Credit cards are a popular medium for purchasing goods and services in developed countries. In 2020 alone, there have been about 368.92 billion credit card transactions. Which means, the average transaction per day was more than 1.01 billion. The market for credit cards, which is also known as ‘plastic money’, continues to grow. According to Research and Markets, the current global credit card market size is approximately 103.06 billion, which will increase by an average of 1.1 percent per annum by 2025 to approximately 107.69 billion. The United States tops the list in terms of total number of credit cards. The number of active credit cards in the US exceeds the total population. On the other hand, there are only 1.73 million credit cards in Bangladesh, which is close to 1 percent of the total population.
Overview of Credit Card Users
In 1997, ANZ Grindlays or the present Standard Chartered Bank introduced the first credit card in Bangladesh. Currently most banks and some non-bank financial institutions in the country issue credit cards.
Being a country with a fast growing economy, Bangladesh still lags behind in its use of credit cards. Although the country is one of the fastest growing economies in the world, the use of credit cards in Bangladesh has not increased as much as compared to other countries. According to shift processing, there are about 2.6 billion credit cards in the world today.
According to the Reserve Bank of India, as of September 2021, the number of credit cards in India was 65,025,075. According to Statista, the current credit card usage rate in the country is more than 3 percent, which is expected to exceed 5 percent by 2025.
Neighboring Sri Lanka also has a much higher credit card penetration rate than Bangladesh. According to the Central Bank of Sri Lanka, about 2 million credit cards have been issued in the country by the first quarter of 2021, which is about 9% of the country’s population.
On the other hand, the credit card market in the developed world is much wider. According to the American Bankers Association, by the end of 2020, the number of active credit cards in the USA was approximately 365 million out of a population of about 334 million and the total number of credit cards is 1.06 billion. At least 70 percent of the country’s population has one credit card. In addition 34 percent of the country’s population has an average of 2.7 credit cards per person.
Canada tops the global credit card penetration rate with 78% of the population being credit card holders. Also, countries like Japan, Luxembourg, and Norway have high credit card penetration rates.
Bangladesh is now the 41st largest economy in the world according to the 2020 Cebr Index. As per PPP or purchasing power parity, the per capita income of the people of Bangladesh as of 2020 is 5,139 USD . According to a report published by Cebr, Bangladesh will rise to the 25th position among the 193 countries by 2035. Bangladesh will also overtake countries like Singapore, Denmark, Norway and Malaysia to make it to the top 25 elite list.But, Bangladesh is not even close to the credit card penetration rate of these countries in the modern world. So, why is the number of credit users in Bangladesh so low despite being a fast growing economy?
Reasons Why Bangladesh has Less Credit Card Users
Per Capita Income vs Standard of Living
In the fiscal year 2021-22, the size of the budget of Bangladesh has exceeded the milestone of 6 lakh crore. According to Standard Chartered Bank, GDP growth in the Fiscal Year 2021-22 could be as high as 7.2 percent. Meanwhile, from 2009 to 2019, Bangladesh’s GDP grew by 188 percent. Which was more than China’s GDP growth of 177 percent and India’s GDP growth of 117%. However, according to the latest data released by the Bangladesh Bureau of Statistics, the nominal per capita income of Bangladesh in 2020-21 was 2,554 USD, which is higher than that of India at present.
According to the Daily Star, although Bangladesh surpasses India in terms of per capita income, it lags far behind in terms of Purchasing Power Parity (PPP). In terms of PPP, in 2021 India’s per capita GDP is 7,319 USD, while Bangladesh’s is only 5,733. In other words, although the per capita income of Bangladesh has increased, the standard of living has not increased at the same rate.
According to a report by the Financial Express, Bangladesh ranks fourth after India, China and Maldives, but ranks 26th out of 30 Asian countries in the Happiness Index. Moreover, CPD IRBD’s analysis of the 2021-22 fiscal year has identified the country’s persistently rising food inflation and pace of public expenditure as a negative aspect of the budget. According to The Economist, the relationship between per capita GDP and happiness is in many ways contradictory, and the same is true in Bangladesh.
As of 2021, in the happiness index, Bangladesh ranks 101st out of 149, while Bangladesh ranks 41st in GDP ranking. Gradually the country’s per capita income is increasing, the poverty rate is decreasing, but the standard of living has not increased at that rate. Again, according to the Prothom Alo, in 2019, out of 3,93,30,000 households in the country, about 74% (2,82,60,000) lived in rural areas. Again, a large portion of the people living in the city are temporary residents, who have family living in villages. So most of the income of these people goes to the village. Where the scope to use a lifestyle product like credit card is very slim. While most of the people’s income is spent on basic needs, it is not unnatural for Bangladesh to not get widespread credit card acceptance.
Income Sources
At present, there are 44 private banks in Bangladesh, most of which issue credit cards. While issuing a credit card to someone, banks evaluate the customer’s income source. Credit cards are usually issued against a certain minimum amount of income from a formal source. But most of the people in Bangladesh have no formal source of income.
According to the Labor Force Survey 2016-17 conducted by the Bangladesh Bureau of Statistics, more than 85.1 percent of the total employment in the country is in the informal sector. Informal sector refers to financial activities which are conducted outside the formal structure. Such as work on a daily wage basis, agriculture, small business, or any other work outside the formal sector. People working in this sector usually do not pay taxes and do not receive any kind of social welfare protection.
However, the central bank has made it mandatory for credit card holders of Scheduled Commercial Banks (SCBs) to have a tax identification or TIN/E-TIN number. So normally this huge number of people in the country cannot avail credit cards. In addition, most of the people in the country live in rural areas, of which about 90 percent are workers in the informal sector. They also are outside the scope of credit card services.
Meanwhile, according to the Labor Force Survey 2016-17 conducted by the Bangladesh Bureau of Statistics, the average monthly income of paid employees in the country is BDT 13,256. However, according to the Daily Star, to receive a credit card the individual must have a minimum income of BDT 20,000 per month. Majority of these people in the informal sector have no bank account, even if there are, there are not many transactions in those accounts. As a result these people don’t really qualify to be issued a credit card. So the credit card requirements of this class of people are not met. As a result, the country’s credit card usage rate does not increase.
Inadequate Infrastructure
According to the World Bank, in 2020, about 61.823 percent of the total population of Bangladesh lived in rural areas, where there is no infrastructure to operate a modern payment system like credit cards. Using a credit card requires an ATM machine or a point-of-sales (POS) machine and terminal.
According to the Daily Star, till December 2020, there were a total of 10,000 ATM machines and until April of 2021 there were 60,000 POS machines in Bangladesh. Most of these are located in the urban areas. As a result, a rural credit card holder is unable to use their card even if they want to.
Moreover, banks have to invest heavily for credit cards. In addition, banks provide various offers, bonuses, discounts, which also require a huge amount of investment. According to Mutual Trust Bank’s head of cards and alternative delivery channels Anwar Hossain, “Credit cards require huge investments, from POS to ATMs and marketing costs. Moreover, it’s a collateral-free product, for which the risk is very high.”
Many banks do not want to take this risk, and are not investing enough; hence the increase of credit card usage in marginal areas is not ensured. Again, a huge portion of people’s income goes towards house rent, food, education, and commute. However, most of these sectors do not have the opportunity to use credit cards, which is another reason for not increasing the credit card penetration rate in Bangladesh.
Lack of Information
In the modern financial system Credit cards are a popular alternative to cash. It’s necessary to have enough information before using credit cards. It is important to know what it is, how it works, credit limits, billing deadlines, and especially all the rules and regulations for the credit card.
Taking a credit card without being properly informed about all these aspects usually gets a customer into a lot of problems. Due to the lack of information, a kind of misinformation is spread around by the people who got in trouble. Which has created a negative image of credit cards among people. Since borrowing is done through a credit card, it’s necessary to know the details of the loan repayment process in advance. Not only the customer, but also the card issuer needs to know all the information about the customer.
According to Forbes, a customer needs to know a few things before taking a credit card, such as the basics of credit cards, card conditions, purchasing process, penalties, and the Schumer Box (which is a table in the credit card agreement that contains basic information about card rates and fees). But, many customers in Bangladesh start using the card without fully knowing this information. In many cases, the issuing agents do not provide details. As a result, a fear of credit cards is created in the minds of the people.
Fees, Interest Rate, Hidden Charge & Condition Loophole
Before taking a credit card, the bank’s agents talk about various benefits, but often skip the important information. Even when the consumer has to be informed of all the conditions, some conditions remain hidden. Regarding this Dhaka University Banking and Insurance Department faculty member Dr. Shahidul Zahid told Prothom Alo, “Bangladesh Bank has specific guidelines regarding credit card transactions. Section 11 (6) of Bangladesh Bank’s ‘Credit Card Operation Guidelines for Banks’ states that as soon as every successful credit card transaction is completed, the user must be informed of every transaction and aggregate transaction through appropriate means.”
In addition, there was a complication with the Annual Percentage Rate (APR) in the country’s credit card market. Even a short period ago, some banks in the country used to charge 30% or more interest on their credit cards. However, in a circular issued by the Central Bank in September 2020, the maximum interest rate on credit cards was fixed at 20%.
Meanwhile, according to Business Insider, the average credit card APR of the USA in the first quarter of 2021 was 15.91 percent. According to Credit Cards, the global credit card interest rate in October 2021 was 16.16 percent. In addition, according to CNBC, there is a specific deadline for payment of fees, including credit purchasing condition APR, bill payment APR, balance transfer APR, cash advance APR and penalty APR. Depending on the type of the issuer, cards have different rates of charges. Due to their ignorance, consumers often have to pay more interest than the capital amount. This acts as a negative factor in credit card usage.
Credit Crisis
Credit card transactions are considered as loans. “Buy now pay later” – this feature is considered to be the main reason for the popularity of credit cards. The longer the period of installment payment the more the rate of interest. As the installment of the credit increases, so does the amount of interest.
America is the largest credit card market in the world, so the amount of credit card debt in the country is even higher. As of September 2021, the country’s total consumer debt is 14.96 trillion and average per capita credit debt is 92,727 dollars.
The tendency of the citizens of Bangladesh to repay their loans can be determined by looking at the defaulting loans in the banking sector of the country. According to Bangla Tribune, at the end of March 2021, the total amount of loans given by the banking sector was 11,77,658 crore taka. Of which 95,075 crore taka have been defaulted. Meanwhile, according to Banik Barta sources, at the end of June 2021, credit card debt in Bangladesh stood at 6,414 crore taka, of which 5% is currently in default. This practice in repaying loans is also seen in the payment of credit card bills among the people. However, in the case of credit cards, as the interest rate is higher the loan amount also becomes higher. As a result, banks are less interested in issuing credit cards to everyone without much scrutiny. On the other hand, customers are often less interested in credit cards for fear of defaulting.
In order to make life easier, financial institutions in almost all countries of the world have several loan facilities. In Bangladesh, there are various kinds of loans offered under the category of “family debt” or “household debt” in a variety of sectors, including housing, property, education, vehicles, and medical care. Although the practice of taking these loans is much higher in the developed countries, it is not as popular in Bangladesh.
According to Statista, Hong Kong, USA and China are in the top three in the household debt ranking compared to GDP in 2020. Whose debt is much higher than GDP. Debt share in Hong Kong’s GDP is 258.45 percent, while USA and China’s household debt is 216.33 and 182.43 percent respectively. However, in the case of Bangladesh this rate is much lower.
In 2020, the share of household debt in GDP in Bangladesh was only 38.91 percent. Again, in the case of mortgage loans, people in Bangladesh are much less prone to borrow. According to Bangladesh Bank, the share of this loan in GDP in 2020 was just 1.03 percent.
However, in neighboring India, the rate is even higher at 8 percent. In other words, the tendency of Bangladeshis to increase the standard of living or make life easier by taking loans is much less than other countries. As people have to spend by borrowing through credit cards, this is why the tendency of using credit cards is much less among the people of Bangladesh, which is why the rate of credit card usage in the country is also low. This is one of the reasons for not increasing the credit card penetration rate of the country.
Due to these reasons, credit card penetration rate in Bangladesh is low. However, recently, the country’s credit card penetration rates have risen slightly as a result of the central bank’s guidelines on credit cards, the imposition of APRs, and increased public awareness. Compared to 2020, credit card issues increased by 11.31% in 2021 and transactions increased by 115 percent in this one year. Although the scope of this market is steadily increasing in the country. However, the size of this market as a fast growing country is not growing as it should be.
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