Advance loan against salary: Bangladesh Finance’s new facility for corporate jobholders

Safwan Sharif, an officer of a corporate organisation in Dhaka, earns a handsome monthly salary. But after covering loan instalments for flats and cars he usually runs short on money at the end of a month. With no opportunity to take an advance salary from the office, his only options are to seek loans from his friends, whose financial conditions are not too great either.

“Asking relatives for loans is a bit embarrassing. My only hope in such situations is the credit card. But the cost of taking a credit card loan is a bit high. I have been looking for an alternative for a long time,” he said.

Bangladesh Finance, a non-bank financial institution (NBFI), has brought that alternative for people like Sharif.

From now on, the institution will provide advance financial services against the salary of employees who are working in private firms or institutions. Eligible jobholders can avail the service using an app called Myne within one working day. SM Fintech will provide technical support for this service.

According to officials, in case of urgent need, eligible jobholders will have to apply through the Myne app. If the application is accepted, the requested money will be transferred to the applicant’s bank account or mobile financial services (MFS) or e-wallet.

This advance facility will be treated as a consumer loan, said people familiar with the matter. The interest for the loan will be the same as the retail loan rate of NBFIs. Interest will be calculated by dividing one year’s interest rate daily. At present, NBFIs offer retail loans at 11 per cent interest rate while for banks, the rate has been increased to 12 per cent from 9 per cent recently. Industry insiders believe that the rate might be increased for NBFIs as well in the coming days.

Suppose that a corporate job holder needs Tk 30,000 urgently on the 20th of a month and that they applied through the Myne app to get a loan. At 11 per cent interest rate, they will have to pay Tk 3,300 as interest rate in one year, meaning Tk 9.04 per day. Since the customer took Tk 30,000 on 20th of the month, they need only to pay 10 days interest or only Tk 90.4. In total, they will have to repay Tk 30,090.4 for the loan. In addition, borrowers will be charged another 1 per cent of interest rate as loan processing fee or in this supposed case, Tk 300.

Bangladesh Finance officials said there will be no hidden charges other than 1 per cent loan processing fee. Overall, the new service will be more cost-effective for customers than credit cards.

Md Kyser Hamid, managing director and CEO of Bangladesh Finance, told The Business Post that this service will be launched from their Islamic wing, so using the word interest would be wrong. “It will be a fee or charge. And these fees are negligible compared to credit cards. As a result, a big number of customers will be interested in this service.”

He also said a customer can borrow up to 50 to 70 per cent of their salary through the service.

Initially, the service will only be available to employees of organisations that have signed an agreement with Bangladesh Finance. Gradually it will be open for individual customers who work in companies with good corporate backgrounds, said Kyser.

“The new service is being launched as part of diversifying our business. There is no need for additional manpower and cost in introducing this fintech product,” he added.

Repayment process

The loaned money will be deducted from a borrower’s salary by their employing organisation.

For instance, if someone borrows Tk 30,000 through Myne app on the 20th of a month, they will have to repay a total of Tk 30,390.4 for the remaining 10 days. Now, let’s say they get Tk 60,000 as their monthly stipends. When their employing organisation will pay them on the first of the next month, the organisation will deduct the repayable amount from the borrower’s salary. So if a borrower’s total salary is Tk 60,000, in this case, Tk 29,609.6 will enter their salary account.

Kohinoor Hossain, head of sustainable finance at Bangladesh Finance, told The Business Post that SM Fintech will ink deals with various corporate organisations to collect detailed information about employees.

“We will transfer the advance money to customers’ bank account or in case of small amounts to MFS or e-wallet as per demand,” he said.

He said the advance recipient will have to inform them about the means of receiving the money while completing the KYC under the supervision of SM Fintech.

“In order to get the money, the recipient has to apply through the app. Bangladesh Finance has confirmed that the advance money will be available within a maximum of one day against the application. But the matter can happen day by day as well.”

“For instance, if the recipient applies at the beginning of a working day, it may be possible to release their requested money by the end of the day. But it depends on how fast the banks’ transactions are completed.” added Kohinoor.

As the whole process will be done on the basis of the agreement between SM Fintech and the employing company, and the loan money will be deducted from the company itself, there is absolutely no risk of non-repayment of this type of service, according to Bangladesh Finance officials.

The NBFI hopes it will be a revolutionary financial service in the country’s history.