Renowned economist Dr Birupaksha Paul emphasised the need to break the monopoly in the mobile financial service (MFS) sector in order to enhance the circulation of money.
He acknowledged the transformative impact of MFS providers like bKash and Nagad on the economy of Bangladesh but stressed that their monopolistic practices, which contribute to their significant profits, must be dismantled to promote greater velocity of money.
Birupaksha Paul, a former Chief Economist of Bangladesh Bank and Economics Professor at the State University of New York in Courtland, recently shared these insights in an exclusive interview with Barta24.com, focusing on contemporary issues within Bangladesh's financial sector.
The discussion encompassed the potential of digital technology in financial services, digital financing, remittances, and the assessment of current trends. Ashraful Islam, Planning Editor of Barta24.com, facilitated the conversation.
Dr Paul suggested that the development of the mobile financial service sector should strive to reach the level that the remittance sector has seen through its portrayal as a matter of public interest. He believes that this advancement will enhance the velocity of money, allowing a one-taka note to generate value equivalent to Tk10.
He also advocates for increased competition for the development of the mobile financial sector.
The first part of the interview with Birupaksha Paul unfolds as follows:
Barta24.com: Despite some negative feedback regarding digital financing technologies, they undeniably contribute to diversifying financial services. What's your take on this?
Dr. Birupaksha Paul: Absolutely, technology has played a pivotal role. Back when I was a university student, I recall a gentleman who used to deliver money orders in the afternoons. He'd hand over a portion of the amount upfront, keeping some as gratuity. People eagerly awaited his arrival for news of their money orders.
Back then, digital technology wasn't as prevalent. Now, platforms like 'bkash' and 'Nagad' have revolutionised the process. I even discussed this in an interview with The Economist. Today, even a rickshaw puller can easily send money to their relatives and notify them. However, the transaction costs remain high, which needs addressing. Ideally, these costs should be brought down to zero, exploring alternative means to benefit the MFS service providers.
Institutions like 'bKash' already generate revenue through advertisements on their platforms. The government may consider exploring alternative revenue streams for them.
If a common man is charged Tk20 for a transaction of Tk1000, it poses a difficulty for him. With that Tk20, he could purchase another essential product. Every taka matters, especially to the common man.
During my tenure at the Bangladesh Bank, 'bkash' dominated 85% of the mobile financing landscape before other competitors emerged.
In Bangladesh, once a monopoly is established, it tends to persist for a prolonged period. Conversely, abroad, creating a monopoly often faces numerous challenges. High Court intervention can break a monopoly, and court scrutiny is involved in potential mergers to prevent monopolistic outcomes.
Unlike many countries with robust Anti-Competition Commissions, our Competition Commission lacks visibility and effectiveness. It is often led by retired bureaucrats, which contributes to institutional weaknesses in innovation index rankings.
Barta24.com: Why hasn't the system developed for remittance been replicated in internal mobile financing?
Dr. Birupaksha Paul: Unlike expats, who don't incur extra costs when sending remittances, internal mobile financing lacks similar efficiency. To facilitate easier access to funds domestically, substantial agency support is crucial. Increasing the circulation of money, as advocated in the Quantity Theory of Money, strengthens the economy. By boosting monetisation and velocity, consumers can meet immediate needs and enhance overall satisfaction and social welfare.
Personal experiences highlight the swift transfer of funds, exemplifying the convenience and benefits of efficient financial services. For individuals like rickshaw pullers, who rely on timely transactions to support their families, these services provide invaluable consumer surplus. Ensuring timely access to funds can prevent tragic consequences, promoting safety and well-being within society.
Beyond economic benefits, these financial services offer psychological and welfare advantages, underlining their significance in enhancing inclusion and overall societal welfare. It's imperative to delve deeper into these topics to fully understand their impact and potential.
Barta24.com: How crucial will digital technology be in achieving the macroeconomic goal of transforming into a developed country by 2041?
Dr. Birupaksha Paul: Technological advancement is imperative for progress. We must assess our position in the Global Technology Index to gauge our advancement. Mere increases in per capita income do not guarantee development, as evidenced by cases like Yemen and Somalia, where sudden resource discoveries did not translate to overall development due to underlying societal issues. Development requires a multifaceted approach, encompassing education, societal values, and governance.
Enhancing social safety, promoting justice, and fostering empathy are vital components of progress. Amartya Sen highlights the importance of a free media in preventing famines and fostering accountability. Furthermore, advancements in information economics contribute to rational decision-making and expectations. Thus, digital technology serves as a catalyst for comprehensive development and societal progress.
Barta24.com: We're witnessing a political aspiration to transition into a developed country. How do you assess its feasibility?
Dr. Birupaksha Paul: Our esteemed Prime Minister envisions a developed country by 2041, displaying remarkable foresight and determination. Despite skepticism from engineers, she pressed forward with projects like the subway, illustrating her resolve. However, many advisers surrounding the prime minister provide her with incorrect advice and misinformation.
From an economic standpoint, the timeline for achieving developed status seems ambitious. Economic realities demand more than just political enthusiasm. While GDP growth is a crucial metric, it's not the sole indicator of development. Social indicators and values, depicted eloquently in Satyajit Ray's film "Jalsaghar," are equally significant.
Sudden wealth doesn't equate to nobility or progress. True development requires investments in mental and physical health, education, and social welfare. Bangladesh faces various challenges, including environmental degradation and health crises like Covid-19. Prioritizing holistic development over solely economic gains is essential.
Relying solely on GDP and per capita income metrics is shortsighted. Recent devaluation has affected per capita income, necessitating a broader perspective on development beyond monetary figures. Addressing these challenges requires a comprehensive approach and a focus on sustainable growth, rather than quick fixes.
In striving for a better world, we must prioritize the beautification and strengthening of our institutions to foster trust and reliability. Whether it's visiting the passport office or dealing with agencies like Rajuk, the public should have confidence that their affairs will be handled efficiently and transparently. Despite progress, corruption remains a persistent issue, eroding our advancements and hindering growth.
Even amidst challenges like Covid-19, countries like the US have managed to sustain growth, demonstrating the importance of effective governance and institutional integrity. However, in Bangladesh, corruption has impeded our potential, leading to a decline in growth and enabling large-scale money laundering.
It's crucial to address institutional weaknesses and ensure consistency in policies to maximize the benefits of digitisation. Merely adopting technology without strengthening institutions risks empowering wrongdoers rather than benefiting society. We must focus on comprehensive reforms and prioritise the fight against corruption, shifting our focus from corruption indices to knowledge economy indices and innovation rankings.
These efforts will not only enhance financial inclusion but also empower the marginalised segments of society. Political rhetoric must be backed by sustained action, with a collective effort to address systemic issues. Just as in healthcare, where overall well-being is vital, a single weak link can compromise the entire system's performance. Therefore, holistic improvements across all sectors are imperative for sustainable progress and prosperity.
Barta24.com: How effectively have we harnessed the potential of digital technology in the financial services sector?
Dr. Birupaksha Paul: Access to capital is essential even for setting up small tea shops in villages. However, financial inclusion efforts have fallen short in providing access to credit, particularly for small businesses. Many NGOs attempt to address this gap, but challenges persist, including issues with fund allocation and financial architecture.
A critical aspect to consider is the balance between bonds and equity in financial institutions' balance sheets. Unfortunately, our financial regulations often hinder rather than facilitate inclusive practices. Diverse directorships in banks and financial institutions can bring valuable perspectives and ideas, yet we often lack diversity in leadership roles, which hampers innovation and inclusivity.
Contrary to international norms that value diversity, Bangladesh tends to favor homogeneity, whether in educational institutions or workplaces. This aversion to diversity undermines inclusion efforts and stifles creativity. Cultural biases and nepotism further exacerbate these challenges, hindering progress and effective decision-making.
Cultural shifts are necessary to embrace diversity and foster an environment of tolerance and acceptance. Without addressing these cultural barriers, achieving meaningful progress in financial inclusion and innovation will remain elusive. It's crucial to recognise and challenge these biases to create a more inclusive and dynamic financial sector.
While India has also seen the rise of wealthy individuals, their success is rooted in a corporate structure with contributions from various sectors, benefiting society at large. Recent achievements, such as the success of BATA, highlight the employment opportunities created by embracing diversity—whether cultural, religious, or gender-based.
The strength of America lies in its cultural and religious diversity, which fuels innovation and progress. Despite challenges, America's resilience stems from its knowledge-driven economy, as noted by economist David Romer. Unlike physical resources, knowledge yields endless possibilities, exemplified by the tech giants that consistently lift the country's economy.
However, progress must be genuine, not just rhetoric. True empowerment of the poor requires tangible actions, not just words. Sadly, our justice system often fails to hold the powerful accountable, allowing corruption to persist unchecked. The stark reality is that while small-time offenders face punishment, those responsible for massive financial crimes evade justice, further exacerbating inequality and injustice.
Edited by: Mahmood Menon, Editor-at-large, Barta24.com