IFC INCLUSIVE BUSINESS CASE STUDY | bKash Country: Bangladesh Sector: Financial Services $10 million bKash IFC Investment: Access to finance is a challenge in Bangladesh, where only 40 percent of the adult population holds a bank account at a formal financial institution.1 This is a major problem for the working poor, many of whom migrate from villages to towns, cities, and even overseas in search of work, and who have no choice but to use informal options to send money home. Some find an acquaintance willing to carry cash on the journey to their home village; others work with middlemen who charge high fees. But today around 23 million people rely on bKash, a leading bKash is now used by all types of businesses from the mobile financial services company, to safely send money self-employed rickshaw pullers sending money to their over their mobile phones—and even to save money and to families, to small business owners paying workers’ wages pay for products and services. bKash transactions are not directly rather than through intermediaries, to mom-and- only secure but are also simple to conduct and accounted pop shops paying bills remotely and eliminating the need for in the formal financial system. The company was to travel to pay their suppliers in person. The average started by two Bangladeshi-American tech entrepreneurs transaction size is $16. and a local bank. They wanted to leverage mobile phones—which are ubiquitous in Bangladesh—to provide bKash was established in 2010 as a joint venture between a broad array of financial services to millions of unbanked Money in Motion LLC—an American company that invests Bangladeshis, including those in rural areas. in start-ups that advance financial inclusion—and BRAC Bank, a commercial bank in Bangladesh focused on small 1 IFC INCLUSIVE BUSINESS CASE STUDY | bKash and medium enterprises. It has played a major role in A HISTORY OF ENTREPRENEURSHIP building Bangladesh’s mobile financial services industry from scratch and is the country’s leading player, accounting The Quadir brothers grew up in Bangladesh and for 75 percent of the market. bKash operates as a BRAC 2 moved to the United States in the 1970s. Prior to Bank subsidiary and now counts the International founding bKash they had already started a number Finance Corporation (IFC) and the Bill and Melinda Gates of tech-related ventures. Foundation as minority shareholders. In 2005 bKash’s CEO Kamal Quadir created CellBazaar, a first-of-its-kind online classifieds company in Bangladesh that connects buyers and sellers through mobile phones. Within a few 110 million transactions years CellBazaar gained four million users and was acquired by the global telecom company Telenor. are conducted through Iqbal Quadir, Kamal’s older brother, had worked in investment banking before co-founding the bKash every month mobile telephone company Grameenphone in the late 1990s, together with Telenor and Grameen Bank. He later launched Emergence Energy to support small-scale neighborhood plants for electricity generation. JOINING FORCES In 2009, Iqbal and Kamal Quadir together started bKash was launched by two brothers, Kamal and Iqbal Money in Motion. They founded the company with Quadir. Mobile financial services had taken off in the Nick Hughes who led the launch of Africa’s first Philippines, Kenya, and other emerging markets when the major mobile financial services venture, M-PESA, two Quadirs brothers decided to bring it to Bangladesh. in Kenya and Arun Gore, managing director of venture capital firm Grey Ghost Capital. In need of a local partner, the Quadir brothers began to engage BRAC’s founder, Fazle Hasan Abed, in 2008. Abed had a 40-year track record serving the poor with BRAC, one of the largest nongovernmental organizations worldwide. BRAC’s strong presence in Bangladesh and its well-recognized and trusted brand made it attractive as a potential partner. Discussions between the Quadirs and Abed continued over a two-year period. In 2010 they committed to establish a joint venture between Money in Motion and BRAC Bank. 2 IFC INCLUSIVE BUSINESS CASE STUDY | bKash bKash’s Value Chain An Overview of Challenges and Solutions Product Distribution Marketing & Customer Development Sales Service Value Chain • Customers are • Building a • People lack • People fear averse to trying distribution confidence making new services network is in using new mistakes during costly, but technology transactions and Challenges in essential • Old habits are losing money Providing • Customers are hard to change • Customers lose Mobile geographically • Low literacy faith if they dispersed cannot deposit Financial levels or withdraw Services • Limited cash purchasing power • Sequences • Builds multiple • Addresses • Provides in- introduction of distribution existing pain person guidance mobile financial partnerships for points which on transactions services from dense coverage helps customers through agents bKash’s simple to more • Uses existing recognize • Makes mini complex the value of Solutions distribution mobile financial account • Offers infrastructure statements services services that available through low-income • Simplifies the mobile phones customers are process to • Sends virtual most likely to set-up a bKash receipts after use account transactions have • Educates been completed customers • Works with about mobile distribution financial partners to services maintain liquidity • Offers low-cost in system transaction fees 3 IFC INCLUSIVE BUSINESS CASE STUDY | bKash Their timing was favorable, as a government initiative in Gates Foundation granted $10 million in 2010 to consulting Bangladesh to encourage the poor to set up bank accounts firm Shore Bank International to support bKash’s with as little as $0.12 had been facing challenges due to the development. The grant covered strategic and operational cost of conventional banking, unavailability of banks where planning, distribution, and marketing. the poor lived, and the formality of bank transactions. The government was looking for alternatives to expand As bKash refined its business model and expanded rapidly, financial services to the low-income segment and mobile it attracted equity to support further growth. In 2013 IFC financial services emerged as a viable option. took a minority stake in the company through a $10 million equity injection. IFC aimed to advance financial inclusion In 2010 Bangladesh’s government began to develop in Bangladesh by investing in a business with growth regulations to guide the mobile financial services potential and a strong team. The key factors for IFC’s industry and decided that banks, with the oversight investment decision were: of the central bank, should be the lead partner in any mobile financial services venture. To comply with this • The Quadir brothers’ extensive entrepreneurship regulation, Bangladesh Bank, the country’s central bank, experience in technology and their execution capabilities. recommended that BRAC Bank establish bKash as a subsidiary, which would allow it to receive a mobile • The partnership with BRAC Bank. financial services license. BRAC Bank and bKash would jointly manage bKash’s compliance with mobile financial • Bangladesh’s defined regulatory guidelines for mobile regulations: “know your customer” (KYC) and anti-money financial services. laundering and combating the financing of terrorism (AML/CFT). In addition to equity, IFC assisted bKash with its corporate governance, which would be critical for the company DIVERSE INVESTORS to attract private sector investors in the future. IFC also helped bKash expand its network of merchants—a variety To get bKash’s operations off the ground, Money in Motion of service locations and stores including mom-and-pop provided $5 million in seed capital and Kamal Quadir shops that accept bKash payments. In the following year, became chief executive officer, building the business from 2014, the Bill and Melinda Gates Foundation also took an scratch. The company also benefited from grant support: equity stake in bKash. Under a financial inclusion initiative, the Bill and Melinda 4 IFC INCLUSIVE BUSINESS CASE STUDY | bKash TRANSACTING THROUGH bKASH Figure 1: Steps to Opening a To open a bKash account, new customers need only visit a bKash agent who checks their identity papers and sets up bKash Account 3 an electronic wallet (e-wallet) (Figure 1). This is a virtual account linked to the customer’s mobile phone number for unique identification. Customers add electronic money 1 n 1 Customer visits bKash Agent (e-money) to their e-wallets through remittances and salary payments.4 They can also give bKash agents physical cash to convert into e-money, called ‘cash-in.’ Remittances and Customer fills out Know Your Customer cash-in are the most common ways for the unbanked to form prescribed by Bangladesh’s 2 central bank, presents a photo ID and fund their e-wallets. passport photos Per regulation, bKash initially deposited the full value of a customer’s e-wallet balance in a BRAC Bank account monitored by the central bank. Because of the enormous 3 Agent registers customer banking support required in cash management, together with the need to diversify customer deposits, beginning in 2015 the central bank required bKash to deposit customers’ money with multiple banks. To access their Customer receives a text message 4 confirming account opening bKash accounts, customers dial a code on their mobile phones which generates a text menu. Customers then enter information a unique personal identification number (PIN) to access their e-wallets and make transactions. They can withdraw Customer activates account by dialing physical cash or ‘cash out’ from their e-wallets at any time 5 *247# and then a unique 4/5-digit pin by going to a bKash agent’s store. to access the e-wallet For many customers, a bKash agent is the familiar face of the owner of the local grocery store. An agent’s role in Customer can add money to e-wallet providing actual ‘cash-in and cash-out’ services was critical 6 and receive money from the beginning, as Bangladeshis live in a predominantly cash-based economy and would lose confidence in mobile financial services if they couldn’t get cash from their After 3-5 days, customer receives a e-wallets on demand. Agents educate customers and 7 text message to start using all bKash provide step-by-step guidance to making transactions. In services return, becoming a bKash agent is an opportunity for small entrepreneurs to earn additional revenue and increase traffic to their stores. As per regulations for mobile financial services, bKash regularly trains agents on topics such as “know your customer”, anti-money laundering and combating the financing of terrorism, and fraud management. This helps agents to keep abreast with the latest information on financial protection. 5 IFC INCLUSIVE BUSINESS CASE STUDY | bKash PATHWAY TO SCALE and Airtel—over a three year period beginning in 2010.6 bKash focused on scaling rapidly from the outset. It Collectively these companies had access to over 98 percent launched operations in July 2011 and quickly grew from two of Bangladesh’s 100 million mobile phone subscribers. By million customers in 2012 to 10 million by the end of 2013. 2016, bKash had built partnerships with all mobile providers The company made four early strategic decisions to enable in Bangladesh.7 its rapid growth: OFFER LOW-COST TRANSACTIONS. bKash’s DELIVER FINANCIAL SERVICES THROUGH BASIC PHONES. The low-income customers bKash targeted had basic phones and so $ business model was based on low fees and high volume—it charged very low transaction fees and relied on billions of small-size the company built a user interface that transactions to generate revenue. Affordable fees helped would work on any type of phone, including the basic $15 drive the adoption of mobile financial services among low- handsets widely used by the working poor. 5 income customers (Table 1). Unlike some other providers, bKash didn’t charge customers a fee to add money to their PARTNER WITH MOBILE NETWORK e-wallets. Nor did it set a minimum fee for withdrawing OPERATORS. bKash sought partnerships physical cash from an e-wallet. Instead, bKash charged with mobile network operators in order to customers who received a money transfer a flat fee on reach a large number of customers quickly. the amount withdrawn. Transactions fees to institutions Moreover, multiple partnerships would facilitate seamless including businesses and merchants were other sources of transactions between customers regardless of their revenue for the company.8 network. So bKash set up revenue-sharing agreements with four providers—Robi, Grameen Phone, Banglalink, LEVERAGE COMMERCIAL DISTRIBUTORS. bKash built a vast agent distribution network (Figure 2) to serve customers who were geographically dispersed in urban, semi-urban, Table 1: bKash’s Fees and rural locations. Its agents are typically small retailers such as the owners of mom-and-pop shops. They enroll TYPE OF TRANSACTION FEE customers, educate them about mobile financial services, and convert cash or other payments into e-money and vice Account opening Free versa as customers require. Cash-in at an agent Free Cash-out from an agent 1.85% flat fee The company began building its agent network in 2011 with the support of BRAC and Shore Bank International, Person-to-person money BDT 5 ($0.06) selecting 5,400 bKash agents from a pool of small retailers transfer who were BRAC micro finance customers. However, after Bill and merchant payments Free this pilot bKash realized that it would need to explore other (fee to customer) types of partnerships to expand its agent network. Merchant payments 1.3% to 1.8% (cost to merchants) bKash began to work with commercial distribution Business-to-person 0.5% companies that supplied consumer goods, mobile phone disbursement (negotiable) airtime, and household products to the thousands of small (fee to business) stores that had the potential to be bKash agents. 6 IFC INCLUSIVE BUSINESS CASE STUDY | bKash SEQUENCING SERVICES It developed a commission structure that made it profitable for distributors to recruit and manage owners of small As the first major mobile financial services provider in stores as bKash agents. Over time, bKash would come to Bangladesh, bKash played a significant role in driving work with 140 distribution companies. It would also bring adoption of those services among low-income customers. on other types of partners to expand its agent network, One way bKash achieved this was by sequencing its such as the country’s largest courier service that had 5,000 services. This was critical because most Bangladeshis were service locations in Bangladesh. unfamiliar with mobile finance. To get people to switch from cash to e-money, bKash would have to build public trust one service at a time. Since there was no single recipe for introducing mobile As confidence in financial services in a new market, bKash had to identify which services people needed most and then decide on bKash’s services the order of roll-out. The company started with the most grew, the company basic service possible: person-to-person money transfer. This would help migrant workers in cities and towns in introduced more Bangladesh to send money to their families back in the diverse services for villages. bKash also introduced a savings product for customers to save money in their e-wallets, paying interest low-income customers rates of between 1.5 and 4 percent on account balances. This proved to be particularly attractive for unbanked and Figure 2: bKash’s Distribution Network COMMERCIAL DISTRIBUTORS* RUNNERS AGENTS (Master Agents/Aggregators) (Staff of Distributors) (Small Shop Owners) Footprint: 140 in bKash’s network Footprint: ~30 per Footprint: 120,000 in Role: distributor bKash’s network • Find suitable bKash agents in Role: Role: their territory • Visit agents to provide • Register customers • Manage agent liquidity by e-float/cash • Initiate opening e-wallets maintaining float** • Collect cash from • Educate customers • Deposit cash received from agents and send back • Collect cash from and provide cash agents into bank account to distributor to customers*** (BRAC or other banks) Revenue Source: Revenue Source: Earn commissions Salaried employees of Revenue Source: Earn commissions (% of customer transaction value) distributors (% of customer transaction value) *Serve several different companies in the FMCG and telecoms industries ** See footnote 8 for definition of float *** If agents run out of e-float, they cannot take any cash deposits from customers. Similarly, agents need cash on hand so customers can withdraw from their e-wallets 7 IFC INCLUSIVE BUSINESS CASE STUDY | bKash low-income customers, as for many it was their first formal send money instantly to their family members’ bKash opportunity to save and earn interest. The company then accounts in Bangladesh. expanded into more advanced types of services (Figure 3). As confidence in bKash’s services grew, the company After low-income customers gained confidence in bKash’s introduced more diverse services targeted at low-income money transfer service, the company introduced mobile customers. These included collection of deposits for savings phone airtime purchases, which save people a trip to a accounts with microfinance institutions, payment of micro store to buy an airtime card. Within a year of that service’s 9 loans, and disbursement of aid from donor agencies. introduction, over 10 percent of all mobile phone airtime purchases in Bangladesh were made through bKash e-wallets. By 2014 bKash had set its sights on making mobile payments the norm for purchases of products and services By its third year in operation, bKash introduced in Bangladesh. This involved getting merchants such as international remittances through BRAC Bank’s partner restaurants, supermarkets, hotels, hospitals, and retail banks in the United Kingdom and the United Arab stores—including the smallest mom-and-pop shops—to Emirates. Bangladeshi migrants in these countries could accept bKash payments in lieu of cash or credit cards. As of use banks to send money to family and friends back home 2016 people could use bKash at 30,000 merchants in major who would be able to receive the money in their bKash cities, approximately three times the number of shops that e-wallets. The following year, bKash expanded the reach accept credit cards in the country. Small shops found bKash of its international remittance service, partnering with helpful because it allowed them to avoid holding large MasterCard and Western Union, which had a presence amounts of cash which made them vulnerable to robberies. in 200 countries. Now the large Bangladeshi expatriate Over time, bKash believes the number of merchants that market, estimated at 10 million people worldwide, can accept bKash payments in small towns and villages will grow. Figure 3: Key Milestones in bKash’s History Develop idea Saving through Payments and launch e-wallets at 30,000 bKash merchants 2 million 10 million+ customers customers 23 million customers 2008– 2011– 2013– 2015– 2010 2012 2014 2016 Domestic Airtime International remittances; purchases, remittances Payments at salary, wage, merchants & social payments 8 IFC INCLUSIVE BUSINESS CASE STUDY | bKash SOCIAL PAYMENTS BUILDING CUSTOMER CONFIDENCE bKash facilitates disbursement of various Sequencing the introduction of services and pricing them types of financial grants to targeted recipients affordably were critical to getting unbanked individuals on behalf of nongovernmental organizations in Bangladesh to adopt mobile financial services. Just as and other institutions. This reduces the time important was building the confidence of the unbanked in between disbursement and receipt of aid money. conducting financial transactions through mobile phones. This service has been especially helpful during This entailed helping people to cultivate new habits. The emergencies and natural disasters. For example, unbanked would need to stop storing money at home Help Age International Bangladesh used bKash to or paying middlemen high fees to transfer their money, transfer money to senior citizens who used the and instead learn to save and use e-money in a secure organization’s health, emergency, and financial digital system. services. Another organization, Plan Bangladesh, transferred cash-for-work and livelihood grants to bKash knew such new habits would take time to develop, nearly 15,000 households using bKash. Similarly, but could be encouraged through education and hand- Oxfam transferred money via bKash to over 3,300 holding. So the company rolled out a large-scale awareness households in Dhaka for humanitarian relief campaign about mobile financial services. Mass advertising after a flood. The DFID and AusAID-funded Char along with street plays, short documentaries, and interactive Livelihood Program used bKash to reach 26,000 games educated potential customers about the benefits people in extreme poverty in remote islands with of such services and how to conduct transactions. These a $6 stipend per month for over four years. broad-based efforts were supplemented with in-person, step-by-step transaction guidance by bKash’s network of 120,000 agents. The company also added features to its user interface to make the process of conducting an electronic transaction as easy and reassuring as possible since the unbanked were afraid of making a mistake during a transaction and losing money. Customers could select a service by entering a number instead of typing a text message. This eased concerns among those with low literacy levels and no or limited knowledge of English which was the language of bKash’s user interface. Since many customers missed the security of a physical receipt, bKash provided receipts via text messages after transactions were completed. It also made mini-account statements available through the main menu so customers could check their e-wallet balance at any time. All of these efforts reassured customers and helped them progress in their ability to use mobile financial services. 9 IFC INCLUSIVE BUSINESS CASE STUDY | bKash MOVING TOWARD GREATER RIGHTS AND PERMISSIONS PROSPERITY © International Finance Corporation 2016. All rights reserved. The material in this work is copyrighted. Copying and/or Today, the name bKash is synonymous with mobile transmitting portions or all of this work without permission may be a violation of applicable law. IFC does not guarantee the financial services in Bangladesh. bKash has made great accuracy, reliability or completeness of the content included in strides in enabling the unbanked to access financial this work, or for the conclusions or judgments described herein, and accepts no responsibility or liability for any omissions or errors services and the company continues to work toward this (including, without limitation, typographical errors and technical goal. In 2015 over $16 billion worth of e-money moved errors) in the content whatsoever or for reliance thereon. through the bKash system which, at the very least, has increased the efficiency of Bangladesh’s $200 billion economy. Most importantly, bKash has enabled the unbanked to gain a foothold on the ladder to financial inclusion and, ultimately, to bikash—the Bengali word for prosperity and the inspiration for bKash’s name. For more information on inclusive business at IFC, visit www.ifc.org/inclusivebusiness ENDNOTES 1 Parvez, Jaheed, Islam, Ariful, and Woodard, Josh. 2015. Mobile Services in Bangladesh: A Survey of Current Services, Regulations, and Usage in Select USAID Projects. USAID, mSTAR and FHI360. 2 As reported by bKash. 3 bKash e-wallets operate on a FUNDAMO VISA technology platform and are fully encrypted to ensure secure transactions. 4 E-Money is stored value held in the accounts of users, agents, and the provider of the mobile money service. Typically, the total value of e-money is mirrored in a bank account so that, even if the provider of the mobile money service were to fail, users could recover 100 percent of the value stored in their accounts. Bank deposits can earn interest, while e-money cannot. Source: GSMA Mobile Money for the Unbanked. 2010. “Mobile Money Definitions.” 5 This interface utilized a global data channel called Unstructured Supplementary Service Data (USSD) which was the popular choice for mobile financial services since it was compatible with any type of mobile phone. USSD is a data channel on the Global Systems for Mobiles network, with a menu form of SMS through which customers receive a text menu on their phones instead of a string of words. USSD transports short messages between mobile phones and the network. It provides interactive dialog between the user and a certain set of applications. Source: FinMark Trust. 2007.” Mobile Banking Technology Options.” http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2012/06/finmark_mbt_aug_07.pdf. 6 bKash shares 7 percent of the revenue it earns through transactions fees with mobile network operators. 7 bKash works with all mobile network operators that use the Global System for Mobiles, i.e. GSM network. 8 bKash also earns revenue through interest on the float account, which is the balance of e-money, or physical cash, or money in a bank account that an agent can immediately access to meet customer demands to purchase (cash in) or sell (cash out) electronic money. Source: GSMA Mobile Money for the Unbanked. 2010. “Mobile Money Definitions.” 9 As shown in Figure 3, people in some cities could use bKash to pay for their purchases at select retail stores starting in 2011, but these payments became a major focus for the company in 2014. 10