Digital transformation in the financial system will help both lenders and customers expand their business and reduce operational cost in tandem, said speakers yesterday.
The underprivileged small and medium entrepreneurs in remote areas will also get financial facility from lenders by way of the digital products. This will reduce financial forgery as well, they said.
They spoke at a roundtable on “Triggering Digital transformation: Reducing Operating Cost and Expanding Customer Base” organised by the Business Finance for the Poor in Bangladesh (BFP-B) at the capital’s Brac Centre Inn.
IPDC Finance has recently rolled out a digital supply financing product titled ‘Orjon’ using blockchain technology, said its Managing Director Mominul Islam.
A blockchain is a database that is shared across a network of computers. Once a record has been added to the chain it is very difficult to change. To ensure all the copies of the database are the same, the network makes constant checks, according to Reuters.
Blockchains have been used to underpin cyber-currencies like bitcoin, but many other possible uses in the areas such as banking and supply chain are emerging.
IPDC Finance, a non-bank financial institution (NBFI), has already integrated more than 2,000 micro, small and medium enterprises (MSMEs) and 12 corporates bodies in the first year of the rollout of the system, Islam said.
The MSMEs are receiving loans by using the digital system, which is highly secure and time-saving.
“Verifying all the documents given by small borrowers is very much difficult under the manual system,” Islam said. The block chain technology will reduce the interest rate on loans by 2 percent, helping small entrepreneurs get their desired fund at a lesser rate, he said.
Small entrepreneurs can manage the loans within two to three days of submission of credit proposals in the digital system, Islam said.
Swosti, a non-government organisation, has introduced an automated credit and savings management application using mobile phones, said its Chief Executive Officer AI Muqsit.
All data related to fund collection, withdrawal, asset purchase, salary disbursement, and fund transfer at branches can be entered through field-level officers’ mobile phones and subsequent reports are generated instantly.
“The digital process has reduced the requirement for manpower. This has helped them work in other fields, including loan recovery. This is also a time-saving process and help avoid error while inputting data,” Muqsit added.
The country’s existing market size of supply chain financing is about $6 billion to $8 billion, but only 1-3 percent have so far been captured, said Muhymin Chowdhury, deputy challenge fund manager of the BFP-B.
“So, there is a huge untapped potential in the sector.”
The market volume of microfinance will surge to $21 billion from the existing $14 billion if microfinance institutions (MFIs) use digital platforms successfully, Chowdhury said.
“Digital transformation will help companies and other entities take decisions promptly, strengthen their customer relationship, and give a boost to their sales and marketing.”
Lenders could reduce their operation costs significantly if they use blockchain platform, said Feisal Hussain, team leader of the BFP-B.
“The digital system will help both NBFIs and MFIs disburse loans at a faster pace.”
He said a vibrant ecosystem would have to be built in the interest of digital transformation in the financial sector. “And every entity should play its due role to this end.”
IPDC can serve a small portion of the supply chain financing, said Afsana Islam, private sector development adviser of the UKAID.
The digital transformation system is developing and other sectors should come forward and join the platform, she added.