There have been newspaper reports that banks are seeking to create separate companies to provide mobile financial services (MFS) to emulate the leading player, bKash. This is a vindication of what we conceptualised as the most suitable structure for bKash. I congratulate Bangladesh Bank (BB) for guiding the extraordinary growth of MFS since 2011, now serving over 45 million registered customers. The 45 million accounts represent about twice the number of regular bank accounts. Moreover, MFS-users have been largely ignored by regular banks and their inclusion will help Bangladesh reach the Sustainable Development Goals with vastly improved inclusivity. Increasingly, policymakers and banks are recognising the need to utilise services like bKash to channel foreign remittance to the end recipient instantly at a low cost or distribute safety net payment directly to the beneficiaries, thereby increasing the efficiency of the national economy.

I have been keenly watching the growth of MFS since its inception, having been the founding chairman of bKash for five years. After a career of over four decades in banking, as an executive, a board member and a regulator and given this extraordinary significance of MFS, I felt, it may be useful to articulate my thoughts and provide some personal insights into this issue.

Although many banks received MFS licences, only bKash was set up separately. This indeed confirms the usefulness of separating the operations from banks. However, this is not the only reason for the bKash success. It is high time for all stakeholders—particularly for BB—to review the MFS ecosystem and determine the next level of regulation. While BB's 2011 guidelines have been critically important for MFS success, it was far from clear how big MFS would be back in 2011. MFS was left to evolve inside the bank structure or be supervised as subsidiaries by scheduled banks. This was done more as an initial measure to facilitate the birth of a new financial practice. Now it is abundantly clear that this is a whole new industry, not necessarily consistent with the mindset and skill sets of traditional bankers. Bankers are set to serve relatively better-off clients or corporations, not those who fall in the category of 'the bottom of the pyramid' (or the low income/rural segment), the kind of customers that operations like bKash serve.

Thus asking regular banks to supervise MFS is like asking regular banks to supervise microfinance institutions, something that would have been very counterproductive. The existing convoluted and indirect supervision system is impeding growth and creating governance problems and, above all, diluting supervision of a very important segment as described in my introductory paragraph. BB must now supervise these MFS providers directly in order to assure the regulatory comfort to banks, the agencies and the end customers. This should be prioritised as an immediate imperative.

Another matter has changed since 2011. Bank-ownership was probably required to address legal and public trust issues back then. Now MFS is evolved and matured and enjoying public confidence. It is now clear that MFS requires not much bank ownership but international expertise and investments. One reason bKash has been successful is the partnership between US-based Money in Motion LLC (MIM) and Brac Bank. While Brac Bank provided the all-important 'trust' essential for any new financial institution, MIM brought knowledge of mobile money.

MIM was inducted in the board of bKash since its inception. It was also one of the founders of Kenya-based M-Pesa. Deep knowledge of mobile money is necessary since this technology is used as an enabler for delivery of the product. Today digital payment technologies are developing very rapidly, something that international players (such MasterCard, PayPal, Square, etc.) can bring. Thus BB must also consider regulations that are conducive to attracting foreign investment and expertise, and it must also keep in mind that ownership should be given to citizens as soon as practicable by encouraging listing of MFS entities in the Dhaka Stock Exchange.

At the same time, BB needs to maintain its position vis-à-vis mobile network operators (MNOs) who provide the essential highways on which MFS grows, much like the electricity grid supports the MNOs themselves. Since MNOs control this vital element, they may have an unfair advantage, preventing them from being fair competitors. MNOs should be limited to network provision, as BB has done. MNO ownership of MFS creates regulatory conflicts as well, and that too should be avoided. BB has discussed this extensively over the last three years and announced through a public notice that MNOs operating in Bangladesh should not be owners of MFS. MNOs must, however, be adequately and equitably compensated for the use of their networks.

There is something to be learned from our MNO experience. MNOs demonstrate what would attract foreign expertise and investment. The government has rightly promoted competition among MNOs while not imposing restriction on foreign investment and ownership, leading to excellent MNO services nationwide. The top three MNOs in the country—Grameenphone, Robi, and Banglalink—have brought expertise and investments into the country. Being involved as a banker at the time when these MNOs started, I personally saw that investors with expertise did not feel comfortable with ownership control in the hands without expertise. In the end, the citizens enjoyed a better service, expansion of commerce and the country benefitted from a growing government revenue base.

While a banking base for an MFS enterprise initially provided public trust, now that public trust exists with MFS itself. With direct supervision by BB and an independent capital base, the need for majority ownership by a bank should no longer be required. A minority ownership by a bank is sufficient. The 2011 BB guidelines left MFS players as bank-subsidiaries, meaning a 51 percent ownership by banks. That was only an initial arrangement. A mechanical requirement of 51 percent ownership by any entity hinders the introduction of foreign owners who can bring much-needed investment and expertise. It encourages ownership to be manipulated through creative structures involving non-voting shares, options, and side letters, not to mention being a roadblock to listing MFS enterprises on the Dhaka Stock Exchange.

MFS is largely a payment business supporting transactions; the capital adequacy requirements for scheduled banks are also not necessary. Moreover, MFS performance parameters are different than those for banks generally expressed in terms of financial ratios. It is high time to drop the 51 percent bank ownership requirement.

The real secret of MFS success lies in the right expertise and adequate investment. BB needs to facilitate and enable this through an effective regulatory framework and direct supervision, removing artificial requirements that hinder growth. Banks and MFS should clearly be siblings as opposed to a parent-offspring relationship. As siblings, with a lot of common things in the DNA, banks and MFS players can contribute to each others' growth in positive ways. It is time MFS players stop hiding behind “mother banks” and come out of the shadows and present themselves for service to community.