The beautiful small country in South Asia named Bangladesh hosts 2% of the global population in 0.1% of the global land area with a PPP per capita of only 28% of the global average as per the World Bank.
Given the current global pandemic, we are witnessing a Digital Transformation across the world which will only accelerate the forecasted growth of the IT industry significantly as acknowledged and promoted by the industry leaders.
Furthermore, the government of Bangladesh is also promoting the local IT industry especially for the Banking sector and has signed an MOU with the Central Bank facilitating software sale of BDT 300 crore in this sector for the period 2020-2022 as stated by Honorable Minister of State for ICT Division Mr. Zunaid Ahmed Palak, MP.
With the global economic slowdown and widespread budget cuts, our local banks can save the Foreign Currency (FC) spending enormously, if they go for our locally developed Core Banking System (CBS) & other Banking / FinTech Solutions.
The following table shows the expenses incurred by the State-owned banks through adoption of foreign CBS:
***The above mentioned data excludes the needed version upgrades and customization fees (Every year the banks have been paying exorbitant amount as maintenance fees in scarce foreign currency)
Besides the above data, there are a total 28 banks including both from the public and private sectors that have been using foreign CBS. The related CBS and other Banking Solutions expenses data from the private sector banks are not public yet. This might add to the perennial problem of losing the precious foreign currency with unnecessary imports!
On the contrary, neighboring Indian banks are using nearly 100% of their locally developed CBS, which saves their hard earned foreign currencies. Rather, the Indian software companies are selling their home-grown CBS and other software products to the international markets. These Indian companies are also implementing and supporting foreign CBS and other software products to countries like us as dealers/distributors/value added partners. Many international CBS and other Banking Solution Providers have their support and production centre in Bangalore and Chennai. The same is the case with the Philippines.
Although there could be very few sporadic outliers, the local banking industry professionals strongly attest the fact that our long matured local CBS can now satisfy all the needed functionalities of our local banking system. In fact, there is not a single banking feature or functionality of any Global CBS that is really in use in Bangladesh, whichcan not be performed by the well-built local CBS. We certainly have a scarcity of well-built local CBS,, but these are available by now in limited numbers. Moreover, patronization, support and long-term investment are required by institutions or conglomerates, like our neighboring country did to grow more such banking solutions providers.
Moreover, in that case the country could see more decent growth of white-collar jobs, where our talented youths could have been properly utilized. Some 65,000 young professionals get training on ICT-related subjects every year in the country. We are producing a sufficient number of Engineers and IT professionals, and also high quality business graduates (required for the business domain of banking application) from good Universities. However, since the local solutions are not being adopted or properly recognized by the Banks and Financial Institutions with due recognition and respect in terms of pricing and partnering, these resources could not be absorbed or utilized by the good software solution companies.
Is there a lack of availability of local quality CBS?
The question is quite relevant here as it requires deep pocket, long-term investment and enormous patience to continuously design, develop, deploy and to evolve a new CBS at a maturity level in many iterations. Most of the entrepreneurs / technocrats are reluctant to take such a challenge due to the serious financial risk involved in this long arduous evolutionary process. The ROI has to be on a long term basis here, compared to the other enterprise software solutions.
However, in India, all the local CBS gained maturity through the patronization and collaboration of their client banks like ICICI Bank, or large visionary conglomerates like the Tata Group, etc.
We all know to solidly boost our local economy, we have to follow this principle: “by local, for locals”. Local CBSs have been designed primarily with the local Banks in mind. These are very agile for any necessary changes compliant with the Central Bank regulations. The local talents of our local CBS providers understand the needs and nature of necessary changes better than the foreign consultants of the foregin CBS providers. These local talents also cost significantly less than those expensive foreign consultants but having equal (if not better) knowledge and skills both appropriate and sustainable for our local banks.
On top of contributing to the national GDP by choosing local products from many perspectives, it’s about knowing and understanding the origin of the product and maintaining positive relationships between the suppliers and the users. Locally sourced products usually come with the added benefit of faster delivery often with a fraction of support and customization cost than the global vendors.
The CBS (Core Banking System) is not the complete solution for a bank, it is rather the core transactions and data management system. Banks typically require several other sub-systems that integrate with the CBS, for example: alternative delivery channels, regulatory compliance, risk management, statutory reporting, integration with local/global FinTech eco-system, local exchange connectivity (BFTN, NPSB, Clearing etc), Agent banking, Offshore banking etc. Opting for a local solution hence offers efficiency in terms of smoother integrations and better service delivery.
Following the globally successful trends, our entire local Banking and Financing industry seriously needs to do prudent investments in their digital transformations to design efficient business processes, improve their CBS and other application User Experiences (UX). Here investments in people, process and technologies are all important, but a well-built robust but extensible and scalable CBS is the foundational business area to consider for the Commercial Banks.
A couple of Banks have built their own lab-grown CBS and maintain them with a huge number of IT resource personnel, but that cannot be the answer to this problem. It will not be cost-effective in the long run. Moreover, the latest study advocates that the businesses should concentrate on its own core competency. Building and maintaining software cannot be part of the core area of financial institutions. A financial institution cannot provide the environment required for a quality software company within their management framework, where fostering and nurturing talents, promoting innovation through R&D explorations are key success factors here. Moreover, optimization of resources in this field only could be done by a software company itself rather than a financial institution.
Identifying the existing visionary companies with robust products and having a long-term and win-win arrangement with them could be a good answer to this puzzle. Moreover, more and more such companies should be built and patronized by the financial institutions and large conglomerates like our neighboring countries.
The author could be reached at mahmud@mislbd.com
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