From Tk500 to Tk10,000cr: The phenomenal rise of bKash & City Bank's nano loan

A private service holder, Rezaul Karim, first accessed the digital nano loan feature around four years ago, shortly after it was introduced, when the initial credit limit was Tk1,000.

TBS Illustration

Since then, he has used the service numerous times, with the credit limit gradually increasing to as much as Tk34,000 based on transaction history and repayment behavior.

Sharing experience with The Business Standard, Karim said that digital loan services have become an important source of short-term financing for his everyday expenses.

He first discovered the loan while making a payment through the bKash app, and after reviewing terms and conditions, he borrowed Tk1,000 to complete the purchase of a shirt. 

"The service is particularly useful during emergencies or when immediate cash is needed, such as during Eid holidays when banking services are less accessible," said Karim. "On one such occasion, I borrowed Tk11,000 after running out of cash while away from home."

Digital nano loan disbursement crossed Tk10,000 crore in July, marking a significant milestone in Bangladesh's first fully digital and collateral-free loan service introduced jointly by bKash and City Bank in December 2021.

Over 35 lakh bKash customers availed the loan from City Bank so far under the digital nano loan platform, reflecting an improvement in democratising access to credit for marginal people. 

bKash data shows that users availed the loans service over 3 crore times when the platform offered a minimum of Tk500 to a maximum of Tk50,000 based on payment behavior.

Under the digital loan platform, around 1 lakh customers receive an average of Tk3,500 each every day through the bKash app. In contrast, all banks combined lend to only around 20,000-25,000 people or companies.

Over 1.2 crore bKash customers are currently eligible to avail loans based on users' transaction behavior on the bKash app, KYC information, and previous loan repayment history, according to bKash. 

The service was initially started with only 2 lakh customers. After the pilot phase, it expanded to 8 lakh and gradually increased to 1.2 crore in 4 years, according to City bank.

Arup Haider, deputy managing director of City Bank, said digital nano loans tell a bigger story of democratising credit and financial inclusion, which was the fundamental idea.

He said people frequently face unexpected situations where they urgently need cash, but there was no system to address that need. Nano loans have now filled that gap.

This has improved the lives not only of vegetable sellers but also of corporate employees, journalists, and countless ordinary people, said Haider.

He expects that if today's borrowers continue to grow, the average ticket size may rise from Tk3,500 to Tk10,000, because customers are gradually building credit scores and repayment histories. When ticket size grows, it will be used for the productive sector, he added.

"What we're seeing today is only the tip of the iceberg," said the banker. 

Eventually, perhaps by 2030 or 2031, as many as one million people could receive nano-loans every day. When that happens, informal moneylenders will largely disappear. Many local lending associations will also become obsolete," he said. He also believes a significant share of the NGO microfinance market will eventually shift toward nanolending.

How nano-loans are democratising credit

According to bKash data, nearly half of all Tk10,000 crore loans have been disbursed outside large cities like Dhaka and Chattogram, expanding access to formal finance in smaller cities, towns, villages, and underprivileged communities. More than one-quarter of the borrowers are women, strengthening their financial inclusion and economic participation. 

Ali Ahmmed, chief commercial officer of bKash, said the milestone has significant economic implications because the loans are reaching people who largely lack access to formal banking, particularly outside major cities. Women, small traders, and micro-entrepreneurs are using the loans for productive purposes, such as purchasing inventory or working capital. 

He said customer feedback and internal research indicate that many borrowers use the funds to support income-generating activities.

For instance, someone selling vegetables in the market may borrow Tk5,000 in the morning, purchase vegetables, transport them to Dhaka, and sell them. They may repay the loan within a week or a month, but during that period they could generate business worth Tk30,000. Since vegetables often have margins of 40-50%, they can earn substantial returns. The economic impact of thousands of such cases is difficult to quantify, he said.

The government's vision of a cashless Bangladesh begins with people shifting from cash to digital transactions. Once customers start using mobile financial services digitally, they create a credit history, he said.

The borrowers' list is continuously refreshed. Some customers qualify while others are removed, depending entirely on scoring models. Their loan limits also change over time as new transaction and repayment data becomes available.

Loan eligibility is determined using customers' transaction history in bKash accounts along with City Bank's credit policy. The repayment period is 3 months to 6 months. 

The maximum six-month option is mainly for financing purchases of specific products using the Pay Later product, and only a very small percentage of borrowers use that option. About 99% of customers repay within three months, according to the bank. 

The service has become a vital financial safety net—helping manage emergency expenses, education costs, household needs, and temporary business cash-flow gaps while reducing dependence on predatory informal lenders.

There is no charge for early settlement of the loan, and interest applies only for the period the loan remains outstanding.

Eligible customers simply tap the Loan icon on the bKash app, enter the desired amount within their approved limit, accept the terms and conditions, enter their bKash PIN, and instantly receive the approved loan amount in their bKash account.

Though the contribution of digital nano-loans to overall business is still negligible, City bank experienced rapid growth in users and strong repayment behavior, which kept the service at break-even.  

With a default rate of less than 1%, the digital lending model has demonstrated strong portfolio quality. The bank noted that approximately Tk8,000 crore of the total disbursement occurred within the last 18 months, highlighting the product's rapid growth.

So far, out of the Tk10,000 crore the bank disbursed, around Tk80 crore has not yet been recovered, according to the lender.

How costly are nano-loans? 

The bank charges 17% to 19% for digital nano loans, which looks high but is not burdensome, said Arup Haider. "Apparently it looks high, but most people don't find that unreasonable."

Citing an example, he said, "If you borrow Tk10,000, you'll repay around Tk10,400 over three months of the loan period."

He said in traditional banking, issuing a loan requires a large operational process. "That's where digital technology changes everything."

He added, "Also, think about the alternatives. If you cash out Tk10,000 through conventional channels, you might spend around Tk200 in fees. Here, you receive a three-month loan and repay it gradually in installments, paying only less than Tk400 extra in total when this loan solves your immediate problem."

Future of digital nano-loans

Ali Ahmmed sees two major opportunities. First, the number of customers with access to credit can increase substantially given the country's around 126.6 million adults with national identity cards and more than 84 million mobile financial service users.

Second, there are significant opportunities for small and medium enterprises (SMEs). Many small businesses currently have no meaningful access to formal finance. Many already use bKash for cash-in, cash-out, and merchant payments.

"If banks partnered with us to provide working capital loans, the funds could be used much more productively," he said.

"For example, suppose a pharmacy receives a Tk100,000 loan. Instead of receiving cash, the business could directly pay pharmaceutical companies to purchase medicines. The pharmacy would then sell those medicines and repay the loan after one week, 15 days, or a month."

"We often discuss the slow growth of private-sector credit. I believe that if we properly structure digital lending for SMEs, it could become an important driver of future private-sector credit growth," he said.