“Don’t be Alexander the Great”
a brief, incomplete and, probably presumptuous, look into the FinTech ecosystem in Bangladesh
“Conquering India is very difficult. Alexander the Great tried and failed. Conquering Bangladesh is easier” — Kamal Quadir, CEO of bKash
Last month, the DFS Lab team had the opportunity to run one of our typical design sprints in conjunction with BFP-B outside of Dhaka in Bangladesh. We run design sprints because the FinTech ecosystem doesn’t need another bootcamp that is geared towards helping entrepreneurs create great pitches and present in front of a bunch of investors. What the ecosystem needs is more investable businesses. We think design sprints are a better way to accomplish this.
We were lucky BFP-B thought something similar, giving us the opportunity to work with them. I always thoroughly enjoy new places and Bangladesh was no different. Dhaka, the capital, is a vibrant, dense and bustling place and from a FinTech perspective, is a fascinating market that is on the rise.
The backdrop for our sprint was one of BRAC’s beautiful event venues and one of many indications of the influence that BRAC has as an organization in the country. What does BRAC do? The best description was something along the lines of “the government essentially outsourced all the non-military functions like education, financial services, and healthcare to BRAC, then the organization, structured as a non-profit figures out how to make a lot of money”.
bKash, perhaps the most widely successful mobile money deployment from an investors point of view, is a BRAC subsidiary. Launched 8 years ago, they just received a large investment from Ant Financial, the Chinese juggernaut. We had a chance to sit down with Kamal Qadir and get some insight into their journey, learned a bit about his take on the FinTech ecosystem and tried to convince him to be a part of the DFS Lab network. Kamal was clearly in post-investment execution mode and we were lucky to get a bit of his time.
When asked about why the FinTech ecosystem hadn’t seen the same level of investment as other places, one thing Kamal brought up was how the proximity to India had investors asking the question, “if we are already going to South Asia, why wouldn’t we enter the market with 1 billion people?” (India) and that attitude has stifled investment into the country. His follow up to that comment was the quote at the opening of this article.
“Don’t be Alexander the Great. Conquering India is very difficult. Alexander the Great tried and failed. Conquering Bangladesh is easier.”
Despite the tendency to gravitate towards India, Bangladesh has one striking similarity to much smaller markets; one government entity and regulatory body. The regulatory regime is convoluted (at best) and one of the companies we met with spent about 45 minutes trying to explain the different mobile financial service provider, payment service provider and payment system operator regulations that existed. To be honest, I still don’t understand. What I did get though is that in Bangladesh, you only have to navigate one government entity (as opposed to both state and federal entities in India), and that makes the country appealing from a regulatory perspective. One barrier though is the required physical signature to open up any kind of account at a financial service provider — mobile or otherwise — making the cost of customer acquisition particularly high and “fully digital” on-boarding impossible.
In addition to being one market, it’s also massive. I’ve mentioned this before — Bangladesh is dense. (So have others.) Bangladesh is a country of 160 million people fit into an area the size of New York State. Dhaka itself is ten times more dense than Manhattan. From a population perspective, it’s massive. Compared to East Africa, to have an equivalent addressable population, a similar product would need to be live in Kenya, Uganda, and Tanzania. There aren’t very many digital products that have scaled across those three markets, and very few that have done it well.
One major drawback related to the population density is that infrastructure is severely inadequate to manage the number of people and goods moving around Dhaka and the country as a whole. This ended up being a major opportunity for another growth stage company we had the opportunity to meet with:
We did a brief, one-day session with the BFP-B team that was essentially a crash course on design sprints. During one of the exercises we ran we asked for examples of successful tech companies in Bangladesh. This was first introduction to Pathao.
The company’s initial product helped Facebook merchants sell more products by offering an app-based ordering, fulfillment and distribution service. They launched with motorcycle couriers.
After spending so much time in Uganda running around on bodas, one of the things I noticed quickly was the surprising lack of motorcycles, taxis or otherwise. The ride of choice is the auto-rickshaw (and to a lesser extent, iconic bicycle rickshaws). With the traffic situation, any type of distribution operation will be a pain in the city, but the lack of any options made it a worthwhile opportunity to pursue. Pathao has since launched a full-blown motorcycle hailing app and received an investment from GoJek to fuel the massive growth the company is seeing.
The most impressive part, as with any startup, was the Pathao team. We had the pleasure of sitting down with Fahim and Ruzan and getting to know about the business and their challenges (among others, there are no motorcycle manufacturers in BD, and import taxes are high). If you want to know where this company is headed, my colleague Stephen has written about super platforms before and I’ve mentioned where we see the ecosystem heading. If I were to sum it up, it would be “Into an Ant farm”.
Competition and entirely new models
I mentioned bKash before and they are likely the market leader for digital financial services, but nearly every bKash agent I saw in Dhaka also had another logo above their store front: Rocket, (which I thought was a relatively new competitor that had come on to the market) was launched by DBBL and is starting to gain ground on bKash. Competitors are usually a sign of progress and it will be interesting to see how payments get layered on top of these services.
Not surprisingly, but something completely unique in Bangladesh was that many of the companies that attended the bootcamp were addressing a lack of financial services for workers in the ready-made garment industry. With 5 million employees across 15,000 factories, there is a huge demand for payroll-based financing, healthier and better food products available in the factories and savings schemes for the sector. All of these models were being piloted to some extent by the companies in the bootcamp.
iFarmer, one of our bootcamp participants is an example of multiple discovery. With similar models to Farmcrowdy (Nigeria), Livestock Wealth (South Africa), and TaniFund (Indonesia), iFarmer provides finance in the form of productive assets to smallholder farmers. Their initial pilot was extremely successful and they’re now looking to expand a sponsorship-based model to increase the number of cows they are able to contract. Want to buy a cow in Bangladesh and get 20% returns? Talk to Jamil and Tahmid.
Is there a Conclusion?
Not really. We’re just finishing the first chapter of the Bangladesh FinTech story and it’s too soon to conclude anything, but despite how awful the traffic is, we’re excited about Bangladesh, the FinTech scene and about a great set of companies we were able to work with over the course of 10 days. It was encouraging from an investor standpoint to meet with the FinTech leaders at Pathao and bKash. We’re particularly keen to meet with more companies that are working in the country as we expand our Fund. If you know of a strong entrepreneur or startup in the area — send them our way — we’d love to connect. If you’re interested in the next chapter of Bangladesh’s FinTech story, sign up for our newsletter where we’ll keep you up to date.