• The Government of Bangladesh’s development expenditure will keep growing at a CAGR of 22 percent (FY2020–30) due to SDG requirements.
• COVID19 pandemic and upcoming economic recession might increase the SDG budget with significant allocation in healthcare, education, communication infrastructure, and stimulus package disbursement.
• Presently, 48 percent of the development budget is financed by external sources (foreign concessional and non concessional loans, grants). Due to the global pandemic (short to medium term) and Bangladesh’s graduation to Middle Income Class (long term), the flow of foreign capital will dwindle significantly by 2028.
• Since 2016, Bangladeshi citizens have been saving an annual average of US$46 billion through formal and informal channels. Last year, total savings hovered around US$103 billion. Currently, only 6 percent of formal savings is being mobilized to finance the development budget.
• A digital financial value chain can mobilize US$118 billion (estimated for 2020) of citizen micro savings, remittances and Zakat at scale and finance specific SDGs.
• Leveraging technology (blockchain, cloud computing), innovative financial instruments (crowdfunding, impact bonds, securitization), partnerships (MFS, financial institutions, telcos, startups), and building a policy sandbox can allow Bangladeshi citizens to directly invest in building national infrastructure while receiving equitable returns.
• A seamless flow of domestic capital for long term development financing will reduce reliance on foreign capital markets while expanding financial inclusion.
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• This initiative is part of the pathfinder projects portfolio, catalyzed by the UN Secretary General’s Task Force on Digital Financing of the SDGs. The Task Force’s mandate is to harness digitalization to accelerate SDG financing.
• This pathfinder project in Bangladesh is jointly implemented by a2i (UNDP and ICT Division) and UNCDF. It illustrates the potential of empowering citizens with more and better data, cheaper transactions, financial intermediation, and innovative financial products.
• For more information, please contact:
Anir Chowdhury, Policy Advisor, a2i (Aspire to Innovate) Programme
anir.chowdhury@a2i.gov.bd
4 – Acronyms
AI – Artificial Intelligence
ASEAN – Association of Southeast Asian Nations
BDT – Bangladeshi Taka
BN – Billion
BoP – Bottom of the Pyramid
CAGR – Compound Annual Growth Rate
CPD – Center for Policy Dialogue
DFS – Digital Financial Services
DPS – Deposit Pension Scheme
FDI – Foreign Direct Investment
FDR – Fixed Deposit Receipt
FY – Financial Year
G2G – Government to Government
GDP – Gross Domestic Product
GoB – Government of Bangladesh
HH – Households
IMF – International Monetary Fund
LIC – Low Income Community
ME – Middle East
MFI – Micro Finance Institutions
MN – Million
NBFI – Non Bank Financial Institutions
NRB – Non Resident Bangladeshis
NSC – National Savings Certificate
ODA – Overseas Development Aid
RMG – Ready Made Garments
SME – Small and Medium Enterprise
SDG – Sustainable Development Goal
US$ – United States Dollar
Y-o-Y – Year on Year
5 – Topics Covered
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Increasing development budget and current mode of financing
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Alternative financing model mobilizing savings by Bangladeshi citizens
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Application of fintech in aggregating and mobilizing savings to finance SDGs
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Distribution effect of using fintech to channel micro savings
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Building the ecosystem through partnerships
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Impact of COVID19 on SDGs
6 – Development Expenditure Overview
Today
Foreign Financing: 48 percent
Domestic: 52 percent
• Borrowing from Banking System – 19 percent
• Non Bank (NSC & others) – 6 percent
• Revenue – 27 percent
• Project Aid – 35 percent
Tomorrow
Rising cost of funds: International capital will be 15–20 percent more expensive due to reduced foreign aid flows and currency devaluation.
7 – Split of SDG Spending and Infrastructure Budget
(Your numbers and fiscal years kept intact, just spaced properly.)
Development spending is projected to grow 10x by FY2030 due to SDG requirements. COVID19 may drive SDG expenses even higher as more spending is expected in healthcare, blended learning, communication infrastructure, and stimulus packages.
8 – Domestic vs Foreign Capital Costs
Procuring US$100:
• Domestic: lower long term cost, no currency depreciation risk
• Foreign: higher cost due to interest rates and expected currency devaluation
9 – Domestic Savings vs Foreign Capital
Key advantages of domestic savings:
• Better equity outcomes for citizens
• Lower forex risk
• Greater economic independence
• Development of domestic capital market
• Scalable micro saving aggregation
10 – Digitalization Solves Traditional Financing Challenges
Traditional challenges:
• High infrastructure cost
• High cost of fund management
• Requires large ticket sizes
Digital solution:
• Blockchain
• Mobile Financial Services
• Cloud computing
• No minimum ticket size
• Massive micro saving aggregation
11 – Citizen Savings Overview (US$ Billion)
Formal and informal savings projected with growth slowdown until 2023 due to global recession.
Only 6 percent of formal savings currently used for infrastructure investment.
12 – Forecasted 2020 Savings Sources
Formal savings: US$61B
Informal savings: US$41B
Remittances: US$14B
Zakat: US$2.4B
13 – Micro Saver Ecosystem Outcomes
• Near zero cost aggregation
• Mega funds for SDG investment
• Transparency
• Financial inclusion
• Domestic capital market development
14 – Mega Fund Flow
Micro savers → Mega fund via technology → Allocated to SDGs → Returns paid to citizens.
15 – Example
A CNG driver pays tolls on a bridge built using his own micro savings, receiving returns from the bridge’s revenue. Demonstrates powerful distributional equity.
16 – Sample Instrument Illustration
Hospital project cost: BDT 100 crore
100,000 bonds of BDT 10,000 each
Annual coupon: 10 percent
10 year maturity
Quarterly payment: BDT 250
17 – Financial Instruments Table
(Securitization, crowdfunding, micro savings, impact bonds, microinsurance, infrastructure bonds — all spaced for clarity.)
18–19 – Transformation Flow
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Micro savers become micro investors
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Micro investments aggregate into mega funds
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Mega funds finance specific SDGs
20 – Ecosystem Partners
Banks, MFIs, NBFIs, fintech, telcos, ministries, asset managers, insurance companies, development organizations, citizen literacy programs.