Banks are turning to digital nanoloans

Complementing an already diverse set of services and products, the country’s banking sector is now moving towards product dynamism with nano-lending, which involves lending small sums without the need for collateral.

This decision is in line with the government’s objectives to promote financial inclusion and provide loans to marginalized people to accelerate financial inclusion and rapid economic recovery.

Recently, City Bank introduced the Digital Nano Loan, targeting small borrowers like Small and Medium Enterprises (CMSME), and even for personal use.

Other banks are also considering offering such nano-loan products.

Among them, Dhaka Bank is going to offer eRin and Prime Bank has decided to set up a digital loan disbursement system for industrial workers.

In addition, the banking sector is also going to offer the Nano Deposit Pension Scheme (DPS) to customers, according to Bangladesh Bank officials.

The central bank approved the Digital Nano Loan in 2021, leading to questions about whether it would compete with microcredit lenders.

To allay these concerns, the Executive Vice President of the Microcredit Regulatory Authority (MRA), Md Fashiullah, told The Business Standard that microcredit operates on a ground-level relationship-based model, which involves that the banks take on other tasks than lending.

“I think nano loan can work like credit card, where borrower will get Tk10,000 to Tk1 lakh in short time. But, microloans offer more than nano loan limit and we have a good network and a good market share at the rural level,” he said.

Meanwhile, the MRA has already asked microcredit organizations to observe the situation on the ground and report to the regulator, he added.

Economists view the development with optimism as they have repeatedly called for loans to CMSMEs to be improved for better economic recovery in the post-pandemic era.

Dr Ahsan H Mansur, executive director of the Policy Research Institute, says most banks in the country are unwilling to lend to small businesses. “But if you see in general, small businesses are not defaulters. Loan recovery in this segment is very good. So banks should lend to them and build sustainable businesses for better economic growth of the country.”

Products launched

City Bank recently launched the country’s first collateral-free digital nano-loan service, allowing bKash users to receive instant loans ranging from Tk 500 to Tk 20,000 through the mobile app.

Bank officials said that after the launch on December 15 last year, the bank received a satisfactory response from customers and distributed nano-loans to around 12,000 customers this week, for a amount of about 4 crore Tk.

During the launch event, City Bank Managing Director and CEO Mashrur Arefin said, “A customer can repay a loan in three equal monthly installments (EMI) from their bKash accounts. The interest rate will be 9% per annum, which is relatively low for microfinance.

“And the service involves daily calculation and processing, meaning a borrower will only incur interest for the days the loan is past due.”

Meanwhile, Prime Bank is also piloting a digital loan disbursement system for garment workers, which the bank says is the first initiative of its kind.

Prime Bank sources have said that the digital nano lending service named PrimeAgrim is for blue-collar workers only.

The pilot of this service was carried out in collaboration with Swisscontact, a non-profit organization based in Switzerland, and the British fintech AGAM International. The pilot was initially launched in early September 2021 for select factories only, according to the bank.

After the pilot has been successfully completed, the bank now intends to roll out the service nationwide.

Dhaka Bank Limited will also offer a digital nano loan, “eRin”. This loan will be processed within two hours of the request, bank officials said.

The government has planned to popularize nano-loan products to benefit marginalized people and increase financial inclusion in the country.

Bangladesh Bank Deputy Governor Abu Farah Md Nasser recently said, “We have already established a program to lend at least 25% of total loans to the SME sector by 2024. This product will accelerate the financial inclusion.

According to Bangladesh Bank data for July-September 2021, the total outstanding bank loans in the SME sector stood at Tk 2,45,325 crore.

On the other hand, to speed up the pandemic stimulus package, the government has unveiled financial support to CMSMEs through the central bank worth Tk 40,000 crore in the past two years, under two different recovery plans.

Rosalie M. Dehner