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3 Digital Business Opportunities with Micro Merchants in Bangladesh

By Guest Writer on February 6, 2019

  micro merchant

Imagine you could impact over 1.3 million people and their families, who represent 13% of the gross domestic product of Bangladesh. That’s the promise with micro-merchants who create $18.42 billion in sales with $16.72 billion of inventory value, and grow by 42,000 of new micro-merchants every year.

That’s the tantalizing opportunity found in The Landscape Assessment of Micro-Merchants in Bangladesh, the first comprehensive assessment of micro-merchants in the Fast-Moving Consumer Goods (FMCG) sector in Bangladesh.

Over a period of nine months, researchers applied both qualitative and quantitative research methods to a country-wide sample of 2,100 micro-merchants. The research was conducted by UNCDF and funded by the European Union under the Poverty Reduction through Inclusive and Sustainable Markets (PRISM) initiative.

The research highlights the urgent need for access to finance, capital investments, and skills development, to help the sector continue to grow sustainably and to its full potential.  To learn more about this segment visit UNCDF’s Microentrepreneurs Data Portal.

Who Are Micro-Merchants?

A typical micro-merchant is male, with an average age of 38, is married and is literate, with at least a primary education. He moved into the retail sector after working in other sectors or occupations, and was previously a full-time employee or an overseas migrant worker. He often has additional sources of income from other business activities.

The diversity of micro-merchant backgrounds in the retail sector suggests that this sector has a relatively low entry bar for those seeking to change careers: micro-merchants are less likely to be born into their profession, or to enter it straight out of school.

However, there are only an estimated 94,800 female micro-merchants—or just 8% of the total micro-merchant market. Compared with their male counterparts, a typical woman micro-merchant does not have a formal education, and does not hold a trade license for her business.

Access to finance for women mostly comes from microfinance institutions that specifically target women borrowers. She owns a mobile phone, but internet access is often limited, making access to digital financial services difficult.

Potential Opportunity: Inventory Management Applications

micro merchant

Currently, inventory management and product sourcing are performed manually; stock ordering, for example, is based on merchants’ intrinsic, common knowledge. As well, nearly three-quarters of customer sales are done on credit, using paper records. Payments to suppliers and from customers are all done in cash. At the same time, nearly all micro-merchants own mobile phones.

The digitization of record keeping, stock-ordering processes and payments would create accuracy and efficiency gains for micro-merchants, and accelerate their integration into the larger FMCG supply chain.

For FMCG manufacturers, digitization would also offer valuable data insights into the business operations of merchants, and help them create new strategies for reaching last-mile customers.

Potential Opportunity: Digitizing Credit Sales Records.

Micro-merchants struggle with keeping track of credit sales, which are 73.1 percent of sales. There may be a room to consider digitization of credit sales records in partnership with the financial sector, technology providers and FinTechs.

This would enable innovation of the payment instruments on offer, and introduction of more convenient ways of payment both for customers and micro-merchants, e.g. person to business (P2B) payments through a mobile platform as well as a development of a credit scoring system using credit sales records.

Digitization of credit sales records would benefit all involved in the supply chain: micro-merchants would expand payment options to customers, the financial sector would introduce new payment instruments and expand market access, and FMCG companies would ultimately be able to sell more products, as micro-merchants would be able to access new credit lines.

Potential Opportunity: Digital Financial Services

Most micro-merchant businesses are formalized, so they should, in theory, be able to access and use formal financial services. However, more than half of micro-merchants (57%) do not have access to a bank account.

Two thirds (68%)—even among those who do have a bank account—rely on microfinance institutions for loans, and although one third (30%) have a mobile-money account (although every micro-merchant interviewed knows about mobile financial services [MFS]), their usage of these accounts for business transactions such as paying suppliers remains limited (5.6%).

For providers, the potential to build on this widespread awareness of MFS and translate it into actual usage is clear. Uptake could come through both below-the-line and above-the-line marketing campaigns, or via targeted financial literacy interventions. For example, financial services providers could explain the commercial benefits of having merchant accounts to micro-merchants using merchant-specific use cases, such as payments through QR codes or via digitizing payments to suppliers (business-to-business payments).

Regulators, too, can play an enabling role for the sector by, among other things, promoting the digitization of business operations and pushing for the responsible adoption of MFS by the retail industry. They can also take a lead role in promoting financial literacy campaigns, especially interventions that enhance women’s financial capacities.

The potential for enhancing the use of digital financial services is clearly promising, but uptake and usage will depend on providers’ proactive engagement and investment in the sector.

By Ana Klincic Andrews, Ph.D. of the United Nations Capital Development Fund

Filed Under: Economic Development
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