Digital lending could expand formal credit access in Bangladesh by making small-value loans cheaper, faster and commercially viable for underserved borrowers, a study presented at the Bangladesh Institute of Bank Management (BIBM) found.
The research said technology-based lending can reduce transaction costs, overcome geographical barriers and use digital and alternative data to assess borrowers who lack conventional credit histories.
However, experts at a BIBM seminar on Wednesday warned that wider access to digital loans must be supported by responsible lending practices, stronger data protection and consumer safeguards to prevent excessive borrowing and financial risks.
The study titled “Digital Loans for Financial Inclusion: Prospects and Challenges for Bangladesh” examined the potential, challenges and future direction of digital lending through international experience, questionnaire-based evidence from banks and interviews with financial sector stakeholders.
It found that digital lending operating costs could be less than 1–2 per cent of the costs associated with traditional lending, creating significant scope for efficiency gains.
Bangladesh has already developed the foundation for digital lending through mobile financial services (MFS), agent banking, electronic know-your-customer (e-KYC) systems and digital payment platforms, the study said.
Despite this progress, the digital loan market remains concentrated mainly in nano-loans and bank-led or bank-MFS partnership models. Digital lending accounts for a significant share of retail loan disbursements and loan accounts, although its share of total outstanding loan portfolios remains relatively small.
The study estimated digital loan classification or default rates at around 3–4 per cent. Rural borrowers accounted for around 30–40 per cent of observed digital borrowers, while repeat borrowers represented around 45–60 per cent of the borrower base. Female participation varied significantly across institutions, ranging from about 3 per cent to 25 per cent.
The research said digital lending could particularly benefit underserved households, microentrepreneurs, farmers, women and micro, small and medium-sized enterprises (MSMEs).
However, it cautioned that financial inclusion should not be measured only by the number of borrowers or the volume of loans disbursed. Credit quality, affordability, sustainability and responsible use of loans should also be considered.
Bangladesh Bank Deputy Governor and BIBM Executive Committee Chairman Md Habibur Rahman said digital lending could help bring formal financial services to people who remain underserved by conventional banking channels. He said technology-based lending could reduce barriers for small borrowers and other groups that face difficulties accessing traditional bank loans.
At the same time, he stressed that digital lending must expand responsibly and sustainably to prevent risks for borrowers and financial institutions. BIBM Director General Md Ezazul Islam said digital lending could become an important pillar of financial inclusion if the surrounding ecosystem develops responsibly.
Technology can reduce lending costs, shorten processing times and bring formal credit closer to people who have historically remained outside the banking system, he said. However, he warned that the speed and scale that make digital lending attractive could also increase risks such as credit risk, over-borrowing, data misuse, fraud and consumer harm.
“The way forward is not to choose between innovation and regulation, but to make the two reinforce one another,” Md Ezazul said. He called for proportionate regulation, real-time credit information systems, stronger data infrastructure, sound artificial intelligence (AI) and model governance, transparent pricing, effective consumer protection, robust cybersecurity and targeted digital literacy initiatives.
He also stressed the need for responsible experimentation through partnerships and regulatory sandboxes while ensuring clear accountability among banks, MFS providers, fintech companies and other participants in the digital lending ecosystem.
BIBM Professor (Selection Grade) Md Nehal Ahmed presented the study prepared by a research team comprising Associate Professor Md Shahid Ullah, Assistant Professor Rexona Yesmin, Lecturer Md Emon Arefin and City Bank Head of eLending, Products, Acquisitions & Bancassurance Abrar Shahriar.
Discussants at the seminar highlighted the need for responsible credit expansion, stronger risk management, better data governance, consumer protection and greater coordination among regulators, banks, MFS providers and fintech companies.
The seminar concluded that digital lending has the potential to widen financial inclusion in Bangladesh, but its long-term success will depend on combining innovation with regulation, consumer protection and a reliable digital finance ecosystem.
