Bangladesh Bank plans up to Tk 5,000 digital loans for utilities, top-ups

People will soon be able to borrow digitally from banks to pay utility bills and top up their mobile phones. The interest-free loans, ranging from Tk 50 to Tk 5,000, will have to be repaid within 30 days.

There will be no interest on such loans. Banks will instead be allowed to charge a fixed service fee based on the amount, according to a draft policy by the Bangladesh Bank (BB).

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The central bank said the facility would help expand digital financial services and promote a cashless economy.

The BB has published the draft for public consultation and feedback. Central bank officials said they would review comments from stakeholders before issuing the final policy.

The maximum service fee will be Tk 5 for loans of Tk 50 to Tk 250. The fee will rise to Tk 10 for loans of Tk 251 to Tk 500, Tk 15 for loans of up to Tk 1,000, Tk 25 for loans of up to Tk 2,000, Tk 35 for loans of up to Tk 3,000, and Tk 50 for loans of Tk 3,001 to Tk 5,000.

Banks will not be allowed to charge any interest, penalty, processing fee or other charge beyond the fixed service fee. Customers who repay their loans before maturity will also not have to pay an early settlement fee.

The entire lending process will have to be completed digitally. Instead of physical signatures, banks will have to verify customers through biometric authentication and obtain their consent digitally.

Banks must also verify customers through registered mobile SIMs and one-time passwords, and use two-factor or multi-factor authentication where necessary.

According to the draft, bank agents and third-party service providers will not be allowed to store customer biometric information.

To strengthen cybersecurity and protect customer data, commercial lenders will have to store all customer and loan-related information at data centres located in Bangladesh, in line with the BB’s cloud computing and cybersecurity guidelines.

For such small loans, real-time checks through the Credit Information Bureau (CIB) have been temporarily relaxed until the BB’s API-based 24/7 CIB system becomes fully operational. However, banks must put safeguards in place to prevent loans from being disbursed to defaulters.

Banks will also not be allowed to charge customers a CIB inquiry fee for this product.

Before disbursing a loan, banks must collect information about a borrower’s existing loans from other banks, finance companies and mobile financial service providers, where applicable, to comply with the Bank Company Act.

Banks will have to clearly explain the loan amount, repayment period, fees and repayment methods before obtaining customers’ consent, as per the draft. Besides, banks will have to take steps to improve customers’ financial literacy.

Before launching it commercially, scheduled banks will have to pilot the product for at least six months. After a successful evaluation, commercial lenders will be allowed to roll out the product after obtaining approval from their respective boards of directors.

Seeking anonymity, a senior central bank official told The Daily Star that City Bank has applied to the BB to introduce the loan product. The application prompted the central bank to prepare a policy that can be used by all banks.

Muhit Rahman, managing director of One Bank, said, “This will be a good move. Our neighbouring countries already have such loan products.”

He said the central bank’s draft policy is still at a preliminary stage and needs further clarification on issues such as borrower identification, borrower assessment and other operational aspects.