Despite being a developing country, Bangladesh has an extremely low number of credit card users. According to data from Bangladesh Bank, less than 1% of the total population currently uses credit cards. What could be the reasons behind this? Today, we'll explore the underlying reasons for the hesitancy among people in using credit cards in banking practices.
Eligibility and Barriers
When issuing a credit card, banks analyze various information about a customer in detail, such as their profession, position, employer, salary amount, and other relevant details, before issuing the card.
Limited financial literacy
Currently, most banks and financial institutions in Bangladesh typically require a minimum salary of 20,000 BDT or higher to consider an application for a credit card. This income threshold is below the earnings of the majority of people in our country, causing many to lose eligibility to apply for a credit card, despite harboring dreams of using one.
Accessibility issues
In addition to salary, another barrier is the applicant's job title. Many banks specifically consider the applicant's position in their current organization. For example, if your salary is above 20,000 BDT but you work as an operator or in a similar non-managerial position in a garment factory, banks may reject your application based on your job title. However, some banks may still offer you a credit card with certain conditions in such cases.
Your workplace details are crucial
when applying for a credit card. The employer must be a legally registered and
recognized entity according to the prevailing laws in Bangladesh. Banks often
prioritize employees of financially stable or widely recognized companies, and
applicants must be permanent employees of the respective organization. Income
verification typically requires deposits into a bank account or saving pay
slips for those receiving cash payments.
If the applicant is a business owner or self-employed, they must have a valid trade license for their establishment. The company must be at least two years old or more, and the applicant's income and the annual transactions of their establishment must meet or exceed the specified amounts according to the bank's prevailing rules. Many applicants fail to meet these conditions, leading to a significant portion being rejected.
Income documentation requirements
In Bangladesh, the majority of people earn their livelihood through informal occupations such as farming, laboring, weaving, pottery, blacksmithing, tailoring, and so on. Although they are an integral part of our society and are loved, respected, and admired, their professions often do not qualify them to obtain a credit card. As a result, a large segment of the population is completely excluded from accessing credit cards in the country.
Regulatory challenges
It seems like many people in Bangladesh cannot apply for credit cards because they don't have Tax Identification Numbers (TIN) or TIN certificates, which are required as per the guidelines of the central bank. This requirement poses a barrier as the majority of the population's income levels do not necessitate paying taxes, thus they do not possess TIN certificates.
Limited banking infrastructure
In Bangladesh, although most banks now issue credit cards, their services are largely limited to urban areas. The use of credit cards in rural areas has not expanded significantly because the necessary infrastructure such as ATMs, POS machines, or terminals remains sparse. As a result, a significant segment of the country's larger and more affluent population cannot even imagine accessing credit card services remotely.
Consumer behavior towards financial products
Many eligible individuals choose not to use credit cards primarily due to the associated charges and fees. To begin with, there are several fees that customers must pay to use a credit card, such as issuance fees, annual maintenance fees, over-limit fees, late payment fees, cash advance fees, SMS alert fees, and more. Moreover, if the amount spent using the credit card is not repaid within the grace period, a specified interest rate must be paid to the bank. Currently, the annual interest rate on credit cards in Bangladesh is 20%, which is considerably higher than the maximum interest rate on other loans, capped at 9%. These additional fees and high interest rates often discourage many people who are otherwise eligible from applying for a credit card.
Religious Mindset
Secondly, from a religious perspective, many in Bangladesh's Muslim-majority population prefer to refrain from using credit cards. This is because they believe that interest is involved or could be involved, which is considered forbidden (haram) or prohibited in Islam.
Consumer trust
Many people, however, despite initially accepting a credit card, later surrender it due to the bank representatives keeping certain information about the card confidential from the customer. As a result, after obtaining a credit card, customers often develop a misleading perception about their card's details. Salespersons at banks sometimes withhold specific information, especially related to charges, to fulfill their sales targets. Consequently, customers may unknowingly incur charges on their credit cards. This can lead to disillusionment later on when customers perceive these charges as hidden fees, although they may not always be so, but rather due to customers not being properly informed about the details.
In addition to the aforementioned reasons, there could be several other reasons
why credit card usage is not widely adopted in Bangladesh. Those interested in
using credit cards should thoroughly research the specific card from their
respective bank, including its fees, types of services offered, and terms and
conditions.