A Promising Future for Digital Microfinance

By Richard Li and David Sheng

With digital technologies reshaping industries worldwide, microfinance institutions (MFIs) are adapting to meet the demands of the digital age. Thengamara Mohila Sabuj Sangha (TMSS), one of Bangladesh's largest MFIs, is taking its first steps in this transition. A closer look at the pilot program at its Mokamtola Islamic Branch offers insight into the promising future—and challenges—of cashless microfinance transactions.

But to understand the greater implications of digital microfinance, it’s important to first understand the alternative. Traditionally, loans are managed through group lending systems, which require in-person meetings and close supervision by loan officers. However, borrowers and loan officers are often forced to travel long distances to meet. Heavy paperwork also makes loan management tedious. 

“Cashless microfinance would make loan disbursement and collection much more efficient,” explained a senior official from TMSS. “A lot of loan management will become automatic, and keeping track of loan repayment becomes a lot easier. The only problem is digital literacy, but that is improving fast as well.” 

This improvement in digital literacy is closely tied to the rise of mobile wallets across Bangladesh. As smartphones and broadband reach rural parts of the country, digital cash platforms such as bKash, Nagad, and Rocket have gained immense popularity. Today, people of all ages use these services for tasks like purchasing train tickets, paying medical bills, and shopping. In fact, bKash cash-in and cash-out agents have become commonplace in many rural communities.

TMSS has partnered with bKash to launch a pilot program for digital loan systems at its Mokamtola Islamic Branch. While digital payment methods are still relatively new, around 20% of borrowers at this branch are already comfortable using bKash for loans. TMSS remains optimistic about expanding these programs and is working to improve digital literacy among its borrowers.

For other MFIs in Bangladesh, the situation is even better. Urban microfinance borrowers, particularly young people, have shown growing interest in cashless microloans. Recent reports suggest that 60% of microfinance transactions in Bangladesh are now digital.

Digital microfinance is certainly the future, and organizations like TMSS are leading the way toward a more efficient, accessible, and inclusive lending environment for their clients.