Month: September 2022

Formalization of F-commerce in Bangladesh: Implications for Female-owned SMEs

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Caption: Nadia Rahman painting life on a canvas

Facebook commerce, or F-commerce, offers women an opportunity for self-employment. As one example, Nadia Rahman, a student and a painter, loves to sketch life and nature using sarees and kurtis (Bangladeshi tops) as canvases.  She lives in the busy metropolitan city of Rajshahi. To turn her passion into a business, she created a Facebook page and started selling hand-painted clothes. 

Nadia could have opened a brick-and-mortar outlet, but considering the benefits of a virtual store, she opted for F-commerce. “One reason for choosing F-commerce is because it is hassle-free. You do not need big investments, trade licences, [to pay] maintenance costs, or [to] pay taxes, unlike brick outlets. Moreover, it is easy to reach out to customers all over Bangladesh, and sometimes cross-border from remote Rajshahi,” Nadia said. This business has enabled Nadia to generate savings while completing her studies, and she aspires to grow her business in the future.

The F-commerce industry in Bangladesh hosts approximately 3 million small and medium enterprises (SMEs), half of which are operated by women.1 F-commerce especially appeals to well-educated homemakers and stay-at-home mothers for whom their businesses are an important source of income. In a study conducted by BRAC Institute of Governance and Development (BIGD), 99.18% of female F-commerce entrepreneurs surveyed held a bachelor degree or higher, 57% ran their F-commerce site as their sole occupation, and 38.52% contributed to their family income from their business.2

In some ways, the COVID-19 pandemic paved the way for these women, as online shopping was the only option during the nationwide lockdown. Shops were closed and residents were required to stay home. In response, online sellers began providing home delivery services, while buyers leaned into online shopping. According to Meta, 70% of women-owned businesses in Bangladesh launched Facebook pages since the beginning of the pandemic.3

While the prevalence of F-commerce soared, so did that of online scams. In a study conducted by Cyber Crime Awareness Foundation, the proportion of sampled customers that were scammed while buying products online rose from approximately 7% in 2018 to over 11% by 2020.4 These scams included  delivering low-quality products, displaying images of one product and sending another, and collecting payment for a product that was never sent. 

In response to these rising complaints of fraud, the government now seeks to regulate F-commerce. A new policy introduced by the Ministry of Commerce in December 2021 requires all online entrepreneurs to register with the government to be issued a unique business identification number (UBIN) against a trade licence. The Bangladesh Telecommunication Regulatory Commission (BTRC) will shut down the business pages that fail to register.5

Additionally, beginning in fiscal year 2022-23, the government has made it mandatory for all online businesses, including F-commerce, to file income tax returns. This policy applies across the board, including to individuals with low and non-taxable income.6

While this policy will generate tax revenue and enable entrepreneurs to seek formal financing, it will also disproportionately disrupt female entrepreneurs. 

Bangladeshi women face many cultural barriers that render registration burdensome. Many Bangladeshi families abide by conservative and patriarchal norms. As such, women often lack decision-making power over anything beyond household chores. For example, a woman may have the right to decide what food will be prepared for meals, but have no voice in which apartment she will live in. Women also face mobility constraints. Many women operate their businesses from the comforts of home, but male family members conduct errands outside of the house, such as buying products from the market. Finally, many women lack access to their own bank accounts and rely on male relatives to conduct financial transactions. 

F-commerce, due to its hassle-free nature, once offered an opportunity to circumvent these challenges. But now, the process of creating a bank account, opening a tax identification number (TIN) and getting a trade licence is time consuming, complicated, and uncomfortable for a woman who faces pressure to prioritise activities within the home. It is likely that a female F-commerce entrepreneur, especially one whose profit margin is low and lacks family support, will find this process a major obstacle to running her business; she may even close it down altogether.  

According to Dr. Stefan Dercon, Professor of Economic Policy at The University of Oxford, regulation affects [disadvantaged] people – which in many contexts includes women – disproportionately and paperwork traffics the process. In this regard, his advice, as shared at BIGD’s international conference on “Digitalization and New Frontiers of Service Delivery: Opportunities and Challenges”, is to “innovate first, regulate later.7” 

Not only does rigid regulation stand to dis-empower Bangladeshi women, it simply does not make economic sense. We have already seen the impacts of aggressive taxation policy play out in neighbouring India. India introduced the Goods and Services Tax (GST) to spur the rapid formalisation of SMEs. The GST was an attempt to create a unified market across the nation, to encourage entrepreneurship and job creation, and to expand the tax base. But the plan backfired – stringent regulation prompted SMEs to either exit the market, stay small, or avoid the GST registration.8

According to The Print, an Indian English daily, due to the complex nature of registering for the GST,  only 13 million out of 63 million SMEs joined the GST system8.  Anecdotal evidence suggests that the GST has even artificially stunted economic growth. As per The Print, “an increasing number of small businesses are either de-registering, and/or trying to remain small by not letting their sales turnover increase the threshold of Rs 20 lakh for services firms and Rs 40 lakh for manufacturing entities, above which GST registration is mandatory.9”

Bangladesh would be wise to learn from India’s example. The government should move slowly and gradually with the process of formalisation, rather than abruptly introduce red tape that stands to economically dis-empower entrepreneurs, especially women. 

References

1.Islam, A. (2020). Bangladesh: More women create online businesses during pandemic. Deutsche Welle.https://www.dw.com/en/bangladesh-more-women-create-online-businesses-during-pandemic/a-56076990

2.Rabbani,M.,Zahan, I., Matin,M. (2020). How resilient are female online entrepreneurs? BRAC Institute of Governance and Development. https://bigd.bracu.ac.bd/wp-content/uploads/2020/05/Round-1_How-resilient-are-female-online-entrepreneurs_Policy-Brief-1.pdf. 

3.The Daily Star (2022). 70% of female-led Facebook businesses in Bangladesh set up since pandemic: Meta. 

https://www.thedailystar.net/tech-startup/news/70-female-led-businesses-opened-bangladesh-pandemic-meta-2978261.

4.Jahan, N.,M., et al. (2021). Cyber Crime Trends in Bangladesh-2021. Cyber Crime Awareness Foundation.  https://ccabd.org/wp-content/uploads/2021/06/2021_Cybercrime_Research_English_CCA-Foundation.pdf.

5.Liaquat, B.,Z. (2021). Mandatory UBIN registration for online businesses from this month. Dhaka Tribune.

https://www.dhakatribune.com/business/2021/12/01/mandatory-ubin-registration-for-online-businesses-from-this-month.

6.Hossain, R. (2022). Tax return must for online sellers. The Business Standard.

https://www.tbsnews.net/nbr/tax-return-must-online-sellers-441910?fbclid=IwAR321o3Tp5tR_Qz6fF9Eh46kyWO-rA3H8o1dx_NB9SyG3yNcHy3oYabpbOo.

7.Dercon. S. (2022). Inaugural Session—Digitalization for Inclusive Development: Opportunities and Challenges. BRAC Institute of Governance and Development. https://bigd.bracu.ac.bd/event/bigd-international-conference-on-digitalization-institutions-and-economics-new-frontiers-in-service-delivery/.

8.Singh, K., R. (2022). How GST is killing small businesses with inspector raj and suffocating compliance. The Print. https://theprint.in/opinion/how-gst-is-killing-small-businesses-with-inspector-raj-and-suffocating-compliance/861816/.

9.Soni, S. (2022). Budget 2022: Women MSMEs seek better credit support, relief in GST and income tax, lower interest rates. Financial Express. https://www.financialexpress.com/industry/sme/msme-eodb-budget-2022-expectations-what-women-entrepreneurs-want-from-fm-nirmala-sitharaman-this-year/2415500/.

Raihana Sayeeda Kamal is a Manager- Research Communications at BRAC Institute of Governance and Development (BIGD) and Sadia Chowdhury is a Research Associate at BIGD

Smartphone Ownership and Women’s Financial Inclusion: Preliminary Results from a Randomized Controlled Trial in Malawi

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In many emerging economies, the spread of mobile money has transformed access to financial services, especially for the unbanked. According to the Global Findex Database 2021, financial inclusion has increased by 50% over the past decade.1

This trend is driven by the adoption of mobile money, especially in Sub-Saharan Africa. Despite this remarkable increase, important barriers to access persist. Lack of a mobile phone has been identified as a key source of financial exclusion, especially for women.2

In response, the World Bank calls for strengthening global efforts to improve mobile phone access to “increase account ownership of hard-to-reach populations.”3

Our study explores the use of a targeted intervention to increase smartphone ownership among female, non-mobile phone owners in Blantyre, Malawi.4

Here we provide preliminary insights regarding the impact of the program on demonstrated gains in financial inclusion.

Study Design

We targeted 1,500 married women in Blantyre who did not personally own a mobile phone at the time of recruitment. These women predominantly came from low-income households, with only 30% of respondents reporting household ownership of a mobile phone at baseline. This figure falls well below the country average of 64.6%.5

Participants were randomly assigned to one of four treatment groups: control; cash placebo; individual smartphone treatment; and couples smartphone treatment. (See graphic for treatment details.)

The key difference between the two groups that received smartphones was the participation, or lack thereof, of participants’ spouses in the smartphone distribution and training. Compliance was high—more than 95% of couples attended the couples training administered in June and July 2021.

About nine months after the program distribution, we conducted in-person surveys to test women’s uptake and use of digital financial services. In addition to survey questions on self-reported uptake of mobile money,6 we included a behavioural measure of mobile money use. Specifically, at the end of the midline survey, we offered participants a micro-grant to be paid on the spot. Either 1500 Malawi Kwacha (~US $1.87) was distributed in cash, or 3000 Malawi Kwacha (~US $3.75) was sent as a mobile money transfer. We then recorded which mode participants chose; and, if they chose mobile money, whose account the money was transferred to. Our expectation was that if a participant was both fluent in the use of mobile money and possessed their own mobile money account, they would opt for mobile money to be sent to their own digital wallet. We thus consider this a useful measure of an individual’s realized financial inclusion—whether or not a woman has access to her own transaction account that she uses to send and receive payments and store money.7


A couple participates in the couples smartphone training program in Blantyre, Malawi.

Findings and Implications

Overall, 64% of participants at midline chose to receive the micro-grant via mobile money. As demonstrated in Figure 1, women in the individual and couples treatment groups—which received smartphones plus training—were significantly more likely to opt for mobile money than women in the cash placebo and control groups.

But among those who chose mobile money, only around 50% had the grant sent to their own digital wallets, suggesting that many participants rely on others’ financial inclusion to access the funds. To more directly probe the effects on individuals’ own financial inclusion, we ran a second analysis, in which the outcome is a binary variable coded as ‘1’ if a participant chose mobile money and had it sent to one’s own digital wallet or ‘0’ otherwise (a woman either did not choose mobile money or if she did, she sent it to someone else’s wallet). Also reported in Figure 1, we observe even stronger treatment effects from smartphone conditions on realized financial inclusion. Specifically, women in the individual and couples treatment groups were three times more likely to choose mobile money and have the funds sent to their own digital wallets than women in the cash placebo and control groups. Additionally, we observe significant effects on an index of self-reported measures of mobile money use.

Strikingly, despite the sizable cash grant provided to the cash placebo group, representing more than 10% of Malawi’s GDP per capita in 2021, we observe no statistically significant difference between the cash placebo and control groups on realized financial inclusion. This points to the importance of mobile technology and appropriate training for individual uptake and use of digital financial services vis-à-vis lump-sum transfers.


The left panel in Figure 1 illustrates the mean rates of choosing mobile money versus cash in the micro-grant offer across the four study conditions. The right panel reports mean rates of observed financial inclusion—in which one chooses mobile money in the micro-grant and has it sent to her own mobile money account, versus choosing cash or mobile money and having it sent to someone else’s account.

One important caveat, however, is that participants in our midline survey generally reported that their use of mobile money was quite low. Overall, 85% of women said that they did not personally receive any mobile money transfers the previous month; even fewer women initiated transfers. This suggests that, despite their advances in mobile money technical efficacy and realized financial inclusion, smartphone recipients were not applying these capabilities—at least not in the form of sending and receiving remittances.

Interestingly, we observe no meaningful differences in the choice of mobile money over cash between our individual treatment and couples treatment groups. Impacts on participants’ technical efficacy, as measured by mobile money use and control, were similar in both groups. These results suggest that in the sample, couples training was no more effective than individual training at prompting women to choose mobile money over cash. The subject of future analysis will be how and whether the couples’ treatment affected household and community norms around smartphone use and women’s empowerment. Stay tuned!

References:

  1.  The Global Findex Database 2021: Financial inclusion, digital payments, and resilience in the age of COVID-19. The World Bank. Retrieved form https://www.worldbank.org/en/publication/globalfindex#sec3
  2. For example, in Malawi, the country of focus of our research, women are one-third less likely to personally own a mobile phone than men, according to a nationally-representative survey by Afrobarometer at the end of 2019.
  3. The Global Findex Database 2021: Financial inclusion, digital payments, and resilience in the age of COVID-19. The World Bank. Retrieved form https://www.worldbank.org/en/publication/globalfindex#sec3
  4. Our study was implemented in partnership with the Institute of Public Opinion and Research (IPOR) based in Zomba, Malawi and the Girls Empowerment Network (GENET) based in Blantyre, Malawi. We are grateful for funding from a 2019 Bill & Melinda Gates Foundation, Grand Challenges Call to Action Award, the University of Texas at Austin, and BIGD’s Women’s Economic Empowerment and Digital Finance (WEE-DiFine) initiative.
  5. Afrobarometer, “Summary of Results: Afrobarometer Round 8 Survey in Malawi, 2020.” Retrieved from https://www.afrobarometer.org/wp-content/uploads/migrated/files/publications/Summary%20of%20results/malawi-afrobarometer_r8_summary_of_results-10may20_fin.pdf
  6.  Survey questions cover: whether the participant has a MM account; personal use of mobile money to save; mobile money preferred financial instrument; strength of preference for mobile money; frequency of mobile money use; count of mobile money services used; mobile loans taken out over past year; times sent mobile money in past month; and times received mobile money in past month.
  7.  World Bank, “Understanding Poverty. Topics: Financial Inclusion. Retrieved at https://www.worldbank.org/en/topic/financialinclusion/overview

Philip Roessler, William & Mary; Tanu Kumar, Claremont Graduate University; Peter Carroll, University of Michigan; Boniface Dulani, University of Malawi, Chancellor College; Daniel Nielson, University of Texas at Austin

BIGD’s WEE-DiFine Initiative: Two Years in Review

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WEE-DiFine is pleased to celebrate its second anniversary: much has already been accomplished, but exciting developments continue to unfold! 

Over two years, WEE-DiFine has built a robust portfolio of 18 projects spanning nine countries in South Asia and Sub-Saharan Africa through three Request for Proposals (RFPs). Our projects have a mean funded value of approximately $90,000, with awards ranging from $15,000 to $360,000. Our portfolio consists of 1 Greenfield study, 5 Extension studies, 7 Pilot studies, 4 Qualitative studies, and 1 Measurement study.

Figure 1: WEE-DiFine’s Portfolio, by Study-Type

What we support

The Initiative aims to address the causal mechanisms of the interplay between digital financial services (DFS) and women’s economic empowerment (WEE), as outlined in our white paper. Ours most frequently addressed causal mechanisms to date include behavioural influence, bargaining power, ability to enact preferences, and access to digital non-financial services. Additionally, one-third of our studies collect gender-differentiated data from both men and women, enabling them to quantify gender-differentiated impacts.

Figure 2: Frequently Examined DFS interventions in WEE-DiFine’s Portfolio
WEE-DiFine projects measure the impact of various DFS interventions on WEE. Most commonly, our projects examine DFS coaching, training, or technical assistance; digital savings products; digital insurance products; and smartphone distribution programs.

WEE-DiFine’s portfolio is well placed to address a variety of research questions, including the following:

  • To what extent are trainings on the use of DFS necessary to advance women’s DFS usage?
  • What context-specific barriers prevent women from effectively using digital savings accounts?
  • Can mobile phone based insurance schemes designed for women, including asset and crop insurance, incentivize take-up of these products?
  • Can access to smartphones advance financial inclusion across regions?

Who we support

A key objective of the WEE-DiFine Initiative is to level the playing field for researchers that are frequently excluded from the competitive funding process. As a research institution based in the global south, WEE-DiFine is well-positioned to do this. We have taken several steps to be a more inclusive donor. Specifically, in October 2021 we released a Feedback & Reflection survey to identify – from an applicant’s point of view – ways that we can better integrate inclusive practices throughout our Initiative. In response to the feedback received, we have offered one-on-one technical and budgetary coaching calls in advance of submission deadlines, incubation of high potential projects, feedback calls to all unsuccessful applicants, a budget assessment process based on an applicant’s unique financial context, and extensive resources elucidating what we consider a high-quality proposal. In light of these efforts, we are proud to share the following information about the teams and institutions we have supported.

Figure 3: Diversity in WEE-DiFine’s Portfolio

What we’re learning

Many of our studies are just getting started, but preliminary results already speak to the aforementioned research questions.

WEE-DiFine supports a study in Malawi led by researchers at William & Mary, Brigham Young University, University of Michigan, and the Institute of Public Opinion Research in collaboration with the Girls Empowerment Network Malawi. This study is uniquely positioned to speak to what works with regard to smart phone distribution programs. Preliminary results are in – they indicate that both mobile technology and appropriate training are important for the individual uptake and use of digital financial services, when examined in the context of lump-sum transfers. Future analysis will examine impacts on household and community norms and women’s empowerment.

WEE-DiFine’s first qualitative study hails from Tanzania and builds on an evaluation exploring the role of intra-household bargaining on working women’s use of digital savings accounts. Led by researchers from the University of Connecticut, RWI, University of Passau, and Innovations for Poverty Action, the qualitative component revealed that the primary barriers to saving that women faced were lack of capital due to small businesses with low-profit margins, unstable revenue, and/or limited ability to grow, followed by family demands on the women’s time and money. The researchers conclude that most women in the study indeed made rational savings contributions given their income.

Finally, the Initiative has also supported a multi-arm RCT led by researchers at UC Davis, International Food Policy Research Institute, and the BOMA Project in northern Kenya. This RCT tests whether digital asset insurance, in conjunction with an ultra-poor graduation program, sustainably builds and protects the assets of pastoral women vulnerable to climate change. Early results demonstrate that reframing digital asset insurance in ways that speak to women’s interests increases women’s demand for the product, relative to conventional framing. Final results are forthcoming, but this project has already garnered substantial interest, including from NASA, who is keen to apply this team’s approach to other forms of agricultural insurance.

What’s next for WEE-DiFine

Our fourth RFP in mid-2023 will focus on shoring up thematic gaps in our portfolio. Presently, the causal mechanisms of safety, systematic discrimination, and breadth of support network are the least commonly addressed by our projects. We also look forward to disseminating additional learnings from our studies through published content, and live, and virtual events. Finally, WEE-DiFine remains committed to advancing diversity and inclusion in development economics research funding – we look forward to engaging our peers to identify and share what works to this effect.

Kym Cole is the Initiative Director, WEE-DiFine at BRAC Institute of Governance and Development (BIGD)