demand Platform: databd.co