The central bank's revised guideline on mobile financial services (MFS), now a draft, may impact business, ownership structures and competitiveness in the increasingly growing sector, a market research firm and securities analyst said.

Brac EPL made the comments in an analysis on the guideline proposed last month by Bangladesh Bank for public opinion.

As a case study, the analysis looked into the possible impact the guideline will have on bKash, the market leader in MFS, if the changes get approved unchanged.

bKash Ltd, a joint venture between Brac Bank and Money In Motion in the US, is the second largest in the world in terms of transactions.

It is the leader in a market where there are 1.12 crore active mobile phone account holders, while the number of agents is 5.3 lakh with a daily average transaction amount of Tk 420 crore.

The draft guideline requires all the MFS operations to be run under a separate legal entity or as independent MFS companies. The minimum paid-up capital for each MFS company would be Tk 100 crore.

A same amount of capital reserve needs to be accumulated over time from retained earnings; annual allocation cannot be less than 10 percent of profit after tax until such reserve reaches the minimum paid-up capital threshold.

bKash was founded as a separate company with paid-up capital of Tk 3.8 crore. The company satisfies most of the forthcoming requirements considering that share premium accounts for another Tk 21 lakh, Brac EPL said.

“However, due to the capital reserve related clause, bKash might end up maintaining a lower payout ratio in the next few years.”

The analysis said the revised guideline acknowledges the success of bKash's model of putting separate entity to drive faster business growth in early stage of the industry. Higher capitalisation will also drive better risk management.

“However, the industry may face greater leadership and management resourcing challenges in the proposed industry structure.”

The draft guideline requires at least four banks to partner as sponsors to own at least 51 percent of any MFS company with no single bank owning more than 15 percent equity stake.

Such transformation from mono-bank led model to multi-bank led model has been proposed to foster interoperability among MFS companies.

As of now, each of the country's 20 MFS businesses is sponsored by a single bank. The existing single bank-owned MFS companies will get three years time from the effective date of the revised guideline to adhere to these changes.

As a result, Brac Bank will have to dilute its shareholding in bKash from 51 percent to 15 percent by partnering with three other banks within three years from the effective date of the revised guideline.

Likewise, Money In Motion will also have to reduce its shareholding from 36.5 percent to 15 percent during the same timeline.

“The guideline will also drive industry consolidation in terms of number of players in the industry. We think that implementation of such regulatory guideline will be extremely challenging in absence of very limited collaboration track-record with no partnership history among major local banks.”

It said regulatory limit on sponsors' shareholding may introduce misalignment of interests and governance issues as no single entity will be able to own majority in a company.

“Among the existing players, bKash will be impacted the most by such regulatory changes if finalised as they are.”

“Due to the maximum shareholding limit, there has to be at least seven shareholders in an MFS company which may not be the best same size to fit all the players' business realities.

We think that direct enforcement of interoperability is rather more pragmatic and feasible from stakeholders' perspective.”

The draft guideline opens up shareholding in MFS companies for the non-financial investors including mobile network operators. No single shareholder or mobile network operator will be able to hold more than 15 percent shares, but more than one mobile operator can collectively own maximum 30 percent shares in a specific MFS company.

It said bKash, being the most successful player with big difference from the second player in the MFS industry, may become an investment target by the mobile operator.

The mobile operators' shareholding in competing companies will also increase competition for bKash.