Private commercial banks in Bangladesh have been historically shying away from micro lending. Since 2009, banks’ share of microcredit lending never crossed the threshold of 15%. Few phenomena led to this behavior:
· On scalability front, the loan size of micro loans are so meagre compared to the average ticket size of private commercial banks. Therefore, in order to be make micro lending scalable enough, banks have to finance a substantial number of micro enterprise.
· On operational efficiency front, in order to reach the desired volume of micro enterprises and provided that microcredit assessment is extremely laborious due to lack of data, banks will have to deploy a greater number of human resource and thus incur higher operational cost. At the same time, the operational cost required to underwrite a micro loan is almost same as that of a large loan.
Having said that, a handful of private commercial banks started venturing into micro lending in recent times. Digital adoption in the operational process of micro lending is a way banks can achieve scale in micro lending. BRAC and few other MFIs introduced Digital Field Application (DFA) where the field officers can directly input client data in tab, instead of manually writing down on the sales sheet and then again input in their software. It is high time, banks should penetrate into this market by being digitally innovative. At the same time, regulators should address easing of requirements like KYC, excise duty, trade license and TIN to encourage banks penetrate into this market by making the assessment process cost-effective.