[🇧🇩] Monitoring Bangladesh's Economy

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How embedded finance can unlock Bangladesh's economic potential

Embedded finance is the seamless integration of financial products or services into nonfinancial company's platforms or apps. Embedded finance is a very popular business model in the world for its frictionless payment experience. And that is why, several giant companies like Uber, Amazon, Apple, Te

thefinancialexpress.com.bd

How embedded finance can unlock Bangladesh's economic potential
Zia Hassan Siddique, ASM Ahsan Habib and Sanjoy Pal
Published :
Dec 28, 2024 22:05
Updated :
Dec 28, 2024 22:06

Embedded finance is the seamless integration of financial products or services into nonfinancial company's platforms or apps. Embedded finance is a very popular business model in the world for its frictionless payment experience. And that is why, several giant companies like Uber, Amazon, Apple, Tesla have adopted it considering the various advantages of this model.

Embedded finance helps to generate revenue for service providers and banks by offering differentiated products to new customers. A study by 'Research and Markets', a global leader in market research, reveals that embedded finance opportunity in Bangladesh market is approximately US$ 817.10 million by 2024 with a projected annual increase of 28.5 per cent. The industry is predicted to maintain a compounded annual growth rate (CAGR) of 48.0 per cent from 2024 to 2029 and the expansion is forecast to be worth US$5.80 billion by the end of the period.

EMBEDDED PAYMENTS: SCOPE FOR FINANCIAL INCLUSION AND MARKET EXPANSION: Embedded payments, instead of redirecting users to separate payment gateways or banking applications, allow transactions to occur naturally within the user's current environment, whether it's an e-commerce platform, ride-hailing app, or social media marketplace.

Bangladesh is a rising economy with around 6 million SMEs and growing middle class with around 5 million Gen Z population. The vibrant consumer and SME sector is yet to utilise the full potential of transaction velocity because of the lack of embedded payment infrastructure, process and policies. Currently, few platforms like bKash and Nagad, to some extent, have successfully integrated their payment systems into various applications. However, the majority of digital transactions still occur through standalone payment apps or traditional banking channels, indicating substantial room for growth in embedded payment adoption.

Successful case studies from neighbouring countries provide valuable insights for Bangladesh. India's unified payments interface (UPI) has enabled seamless embedded payments across numerous platforms, from small merchant QR codes to large e-commerce websites. Similarly, Indonesia's transformation through platforms like Gojek and GrabPay demonstrate how embedded payments can drive digital economy growth in a market with similar demographic characteristics as in Bangladesh. Vietnam offers perhaps the most relevant case study, having successfully integrated embedded payments into social commerce platforms. Their experience shows how combining social media, e-commerce, and payments can accelerate digital payment adoption in a developing market. By 2022, over 45 per cent of Vietnamese consumers were using embedded payment solutions in social commerce, making it a global leader in this technological integration. Bangladesh could adapt this model by encouraging social commerce platforms to integrate payment capabilities, particularly given the country's high social media penetration rate.

Under the leadership of Bangladesh Bank, the regulatory environment is gradually adapting to support digital payment innovation, which is really encouraging. The introduction of the National Payment Switch Bangladesh (NPSB) and the regulatory sandbox for fintech innovations has created a foundation for expanding embedded payment solutions. Nevertheless, challenges persist in terms of infrastructure readiness, regulatory compliance requirements and merchant adoption.

To replicate successes of other countries, Bangladesh needs to focus on three key areas. First, developing robust API infrastructure to enable easy integration of payment services into various platforms. Second, creating clear regulatory guidelines that balance innovation with security. Third, incentivising merchants and platforms to adopt embedded payment solutions through reduced transaction fees and simplified onboarding processes. The mobile-first nature of Bangladesh's internet users presents a particular opportunity, as embedded payments can be naturally integrated into the apps and services that consumers use daily. This aligns with successful models seen in countries like Indonesia and Vietnam, where mobile-based embedded payments have driven significant financial inclusion.

EMBEDDED INSURANCE: ACCESS TO RISK MINIMISATION THROUGH DIGITAL PLATFORM: There are a total of 81 insurance companies in Bangladesh, including 35 life and 46 non-life insurance companies serving about 18.97 million through different insurance products. Life insurance companies occupy 74 per cent of the market share and non-life insurance companies only 26 per cent. Another popular insurance service is Bancassurance (Banks financial service that combines banking and insurance services). Despite being a very important sector in the world, insurance is still neglected in Bangladesh and insurance is not becoming popular in this country. So, is our country's market not suitable for insurance or are we not able to take the initiatives that should be taken to make the insurance market popular? Embedded insurance can help this sector become popular. Embedded insurance is another application of Embedded Finance where customer can also avail insurance products at the time of main product purchase from non-financial companies. There are opportunities for embedded insurance in many sectors ranging from Consumer Products, Travel & Hospitality, Healthcare, Real Estate and Transport & Logistics. The customer does not have to approach the insurance provider for the services. As of last November, 6.20 million motor vehicles were registered in the country and registration is ongoing. If these motor vehicle registrations are through embedded insurance, the motor insurance process for customers will be simplified and the government will also receive more revenue. Another popular sector in the country is real estate. If there is a partnership between real estate and residential real estate brokers, they can get real estate insurance through embedded insurance. Life and health insurance can embed through E-commerce platforms, especially those selling wellness products, offer life and health insurance at the point of sale. Embedded insurance can also be in travel. Travel booking sites can integrate travel insurance directly into their booking system.

EMBEDDED LENDING: EXPANSION OF DIGITAL LENDING THROUGH CREDIT SCORING MECHANISM: Embedded lending is the integration of different types of lending services into nonfinancial platforms or applications. The technological transformation of conventional lending comes up with digital lending solution in the financial industry. The use of artificial intelligence (AI) technology has enriched the inclusive financing area through a credit scoring system to assess the eligibility of a prospective borrower to borrow along with identify the repayment capacity.

Digital credit scoring is an integral part of digital lending which uses various components such as personal data, financial structure, credit history etc., to lend a customer through digital means rather than using in-person approach. Digital banks offer retail loans, credit cards as well as Micro, Small and Medium enterprise (MSME) loans worldwide through the mechanism of embedded lending. The tech-driven method not only reshaped the traditional financing approach, but also unlocked the potential of inclusive market in developing countries. The main asset of the digital lending approach is data using which a lender or sometimes a protective borrower identifies own position to borrow funds through credit scoring.

Digital lending runs not only on the wheel of digital credit scoring method, but also infuses algorithm for rendering tailored products and services. These data driven methods let individuals to easily assess eligibility for borrowing from financial institutions. The platform facilitates personalised lending, micro lending, MSME lending, supply chain lending, trade financing etc. The Artificial Intelligence (AI) based application here represents a user-friendly interface where a prospect can easily submit a complete application for loan anytime from anywhere. At present, small businesses capture the large portion of total businesses in the world in terms of number and entrepreneurial engagements. The digital lending platform analyses data from various sources and also financial psychology through internet footprints and through data available in the credit bureau operated in a country and finally provides the available lending solutions to the customers through AI. Digital lending mechanism excludes the human interaction and minimises the human errors. Besides, it improves the financing process through the accessibility, speed, lower costs etc. that leads to positive customer experience of a financier.

Embedded finance is not limited to payments, lending and insurance but has its scope in many other sectors. If the implementation of embedded finance in the MSME sector is ensured, this sector can achieve significant growth fostering overall economic growth of the country.. Bangladesh as a growing economy must actively take measures to implement embedded finance ecosystem to reap the benefits and achieve sustainable economic growth.

Zia Hassan Siddique is a banker turned fintech entrepreneur. Co-founder of Dana Fintech, Bangladesh and Kube Innovation, UK. A. S. M. Ahsan Habib is a banker and Certified Digital Finance Practitioner (CDFP). Sanjoy Pal is a banker and Financial Modeling & Valuation Analyst (FMVA®) certified from Corporate Finance Institute, Canada.​

 

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Dhaka International Trade Fair begins January 1

It will be held at the Bangladesh-China Friendship Exhibition Centre in Purbachal

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Dhaka International Trade Fair begins January 1

The new venue of the Dhaka International Trade Fair is seen at Purbachal. Photo: Prabir Das

The month-long Dhaka International Trade Fair (DITF) is set to begin on January 1, 2025.

Chief Adviser Prof Muhammad Yunus will officially inaugurate the 29th edition of the DITF, jointly organised by the Ministry of Commerce and its subordinate organisation, the Export Promotion Bureau (EPB).

The fair will be held at the Bangladesh-China Friendship Exhibition Center in Dhaka's Purbachal.

The EPB and participating commercial institutions have nearly completed preparations for DITF 2025. Last-minute work is underway to enhance the fair's appearance.

EPB sources state that this year's fair is organised with the spirit of the July Movement in mind.

The EPB has constructed three pavilions named after the July Revolution. They believe this year's fair will attract more domestic and foreign visitors compared to previous years.

The event will feature 361 stalls and pavilions with exhibitors from Bangladesh and seven other countries. Eleven foreign businesses will showcase their goods and services.

EPB notes that entry fees remain unchanged at Tk 50 for adults and Tk 25 for children under 12.

The commerce ministry reports that the 28th DITF generated Tk 392 crore in export orders, a 17 percent increase over the previous year.​

 

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Remittance hit all-time high in 2024

Expatriate Bangladeshis sent home a record $26.9 billion, up 23 percent year-on-year, in a development that will bring a huge sigh of relief to policymakers as they endeavour to shore up strained dollar stockpile.

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Remittance hit all-time high in 2024

Expatriate Bangladeshis sent home a record $26.9 billion, up 23 percent year-on-year, in a development that will bring a huge sigh of relief to policymakers as they endeavour to shore up strained dollar stockpile.

The inflows saw a spike after the fall of the Awami League government on August 5, with more than $2 billion coming in every month since, as per the latest statistics published by the Bangladesh Bank.

In December, a record $2.63 billion came in, up 33 percent from a year earlier.

"A large portion of migrant workers had declared emotionally that they would not send remittance through formal channels amid the tenure of the previous government -- they have been sending remittance after the political changeover," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

Previously, there was a growing demand for hundi, an illegal cross-border transaction mechanism. Typically, the demand for hundi rises when a large volume of money is siphoned out from the country.

This stopped after the interim government took charge, said Rahman, also a former chairman of the Association of Bankers, Bangladesh, a forum of banks' MDs.

"The business people and politically influential individuals who siphoned off money from the country are now in jail, some are fugitives and some are in hiding," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

The flexible exchange rate or the narrow difference of exchange rate between the formal and informal markets accounts for the spike in remittance uptick, he said, adding that the repatriation of export earnings has increased.

In 2023, the exchange rate gap between the formal and informal channels was Tk 7 to Tk 10 per dollar. Last year, the gap came down to Tk 3 to Tk 5 per US dollar, industry insiders said.

Rahman hopes that the external sector will not face huge pressure in the coming days due to the rising trend of remittance and export, the two main sources of foreign currency.

"The signs are already there that the external sector is making a turnaround," said Hussain, who was part of the 12-member committee that prepared a white paper on the Bangladesh economy.

The repatriation of export earnings has become more frequent now, he added.

The growing trend of dollar inflows will give a breathing space to reserves, which crossed the $21 billion-mark after several months despite making regular payments for imports.

When Ahsan H Mansur took charge of the central bank, the overdue payment for letters of credit was at more than $2 billion. This has now come down to only $400 million, according to BB officials.

In December, Islami Bank received the highest amount of remittance ($366 million), followed by Agrani ($264 million), Janata ($147 million), BRAC Bank ($193 million), and Trust Bank ($184 million), central bank data showed.​

 

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Lessons from 2024 and prospects for 2025

The budget for FY2025-26 will be challenging.

www.thedailystar.net

Bangladesh’s economic transition
Lessons from 2024 and prospects for 2025

VISUAL: ANWAR SOHEL

The economy of Bangladesh faced sustained stress throughout 2024, with macroeconomic stability continuing to deteriorate—a trend from the past few years—due to a series of challenges. The first half of 2024 unfolded under the autocratic regime of the Sheikh Hasina-led Awami League government, which systematically undermined the economy through rampant misappropriation of public resources. The interim government, which assumed power three days after the fall of the Awami League regime, inherited a fragile economy plagued by high inflation, declining foreign exchange reserves, stagnant private investment, mounting debt, inefficiencies in public project implementation, and a weak financial sector.

After nearly five months of the interim government's leadership, public expectations for an economic turnaround remain high, particularly regarding issues directly impacting livelihoods. While some positive changes are becoming evident, most economic challenges persist, complicating the path to recovery. Addressing these issues effectively in 2025 will require prioritising urgent actions.

Firstly, to tackle inflation, the new Bangladesh Bank governor adopted a contractionary monetary policy, raising the policy rate to 10 percent. Despite this measure, point-to-point inflation climbed to 11.38 percent in November 2024, with food inflation soaring to 13.8 percent during the same period.

Although monetary policy measures typically take 6-12 months to show results, complementary fiscal policies and enhanced market management are critical. In Bangladesh's current context, inflation must be addressed through monetary, fiscal and market management measures. Due to an increase in the policy rates in recent months, lending rates have increased. This hurts businesses as the cost of funds has increased. Additionally, private investment has been stagnant for about a decade. Small and medium enterprises face a liquidity crisis as they cannot afford costly bank loans. This situation is not conducive to employment generation—a cause for which the students staged a movement back in July. While the interim government has reduced or withdrawn duties on essential items like rice, edible oil, sugar, onions, potatoes and eggs, poor market management has prevented consumers from reaping the benefits.

The government should take multiple measures to enhance the supply of products in the market. These could include enough government procurement from farmers at a fair price, facilitating farmers' connection with the markets, providing them with financial and technical support to enhance their resilience to price shocks, eliminating rent-seeking and extortions during the transportation of products through improved law and order situation, enhancing supply chain efficiency through better logistics and transportation infrastructure, allowing more importers to enter the market, and extending trade partnerships for importing essential items.

Secondly, the current national budget requires revision to reflect the current economic challenges. Politically motivated and low-priority projects under the Annual Development Programme (ADP) should be postponed to address financial constraints. In view of high inflation, the government should enhance support for poor and low-income households by expanding the open market sale (OMS) of commodities at an affordable price. Support for those affected by severe floods in August and September this year has been inadequate compared to their needs. They should be provided with financial support to recover their losses, at least partially.

The budget for FY2025-26 will be challenging. In view of the high inflationary trend and limited fiscal space, the next budget has to be contractionary. However, development expenditures cannot be controlled too much since the government has to consider the need for employment generation. The upcoming budget will be an opportunity to make a balanced allocation across all sectors. Health, education, and science and technology sectors should receive more allocations.

Third, the banking sector has been mired in mismanagement and corruption over the past decade and a half. The Awami League government issued bank licences based on political considerations, enabling embezzlement by directors under lax regulatory oversight. The new governor dissolved and reconstituted the boards of 11 private banks, temporarily halting fund mismanagement. However, these banks now face acute liquidity crises. The Bangladesh Bank has provided liquidity support of Tk 22,500 crore to bail out six weak banks. While this measure has been unavoidable in order to meet depositors' needs, it risks further inflationary pressure. The central bank has to take harsh steps to resolve the structural problems of the banking sector. Though the task is arduous and time-consuming, the country eagerly awaits the recommendations of the three task forces and their implementation to restore discipline and good governance in the sector.

Fourth, the free fall of the forex reserves has stopped in recent months. As of December 24, 2024, the country's gross international reserves stood at $20.18 billion, following the BPM6 method. As part of a $4.7 billion loan from the International Monetary Fund (IMF), the Bangladesh Bank has to maintain a certain level of forex reserves following the BPM6 method, an internationally accepted standard to calculate forex reserves. After repeated failure since the loan approval in January 2023, the Bangladesh Bank was able to meet the IMF target in the June and September quarters of 2024. It is expected to meet the target in December 2024 as well. The remittance flow has increased substantially in recent months. Maintaining this trend in the coming months will require a continued focus on boosting remittance flows and ensuring exchange rate stability. Transparency in currency market operations is essential to sustain investor confidence.

Fifth, Bangladesh's graduation from the Least Developed Country (LDC) status to a Developing Country status in 2026 offers opportunities and challenges. While the transition will enhance the country's global image and attract investments, it also entails the loss of duty-free, quota-free (DFQF) market access, concessional loans, and other benefits. Therefore, Bangladesh must prepare for a smooth transition from the LDC status to absorb the initial shock of losing various flexibilities, including the Generalised System of Preferences (GSP). It must prepare for the GSP-plus facility by achieving various stringent compliances. The government and the private sector should work together to formulate a pathway to overcome the challenges of LDC graduation.

The economic crisis left by the Awami League government is profound, and resolving it will require sustained efforts. A multi-pronged approach involving coordinated efforts across ministries and agencies is essential.

The current law-and-order situation remains precarious, adversely affecting production in industrial zones. Both domestic and foreign investors are waiting and closely monitoring political developments. It is unlikely that significant new investments will occur before the national elections. Therefore, it is imperative for the interim government to present a clear roadmap for the elections, enabling economic stakeholders and partners to plan their investment strategies accordingly.

Equally importantly, the interim government must assert its authority in managing day-to-day governance. This critical responsibility appears to have received low priority amid the focus on drafting medium- to long-term reform agendas. A balanced approach that prioritises immediate governance alongside future reforms is essential for stabilising the economic environment.

Flawed political, social, and economic systems have hindered the realisation of Bangladesh's full potential. While comprehensive reforms across all sectors are crucial, and while the interim government can initiate this process by consulting experts and stakeholders, the responsibility for implementation lies with future elected representatives. The nation watches closely as the interim government navigates these challenges, striving to address present needs while laying the groundwork for a sustainable future.

Dr Fahmida Khatun is executive director at the Centre for Policy Dialogue (CPD) and non-resident senior fellow at the Atlantic Council. Views expressed in this article are the author's own.​

 

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Businesses’ 2025 wish list is long, but political stability tops all

Businesses hope for the year 2025 to bring about stability as normalcy has started to be restored in businesses following turbulent times both at home and abroad.

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Businesses’ 2025 wish list is long, but political stability tops all

Businesses hope for the year 2025 to bring about stability as normalcy has started to be restored in businesses following turbulent times both at home and abroad.

Local businesses have been severely affected from some internal and external issues over the last few years.

The year 2024 was a challenging year for businesses and the firms do not want a recurrence of the untoward incidents of the outgoing year as their trade was severely affected.

For instance, for a time the country's economy struggled to recover from the severe fallouts of the Covid-19 pandemic, Russia-Ukraine war, high global inflationary pressure and dollar shortage.

Last year the local businesses had to cope with a political upheaval in the months of July and August, and labour unrest in September and October and the subsequent deterioration of law and order.

All those factors severely affected business such as import, export, investment and transportation and shipment of goods.

Meanwhile, the ailing and corruption-riddled banking sector has been struggling to brighten its image and to increase liquidity to regain customers' confidence. The dollar shortage in the banking sector also impacted the prices of imported commodities.

Businesses want stability in the banking sector and an end to the liquidity crisis so that they can conduct transactions smoothly. They also want an existing gas and power crisis to be addressed in the new year.

The inflow of investment or expansion plans for existing capacities was also affected because of the unhealthy business environment in 2024.

Despite the massive political turmoil in 2024, it is believed that the year would end on a positive note, said KM Rezaul Hasanat, chairman of Viyellatex Group and president of Bangladesh Independent Power Producers' Association.

"The reason—significant remittance growth and textile and apparel exports still in the positive. Domestic market is struggling a little but by the end of the financial year, it will catch up," he said.

"The year 2025 for business, as well as the economic prospects, depends on the political situation," he said.

"If the political situation improves, then law and order, issues like power and energy crisis and other facilities will improve automatically," Hasanat said.

"By the way, I am expecting the Trump business policy to help our foreign direct investment and businesses indirectly. Again, the business potential in 2025 is very good if the country can ensure political stability," he added.

Almost every entrepreneur is worried about inflation, high bank interest rate, and low production capacity for low gas pressure in industrial units, said Anwar Ul Alam Chowdhury, chairman of Evince Group and president of the Bangladesh Chamber of Industries.

At the same time, businesspeople have lost confidence in the deterioration of law and order, he said.

An uncertainty is also prevailing in the political arena, which may affect businesses. If adequate investment does not come about, employment will also be affected, he added.

"We are expecting that all those challenges will be addressed in the new year and business confidence will also be restored," he said.

Hopefully the business environment and economic stability will be restored through reductions in inflation and bank interest rates, said Kamran T Rahman, chairman and managing director of The Kapna Tea Co.

The US dollar shortage is also expected to be resolved in the new year through some positive measures, said Rahman, also president of the Metropolitan Chamber of Commerce and Industry, over the phone.

Overall, everything is expected to be positive in the new year, he said.

The views were echoed by Faruque Hassan, managing director of Giant Group and former president of the Bangladesh Garment Manufacturers and Exporters Association.

The outgoing year could have been much better. Hardly any new investment came about in the garment sector because of the deterioration in the business environment, he said.

Demand for garment items has been rebounding with the revival of the global economy, said Hassan.

Bangladesh has the potential to export more if the country is politically stable. It is expected that the year 2025 will be positive for business, he also said.

Fresh investment or expansion of existing capacities may come about once the political situation reaches stability, he said.

In the new year, the garment sector may witness the arrival of new products, establishment of new factories and replacement of old machinery, said Hassan.

This is because international clothing retailers and brands are coming back to Bangladesh with large volumes of work orders, he said.

The inflow of new investment or capacity expansion is largely dependent on stable law and order, he said.

"However, I predict that the year 2025 will go well as normalcy is being restored gradually, and the global economic situation is rebounding," added Hassan.

Corruption, bribery, and thefts should also be curbed to make the environment more business friendly, said the former BGMEA president.

Abdul Hai Sarker, chairman of Bangladesh Association of Banks (BAB) said the new year's projection is very good, but the law and order needs to be restored soon.

For instance, the business of garments waste (jhoot) is controlled by the local musclemen and the factory owners are not capable of controlling them because of the poor law and order.

Establishing supremacy on local jhoot business by the local influential people is one of the major causes of poor law and order situation in the industrial zones.

The private sector needs to be engaged more with the policy formulation as the private sector entrepreneurs are the final executors because of the nature of the country's economy, Sarker also said.

"Freedom of doing business is still absent here," the BAB chairman also said.​