Forget everything you know about finance.
What if you could pay your taxes with SMS? What if you could send and receive money without ever visiting a bank – or even having an account? What if biometrics could ensure that you are who you say you are, without needing an appointment or a signed letter or a proof of address?
This is already happening in Bangladesh, a developing nation that skipped a step when it comes to shillings. And as nations look to transform their payments systems, they shouldn’t just look at New York, London or Singapore. They need to train their eyes on the developing world, which is eating them up for breakfast.
GovInsider sought out Anir Chowdhury, Policy Advisor to the Prime Minister of Bangladesh, to understand how government is leading these reforms – and how a developing nation with massive problems is still innovating to get one step ahead of the rest. Chowdhury heads the Access to Information (a2i) programme, an innovation lab within the Prime Minister’s Office that is driving these changes.
Bangladesh goes mobile
First, some context. Bangladesh has a large rural population that mostly deals in cash. A traditional banking system doesn’t work here, Chowdhury says, and there are high service charges that put people off from using financial services.
However, more than 130 million of 160 million Bangladeshis own mobile phones. Beyond making calls, these phones can also be used to connect rural citizens to financial services. a2i has partnered with bKash, the largest mobile financial service organisation in the country, to allow rural customers to deposit cash or send money using text messages.
A new project will take this a step further. a2i is working with the Bill and Melinda Gates Foundation to build a new system for citizens to receive social welfare payments. This is vital for the government: Bangladesh sends out over US$5 billion each year – almost 3% of its GDP – according to Chowdhury.
The new system registers citizens using their biometric data, such as fingerprints, and then lets them receive payments on their phone or on a smart card. “A person with a bank account and a biometrically-verified identity can have extreme mobility in terms of making and receiving payments from anywhere in the country – and most importantly – at his or her doorstep without going to a financial institution,” Chowdhury says. The platform will be integrated with Bangladesh Bank and the local banks.
“A person with a bank account and a biometrically-verified identity can have extreme mobility.”
In fact, it has already been trialled out. Together with the Department of Social Services and the Ministry of Social Welfare, a2i conducted a pilot for this payment service in the Tangail district. Around 7,000 citizens were biometrically registered and received their allowances through pre-paid debit cards at the Bangladesh Post Office. a2i is now looking into scaling up this pilot to 13 more districts, according to a brief on the topic.
Creating new financial hubs
The government has built a network of “access points” across rural areas that allow citizens without phones to make payments. “A typical bank would have 50-100 branches, but these digital centres can create 4,500 bank branches in rural areas and 700 in urban areas overnight,” says Chowdhury. The wide reach of this network also opens up possibilities to partner with banks and other private sector organisations to better serve rural farmers and villagers.
Last year, a new service called “agent banking” was introduced to over a third of these access points. It sees traditional banks place representatives in government offices to conduct banking services, like loans.
These access points with banking agents are now considered as full banks – even without a safe stuffed with bullion. “In the past one year alone, we have set up about 1,200 bank branches in these 4,500 locations, and that number is continuing to rise,” Chowdhury explains.
The origins of a2i
However, a cash-reliant culture faces a big problem: corruption. Bangladesh topped the Corruption Perceptions Index five years in a row from 2002 to 2006, and officials hoped that “technology will bring some measure of transparency”, Chowdhury says. That’s where a2i got its name – it means ‘access 2 information’.
An early lesson for his unit was to moderate their language. “Talking about transparency was counterproductive among mid-level and even senior officials. They felt that an attempt to bring transparency would be a threat to the way they functioned,” Chowdhury explains.
“Talking about transparency was counterproductive.”
“We learned not to use the words ‘transparency’ and ‘corruption’ too much,” he says, and instead, they use the words “innovation” and “dashboards”. This was much better received, and let them achieve the same results.
The present day a2i has three objectives: creating digital services across government; setting up access points for service delivery; and developing a “culture of innovation” within the civil service.
In its early days, there was a heavy focus on technology and websites, Chowdhury says. This was part of government’s attempt to break away from the “command and control” bureaucratic structure – a relic of colonialism, he says. “That [structure] brought a lot of turf issues. But if you introduce technology, many turfs break down,” he explains.
Chowdhury found that his early work faced many structural barriers, causing a2i to reconsider its mission. Creating a culture of innovation became important, he notes. “I would say was the biggest breakthrough of a2i. You can talk to almost all civil servants now about innovation practices, and have him or her not laugh at the idea,” he says.
Chowdhury is not a natural bureaucrat. He studied computer science at the Ivy League, with stints in tech companies and business roles in Fortune 500 firms. But the lure of doing good proved too strong, so he returned to his home nation to change the public sector.
Looking ahead, a2i will continue to digitise government services across the board, he says. There are also plans in place to develop a franchise model for the access points with the private sector taking over. “These digital centres [will] function as entities, loosely supervised by us,” he says.
a2i will similarly change its business model, becoming a “social enterprise”, Chowdhury explains. “Currently, it is a government programme; but in the next one year it will emerge as a foundation or even a company – using these 5,300 centres as point-of-service delivery,” he says.
It seems fitting that an agency that changed payments is now changing itself. It did away with banking infrastructure; maybe it’ll do the same for government.
In fact, perhaps there should be a new rule for 21st century finance. While you’ll want to learn from Wall Street, don’t forget Dhaka.