Digital Transformation of MFIs in Bangladesh

This report elaborates on the status of digitization in the microfinance sector in Bangladesh and explores technology options and next steps towards digital transformation. It presents internal and external challenges faced by the microfinance sector in Bangladesh and the need for digital transformation. The research focuses on various options of digital transformation as a way forward, identifying key pillars for digital transformation including digitizing processes, digitizing product and business models, digitizing channels and digitizing customer engagement.

Key findings in the report are:

• A majority of microfinance institutions (MFIs) have migrated to web-based, real-time loan management system (LMS) and a centralized database.
• All MFIs surveyed for this study have financial accounting software and it is integrated with the loan management system.
• Most of the large and mid-sized MFIs have automated some human resources functions. Small MFIs are yet to integrate these technologies at the back-end.
• A few of the surveyed MFIs (large and mid-sized) have been piloting digital field applications (DFA).
• MFIs such as BRAC, Shakti Foundation and Sajida Foundation have rolled out pilot tests for cashless loan disbursements.
• Some of the large and mid-sized MFIs have initiated discussions with their technology service providers for DFA solutions, while other MFIs have shown willingness to implement DFA. Small-sized MFIs, however, are not yet looking to utilize DFAs in their operations.
• As for other options in the digital application spectrum, few MFIs have ventured into advanced technology integration. Only a few of the MFIs surveyed have rolled out pilot tests for cashless loan repayments (Sajida Foundation) and savings collection (BRAC) through mobile wallets.
• Most of the MFIs surveyed lacked awareness and willingness to explore emerging technologies such as digital credit and artificial intelligence enabled tools.