Financial Express Report - 18 January 2008
Bangladesh Bank and the UK Department for International Development (DFID) Wednesday announced their support to provide more than 240 million taka in grants to local firms and NGOs for 13 projects aimed at improving remittance processing and encouraging Bangladeshis living abroad to increase their contributions to the Bangladesh economy.
Worldwide innovations in financial services are not necessarily centred in rich countries. In the arena of microcredits, for example, Bangladesh is an international leader. Now, in the remittance sector, in the first programme of its kind in the world, Bangladesh Bank, in partnership with DFID, is providing grants to private sector institutions and NGOs to encourage investment and innovation in remittance processing and in improving investment opportunities for migrants and their families.
The grant facility is called the Remittance and Payments Challenge Fund. According to its manager, Robert Smith, the demand for grants has been very high. "Altogether, we received 90 grant applications during 2007, many to support credible and high quality investment projects. With grant funding totalling Taka 29 crore it is possible to make a real difference. Investments are being made now that might not otherwise have taken place and these investments can be expected to have a real impact on the way remittances are processed and used".
A key feature of the challenge fund mechanism is the sense of competition that it creates among the banks and NGOs, and the way their ideas seed the debate on how to reform the environment for remittances and payment processing. Khandakar Muzharul Haque is Executive Director of Bangladesh Bank and is in charge of payment reform. "The challenge fund provides Bangladesh Bank with an additional policy tool to complement the changes we would like to see in the remittances and payments processing environment. We see what plans the private sector has, and this helps us to think positively about how we need to adjust our regulatory and licensing regime."
One example of a funded project is a partnership between National Credit and Commerce Bank Ltd (NCCB) and Thengamara Mohila Sobuj Sangha (TMSS), a leading Bangladesh microcredit NGO. The partnership will enable NCCB to fulfill its remittance delivery obligations using 250 remote branches of TMSS. Latest technology will be used, with debit cards issued to migrants' families rather than cash, and electronic point-of-sale equipment used to allow the card holders to draw out cash as they need it.
Deputy Managing Director of NCCB Shamshul Alam is a keen fan of the challenge fund programme. "Our bank is a committed remittance market player, and we believe our new debit card remittance product will be vastly more attractive to migrants and their families compared to traditional remittance products such as bank drafts. A problem has been trying to bring our services closer to where the migrant family lives, and our partnership with TMSS will help overcome that. The challenge fund has been instrumental in allowing us to build this partnership much faster than we could have afforded. The benefits to Bangladeshis will be seen quicker as a result."
Other signed deals will also have a significant impact in the way remittances are handled, and they are in the process of regulatory approval from the relevant authorities. The emphasis is on using new technology, and introducing efficient, more convenient remittance delivery channels. There will be major changes in the ways that domestic remittances are handled that will help, among others, rickshaw drivers and RMG workers to send money back to their villages efficiently, quickly and cheaply.
Deputy Challenge Fund Manager Anwaruddin Chowdhury has been with the programme since its inception "We agreed on the priority areas for grant funding in advance with Bangladesh Bank. Early grants have focused on improving private sector remittance processing, but in 2008, we expect grants to be finalised in other priority areas such as improving investment options for NRBs and improving remittance processing in Sonali and Agrani Banks. Many remitters have accounts at these banks, and we are encouraging private sector partners to help these state-owned giants to offer a better service in an increasingly competitive market."
Robert Smith added "We are planning to support efforts made at the grass roots level. Many migrant families would like an opportunity to put some of their savings to productive use. Buying land is a popular option, but economically this forces the price of land up, and this is no help to those who are trying to climb out of the poverty trap".
He added "With the right attitude, access to quality entrepreneurial and vocational training, and linkages to existing development initiatives, we believe that returning migrants and migrant families have a key role to play in generating employment and diversifying the rural economy. We will co-fund a number of projects in 2008 to help NGOs and others introduce and deliver training programmes and linkages."
The fund is part of a broad-based initiative, delivered through Bangladesh Bank, known as the Remittance and Payments Partnership (RPP). Other key aspects of the partnership include the upgrading of the shared payments infrastructure, including automated cheque processing and enabling electronic payments; modernising laws and regulations; direct interventions to improve the use of the formal sector for remittances, including migrant awareness raising and getting a clearer picture on how migrant families receive and use their remittances.
The Partnership's manager, Richard Moss, explained that "The challenge fund has raised awareness in Bangladesh across the board as to the potential for modernising payments systems, especially remittance systems. These private sector initiatives leverage the work of the RPP."
Richard Boulter is a private sector adviser with the UK's DFID, which is funding the partnership. "The challenge fund has demonstrated that it is not always necessary to rely on the public sector to provide all of the answers or solutions. Private sector players have strong incentives to improve service quality, and we have seen through the grant applications that they are willing to invest to maintain or improve their competitive edge. Bangladesh Bank is the natural partner to deliver the challenge fund given its dual role of financial sector supervision and as a primary agent of economic development. We expect to count this initiative among our successes".