Nano Loan For Fighting Inflation

Nano loan is used to pay bills and fees, Longer duration could make life at ease.

Bangladesh Bank launched an initiative to provide a maximum of Tk 10000 credit to interested [people] in order to pay utility bills, various fees, mobile recharge and to make bank deposit payment. The loan can be disbursed through apps of commercial banks. It can only be used [for] these selected services through mobile phone. No cash withdrawal of the loan is available for the moment. Banks' clients can take loan starting from Tk 50 to a maximum of Tk 10000. There will be 7-day,15-day and 30-day duration loans for now.

This latest initiative highlights the popularity of nano digital loan as well as govt's keen interest to make a cashless society. In recent weeks, govt took various campaigns to make popular the Bangla QR, a unique QR system that renders useless having multiple QRs. The idea is to make more and more people interested in digital payment method while doing the retail transaction. As the society becomes cashless, the digital economy offers more digital documentation and record of daily transaction. It will make future policy decision more realistic and give an idea on true impact of a policy at the ground level.

Central bank's latest utility bill loan has to be seen in this perspective. Digital nano loan is nothing new to Bangladesh. Earlier mobile financial service (MFS) providers had offered such loan with a ceiling of Tk 50000 in association of commercial banks. MFS apps on the mobile phone led the way to popularize the nano loan. Later commercial banks offer the loan through their own apps too. More than 95% of the disbursed loan is recovered while a tiny percent remains defaulted. A leading bank distributed Tk 50 billion among 1.5 million clients through the app.

However, popularity of such nano digital loan also invites fraudulent activities. Bangladesh Bank in one of its circular cautioned people about 31 nano loan apps which do not follow rules and regulations for operating such financial services. Such illegal nano loan apps charge exorbitant rate of interest and impoverished many innocent users who fell victims to their lure.

Now there are individual apps for nano loans offered by commercial banks. The MFS apps remain exception. If there is one dedicated app for digital nano loan where information of all nano loans will be available , then more people will get clear information about it and will have easy access to such loans. Bangladesh Bank can take the initiative.

Such nano loan can be thought of as providing extended credit to inflation-battered consumer. Problem with such loan is its smaller duration. Nano loan as an instrument against inflation requires longer duration. Say an individual can take a nano loan of Tk 10000 in a high inflation year to purchase food items or protein. He must at least have 1 or 2 years to repay the loan. Repayment period of 4 or 5 years will be even better. It will help him to cushion the adverse effects of inflation. It will not create extra burden on private employee with limited income during inflation. People seek such inflation assistance can get such loan against a registered id.

We have seen increasing use of nano loan for various purposes, from paying utility bills to paying children's educational expenses. However, shorter duration of such loan [makes] it an ineffective tool to fight inflation. Bangladesh Bank can alter this situation by making the duration longer for inflation-battered lower income group. This kind of digital nano loan should be viewed as a mean to regaining the lost purchasing power during high inflation.