Every industry in the world has seen some dramatic changes in the last decade due to the digital revolution. Financial Industry is one of the industries which was impacted the most in this regard. Through the introduction of online banking system, the Banking solution all over the world has changed drastically.
The Digital Banking system brought along many new features which were not available with traditional banking. One of the significant features is the convenience of banking from anywhere, anytime, while traditional banking requires a customer to conduct business physically. Another vital feature which paved the way for the Digital Banking to be an integral part of our life is the availability of 24/7 customer service through online chat, email or phone whereas the traditional banking requires the customer to conduct banking by physically meeting the banking official.
Bangladesh Bank being the apex bank of the country, constantly promotes an enabling regulatory environment allowing digital innovation to make a robust, efficient and secured financial system. Accordingly, Bangladesh Bank recognizes the role of digital platforms and usage of artificial intelligence in driving greater efficiency in the delivery of financial products and services and in widening the outreach of the financial system. In a quest to uphold its stance, pursuant to section 31 of the Bank Company Act 1991, the central bank has opted for revolutionizing the financial landscape by way of issuing a license for Digital Banking and has laid down a detailed guidelines depicting the application process for obtaining the license for establishing a Digital Bank. The main ethos of establishing such a bank is efficiency and convenience and that a Digital Bank will operate without any branches, sub-branches, or ATM booths. Furthermore, there will also be no in-person transactions and banking services will be provided to customers only using mobile and digital devices.
The “Guideline to establish Digital Bank” has laid down some mandatory rules which need to be followed to establish a Digital Bank in Bangladesh. Firstly, the applicant or the proposed Digital Bank is required to be incorporated as a public limited and need to comply with the provisions of Bangladesh Payment and Settlement Systems Regulations, 2014 to carry out banking business in Bangladesh. As per the guideline, the minimum paid up capital for a Digital Bank needs to be BDT 125.00 (One hundred twenty-five) crores or as determined by the Bangladesh Bank time to time as per section 13 of the Bank Company Act, 1991. The sponsors and subscribers of the proposed Digital Bank need to make the capital contributions in cash. The initial paid-up capital needs to be paid by the sponsors of the proposed Digital Bank. The shareholding stake of each sponsor should at least be BDT 50.00 lacs. The proposed Digital Bank shall also need to go into initial public offering within 5 (five) years from the date of license issued by the Bangladesh Bank as per the Guideline.
The Guideline has also laid down the framework of the constitution of the Board of Directors of the proposed Digital Bank. The Board of Directors of the proposed Digital Bank needs to be formed following section 23 of the Bank Company Act, 1991 and the relevant directives of Bangladesh Bank. The size of the Board needs to be decided as per section 15 (9) of the Bank Company Act, 1991. Additionally, the Guidelines also outlines a requirement for Digital Bank entrepreneurs to engage in a capital preservation agreement whereby in case a bank’s capital falls below a certain threshold, entrepreneurs are required to provide additional capital. Individuals with outstanding debts are ineligible to become Digital Bank entrepreneurs along with individuals with pending cases of loan defaults against them.
Despite abundant prospects and opportunities, Digital Banking system is still at its infant stage in Bangladesh. The government of Bangladesh through its regulatory body, Bangladesh Bank is commencing the system to ensure cost-effectiveness, accessibility, and convenience in banking system of Bangladesh. As Digital Banking system expands in Bangladesh, it will likely have a positive impact on the economy of Bangladesh. Nevertheless, it is also likely to face the conundrum of limited digital infrastructure in the country. This is because even in the 21st century, there are still some remote locations in Bangladesh whereby mobile network in inaccessible. As such, to ensure development of the Digital Banking system throughout the whole country, collective efforts need to be made to develop the digital infrastructure and promote digital literacy so that the convenience and efficiency of banking can be enjoyed by a wider population.
Tasmiah Zaman, Barrister-at-Law, is the Co-Lead of Corporate & Employment Law Department at Mahbub & Company (tasmiah.zaman@mahbub-law.com) and Sharid Sarwardhi, Barrister-at-Law, is an Associate at Mahbub & Company (sharid.sarwardhi@mahbub-law.com)
