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The future of lending is here. And it is thanks to City Bank and bKash.
AKM Zamir Uddin
City Bank and bKash are possibly on to revolutionising the lending landscape in Bangladesh after the two yesterday announced rolling out digital lending on a pilot basis.
A select group of bKash users will now be able to get a loan of up to Tk 10,000 collateral-free on an instant.
To take a loan, banks require consumers to visit a branch, open an account first and then start the cumbersome process of applying for the loan. And there is no surety that the loan would be sanctioned.
Often, applications get rejected for a minor glitch in the form or documents provided, meaning the customer have to return to the branch and go through the entire cycle all over again.
But the digital lending model that harnesses the power of technology, loan seekers no longer need to under a completely physical process to procure a loan. The whole process is presence-less and paperless and the service delivery cashless. And all this is done in just a few minutes.
The lending model is immensely popular in neighbouring India, and the Bangladesh Bank has warmed to the idea as it stands to expedite the financial inclusion agenda in the country.
In Bangladesh, people are often compelled to take loans from informal sources at high interest rates to meet emergency needs -- such as health crisis or financial loss caused by natural disasters -- or even to engage in small trade.
In many cases, people find it difficult to fulfil the terms and conditions set for availing the loans.
Due to the high cost and onerous terms and conditions, unbanked people find it difficult to repay those loans and are in turn overburdened with even higher debt.
But this initiative by City and bKash will help clients sweep aside the roadblocks.
Upon successful completion of the pilot, the product would be rolled out on a wider scale.
“The journey of this digital loan starts with the idea of how we can deliver money on an urgent basis to the right people with more convenience so that they can use it according to their needs,” said Mashrur Arefin, managing director of City Bank.
Many people in the country, especially the small traders, often need money on an emergency basis.
“We hope that our experimental initiative will be successful. We are always trying to get closer to the customers,” he said, adding that a good number of African nations have already introduced this component of the digital financial service.
The credit ceiling may be increased if the ongoing pilot project is completed successfully, he said.
The digital loan project of City Bank exemplifies how banks can bring new and creative services to improve the lives of the common people, said Kamal Quadir, chief executive officer of bKash.
It broadens the scope of financial inclusion by using bKash’s platform and leveraging its robust customer base, he said.
“We believe the collateral-free, instant digital loan will bring transformative impact among marginalised people, micro entrepreneurs and students to meet their emergency personal or business needs,” Quadir added.
Under the project, customers will have to pay back the loan within three months by way of three equal monthly instalments (EMI). The EMI will be deducted automatically from the user’s bKash account on fixed due dates.
The user will also be able to pay the EMI before their due dates and save money as the bank will associate early repayment with lower interest costs.
Interest on the loan will be charged on a daily basis.
That means in case of early settlement, the interest will be charged based on the number of days the loan has been taken for and not for the whole three months.
In addition, users will be notified through a text message and app notifications before every due date for EMI.
City Bank will closely monitor users’ loan payment behaviour to determine whether they will be eligible for loans in the future.
To avail the loan under the pilot initiative, eligible users will need to click the “Loan” icon on the bKash app and enter the desired loan amount, which has to be within a limit approved by City Bank.
Users will have to give consent to sharing their KYC information that they have already made available to bKash with City Bank.
After successfully entering the bKash PIN, the loan amount will be instantly disbursed into the user’s bKash account.
Ant Group, Chinese e-commerce giant Alibaba’s payments arm, will be the technology partner undertaking credit assessment on potential borrowers for this project.
The company, which has a 20 per cent stake in bKash, offers advanced AI-based credit assessment facilities for digital loans offered in different countries, including China, India and the Philippines.
An automated credit scoring system will give an instant decision on whether a user of bKash has qualified for the loan.
The system will read the previous financial bKash transactions -- deposits, withdrawals, mobile recharge and so on -- carried out by a user of the mobile financial service provider.
This means City Bank will give loans to client based on their past financial track record with bKash.