S E M I N A R O N

‘Development of Payment Systems in Bangladesh:Payment and Remittances throughReal Time Gross Settlement (RTGS)’

‘Development of Payment Systems in Bangladesh:Payment and Remittances throughReal Time Gross Settlement (RTGS)’

October 31, 2015

Radisson Blu Water Garden, Dhaka

Asian Development BankBangladesh Bank

S E M I N A R O N

‘Development of Payment Systems in Bangladesh:Payment and Remittances throughReal Time Gross Settlement (RTGS)’

‘Development of Payment Systems in Bangladesh:Payment and Remittances throughReal Time Gross Settlement (RTGS)’

October 31, 2015

Radisson Blu Water Garden, Dhaka

Asian Development BankBangladesh Bank

As the apex regulatory body of the country’s monetary and financial system, Bangladesh Bank is concerned of maintaining of per value of money; ie the price stability and efficient circulation of money though efficient functioning of its payment systems which leads to public confidence on the financial systems. In securing these responsibilities, Bangladesh Bank serves two specific functions namely 1) Promote and provide the means of payment settlement to public and (2) ensure smooth execution of payments through secured and efficient payment and settlement systems.

By the mandate of the BBO 1972, Bangladesh Bank constantly monitors the institutional framework and the operation of payment and settlement systems, works in coordination with the parties concerned to thereby and also prevent the materialization of various risks. As a means of payment, cash has been in use since ages with the benefit of immediate completion of the settlement of a transaction. Since the payment in cash requires direct presence of both parties, has a risk of losing it at any time and the cost of printing, minting, distribution, handling and eventual destruction of cash is high, cash is never the preferred mean of payments. As well as, the commercial bank offers accounts to firms and households and the funds in these accounts, or deposit money, is equivalent to banknotes in their function as a means of settlement with finality. To promote these kinds of transactions, BB developed state of the art technological platform like cheque imaging and truncation based Bangladesh Automated Cheque Processing Systems (BACPS), end to end electronic instruction based Bangladesh Electronic Fund Transfer Network (BEFTN), National Payment Switch Bangladesh to ensure inter-operability of card based ATM and POS transactions. In the process, with all these retail deferred net settlement based payment platform, BB brought in country’s first high value, real time individual settlement system Bangladesh Real Time Gross Settlement (BD RTGS). On the other side, to serve the underserved, to offer the financial services even to the remotest corner of the country, BB introduced Mobile Financial Services and agent banking.

Payment and settlement systems are vital to every economic entity including the firms and individuals. As the central bank, Bangladesh Bank will continue its efforts to improve the safety and efficiency of Bangladesh’s payment and settlement systems. At the same time, BB is keen in collaboration with market participants and other central banks in the region. Given the globalized and integrated nature of financial markets of today, only through collective exercises, BB can jointly benefit from new ideas and innovation with respect to the financial and payment infrastructure.

Preamble

Honorable Chairperson, distinguished guests, fellow speakers, bank officials, members of printing and electronic media, I wish you all a very pleasant good afternoon. I am very happy to be here in today’s public awareness session on ‘Development of Payment Systems in Bangladesh: Payment and Remittances through Real Time Gross Settlement (RTGS)’ as it stands very close to my heart.

Ladies and gentlemen,

You all know that the development of a safe and efficient national payment system has relevance for the monetary policy, financial stability and overall economic development of the country. Bangladesh Bank-the central bank of the country, therefore, has given emphasis to establish a state of art payment systems as a part of its inclusive digitization initiative for last several years. BB's inclusive digitization initiative include development of a modern and efficient automated banking system, creation of institutional arrangements for payment services and payment infrastructures and thereby stimulating a coordinated effort among the banking sector, regulatory agencies and other relevant stakeholders. BB even collaborated with the other central banks and international agencies to improve and standardize the payment systems of the country.

Bangladesh, the land of ample opportunities and hope, is on board to create a fully automated, easy to access, affordable payment systems to increase the pace of financial inclusion activities. Bangladesh Bank introduced Bangladesh Automated Clearing

Dr. Atiur RahmanGovernor, Bangladesh Bank

peech of the Chief GuestS

House (BACH), National Payment Switch Bangladesh (NPSB) and Mobile Financial Services (MFS) to broaden the range of payment instruments and services. BB is also very keenly engaged for improving the interoperability and resiliency of banking, payment and securities infrastructures. Recently Bangladesh Bank imple-mented Real Time Gross Settlement (RTGS) allowing us immediate payments settlements on an individual order basis without netting to fulfill the requirement of a high value payment system in the country. With a focus to the future, system is open to both VPN and SWIFT connectivity, next gen fin language ISO20022 is chosen as the message format. I would like to thank all the participating banks, my colleagues of Bangladesh Bank, vendors and all other concern who were related with the project implementation. I also would like to express my heartfelt gratitude to Asian Development Bank for being with us in this endeavor.

Recognizing the positive linkage between technology and sustain-able growth, we at Bangladesh Bank, developed and implemented broad based Networking, Enterprise Resource Planning (ERP), Banking Application, Enterprise Data Warehouse (EDW), Open Data Initiatives, a highly interactive Website and Intranet, E-tendering, E-recruitment and many other in-house software. Whole financial sector enthusiastically embraced the changes and induced itself with core banking solution, online banking, designing new prod-ucts, customer friendly apps and so forth. Along with this physical establishment of infrastructure, BB has a concern about the regula-tory aspects too. BB already circulated guidelines for every single payment platform. A payment systems act is under formulation to better contain legal, operational, financial and systemic risks and to create more suitable oversight and regulatory regimes for the national payment systems.

Financial literacy is a prerequisite for optimum exploitation of any new payment initiatives. Today’s seminar is a timely effort to disseminate various aspects of RTGS, in conjunction with other already launched platform. Wishing a grand success of this seminar let me conclude here.

Dr. Aslam AlamSecretary, Bank & Financial Institution Division,Ministry of FinanceThe Government of People’s Republic of Bangladesh

peech of the Special Guest S

Honorable Chief Guest, honorable chair , Fellow Speakers, Distin-guish Bank Officials, wishing all of you Good Afternoon in today’s public awareness session on Remittance and Payment System infrastructure Development.

Inclusiveness of financial system is a very relevant dimension of financial development which helps Bangladesh to attain or exceed most of the UN 2015 MDGs well ahead of timeline. Access to finance with an affordable price is perceived as a right of the poor and it has been recognized that financial inclusion efforts do have multiplier effects on the economy as a whole through higher savings pooled from the vast segment of the bottom of the pyramid population by providing access to formal savings arrangements resulting in expansion in credit and investment by banks.

As a result of sustained, stable 6% plus equitable and environ-mentally sustainable economic growth for more than a decade, Bangladesh became a member of prestigious (lower) middle income group recently. Along with other initiatives successful adoption of innovative technology in payment systems arena to build up a digitized Bangladesh helped the country in achieving the goal. Technology has brought notable changes in financial services by reducing transactions costs, handling the distance issue or ensuring proximity of banking services, improving speed or pace of services by ensuring almost real time transactions.

Bangladesh government launched Access to Information (A2I)

Program with a proclaimed goal to leverage ICT in public service delivery and build necessary capacity of the stakeholders to promote the use of ICTs in development. As well as, Bangladesh government has taken initiatives to prepare a level playing field in banking industry by inducing right kind of technological changes in state own commercial banks. Government also encourages the process of developing a fully automated payment and settlement systems for the country. Bangladesh Banks initiatives of launching country’s first automated cheque processing system, end to end electronic instruction based electronic fund transfer network, inter operable card based national payment switch served the country well. Mobile Financial Services and agent banking helped to reach out to the marginalized people of the society. On top of these initiatives, inclusion of Real Time Gross Settlement (BD RTGS) systems meets the requirement of country’s high value payment system.

I would like to congratulate whole banking sector for becoming an active part of this development, diffusion and transfer of the payment digitization for ensuring optimum financial inclusion in the country. I really appreciate Asian Development Bank for partnering this public awareness campaign and believe ADB will also be our partner in future.

Thank you all.

Ms. Nazneen SultanaDeputy Governor, Bangladesh Bank

peech of the ChairS

Honorable Chief guest, honorable special guests, speakers of today’s session, esteemed executives of different banks, represen-tatives from print & electronic media and dear collegues good afternoon. RTGS is no more a dream, with all your dedications and noble efforts this dream comes true through its live journey on October 29, 2015. This is the beginning of the change and we are dreamt to go beyond, I wish you all to be with us as always. Welcome to the seminar on “Development of Payment Systems in Bangladesh: Payment and Remittances Through Real Time Gross Settlement (RTGS)”

With the mandate of Bangladesh Bank Order 1972 Bangladesh Bank endeavors for promoting new payment and settlement systems to ease financial transactions, ensure circulation of money throughout the economy and bring public confidence on the financial sector. In the journey of modernization of country’s payment and settlement systems, Bangladesh Bank launched Bangladesh Automated Cheque Processing Systems (BACPS) in 2010, Bangladesh Electronic Fund Transfer Network (BEFTN) in 2011, initiated Mobile Financial Service in 2011, installed National Payment Switch of Bangladesh (NPSB) in 2014. But all these payment channels were developed to focus the retail payment only. With the launching of RTGS the large value payment has also been addressed which completes the modernized payment infrastructure of Bangladesh as well as ensure international best practices in place. And for this tremendous job thanks goes to

Asian Development Bank for being the financial partner in the journey of RTGS under “Institutional Support for Migrant Workers’ Remittances: Real Time Gross Settlement (RTGS) ” project.

With the go live of RTGS, Bangladesh steps forward in bringing new horizon in the country’s payments landscape. Implementation of RTGS was a challenge for all of us, but more challenges are awaiting. The ultimate goal of RTGS will not be achieved until we ensure the use of this sophisticated payment channel to the fullest. I would like to request all of you to aware your customers of the magic of RTGS and encourage them to execute their large value payments through it.

In the competitive arena of financial sector, there is no scope to escape from the technology driven financial product. Customers are well aware of technologies around the world and their demand for availing those product cannot be ignored. Its better to go with the wind rather keeping the door closed. As the central bank, we are developing the highway for you. Its your turn to build the sub-way and charm your client by your sophisticated product. As long as all of us can optimize the benefits of the new initiatives of RTGS, the confidence on our payment channels will increase and flow of remittances will rise over all expectations.

We believe, only through collective efforts we will be able to face all the challenges and success will be only ours which will lead us to step ahead towards prompt, efficient, secured and cost effective payment systems in our country.

Thank you all for your efforts and wish this cooperation will remain the same in near future.

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Background: Bangladesh Bank as the central bank of the country have a strong interest in promoting safety and improving efficiency in payments systems as part of its overall concern with financial stability. Since establishment, as part of the mandate, Bangladesh bank used to promote, regulate and ensure a secure and efficient payment system. BB also acts as an operator for the inter-bank clearing and settlement system. Payment systems are the means by which funds are transferred among financial institutions, businesses, and persons. Payment systems are considered as a critical factor for the functioning of a country’s financial system and for successful application of monetary policy.

Modern Payment Systems play an important and crucial role for fast, safe and secure financial flow of the country. In one hand it makes the business transaction quick, safe and secure and on the other hand by delivering the banking services in the rural areas; it helps the financial inclusions and boost up

‘Institutional Support for Migrant Workers’ Remittances; Real Time Gross Settlement (RTGS)’ a Asian

Development Bank Grant funded Project for the Remittance and Payment Systems Infrastructure

Development for Bangladeshi Banking Sector.

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the economic momentum and development thereby. Bangladesh Bank has been working for the development of the country’s payment systems since 2006 with a view to ensure efficient, affordable and secure banking transaction; deliver the banking services at the rural areas for the better financial inclusion. By this time Bangladesh bank has implemented Bangladesh Automated Clearing House (BACH) which includes both automated cheque processing systems and electronic fund transfer systems. Under the umbrella of Bangladesh Automated Clearing House the high value interbank cheques are being cleared centrally on the same day and other cheques and electronic fund transfer are being cleared by next day of presentation. National Payment Switch of Bangladesh (NPSB) has been established for making electronic card transactions interoperable among the banks. Bangladesh Bank has already implemented Mobile Financial Services to render modern banking services to the mass people which will boost the financial inclusion.

Considering the fact and necessity Bangladesh bank embarked a project with Asian Development Bank (ADB) for the development of the country`s payment system with a view to safe secure and speedy flow of international and domestic remittances named “Institutional Support for Migrant Workers` Remittances; Real Time Gross Settlement (RTGS)”.

A Grant Agreement with a value of 2.00 million from the Japan Fund for Poverty Reduction (JFPR) for the project ‘Institutional Support for Migrant Worker’s Remittance’ was signed among the Government of Bangladesh and Asian Development Bank (ADB). Bangladesh Bank is implementing ‘component A: Remittance and Payment System infrastructure Development (Installation of Real Time Gross Settlement)’ while other two components of project B:- Remittance Information Dissemination and Awareness Creation and C:- Microenterprise Development Support for Migrant Workers’ Households will be implemented by Ministry of Expatriates’ Welfare and Overseas Employment. 1.73 million USD was allocated for the component-A. A short brief of the project is shown below:

Donor Agency The Asian Development Bank.

Executing Agency Bank and Financial institution Division, Ministry of Finance

Implementing Agency Bangladesh Bank.

Agreement signed 18 January 2012.

Grant and Project No. Grant 9153-BAN, JFPR Project No: 42149

Total Grant 1.73 million USD.

Taka Cost (GoB Cost) 115.33 lac BDT

TAPP Approved 26 November 2013.

Project Period July 2013– January 2016.[Extended up to 15 April 2016]

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The objectives of the project:● Payment System Infrastructure Development.

● Establishment of The Real Time Gross Settlement (RTGS) systems for the country.

● To settle the inter-bank Local & Forex payments instantly.

● Safe, secure and real-time call money market transactions.

● Safe, secure and online secondary bond market transactions.

Implementation Arrangement: The Executing Agency (EA) of the Project is the Bank and Financial Institutions Division, Ministry of Finance because the Project will address the issues of countries payment systems, most of the project activities are related to the financial sector. The EA will be responsible for the overall coordination, guidance, monitoring, as well as the fund disbursement of the Project. The implementing agency (IA) for the project Component-A i.e. Installation of RTGS System is Bangladesh Bank.

Technical Support: The project is technically supported by the World Bank Payment Systems Development Group. At the time of designing the project the World Bank Payment Systems Development Group agrees to provide all sorts of technical support to the project. After the kick off of the project in December 2013 Mr.Andrew Massion was assigned by the World Bank for assessment and business analysis for the RTGS system in the country. Mr. Gynedi Srinivas senior payment systems specialist of the World Bank conducted two workshops for the Bangladesh Bank officials and one workshop for the commercial banks officials on RTGS. On July 2015 Mr. Mr.Andrew Massion was assigned by the World Bank for preparation of RTGS rules and procedure under the project which is approved by Bangladesh Bank and now in place.

Procurement and vendor selection: As per the ADB guidelines international competitive bidding and single stage two envelop method was followed for the procurement. The bidding document was prepared for the procurement process of the RTGS system and the invitation for the Bid was published on ADB`s website on 31/03/2014 and subsequently on BB website as well. Total 03 (three) International companies participated in the Bidding Process; one of them was disqualified being not from ADB listed countries. On 21/08/2014 tender evaluation Committee comprised of member from Bank and Financial Institutions Division, Ministry of Finance, BUET, Computer Council, Commercial Bank and the committee was headed by Deputy Governor

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of Bangladesh Bank select CMA Small System AB Sweden as the most competitive bidder. Finally on 23/09/2014 The Executive committee of Bangladesh Bank Board of Directors approve the vendor selection with an excess cost of 1,62,350.00 USD as the total contract value is 18,99,600 USD including the 03 years maintenance cost. Bangladesh Bank the implementing agency singed the RTGS implementation contract with the selected vendor CMA Small System AB on 20/11/2015.

Activity Milestone: The following Boxes show the activity milestone of the project:

Time extension of the project: For the successful implementation of the RTGS system in the country under the project ADB agrees to extend the project on its Mid-Term Review Mission was completed from 12-13 August 2015 for 03 months.

ADB Mission: Inception Mission for the project was made from 4-5 February 2014. A Special Administration Mission was made by the ADB from 22-23 April 2015 and a Mid-Term Review Mission was completed from 12-13 August

Procurement Method ICB, Single stage two envelopment.

Publication of BID 30 Mar,2014.

ADB & BB website

Vendor Selection 21 Aug,2014.

Vendor CMA Small System AB, Sweden.

Contract Value 1,899,600 USD

Contract Signed 20 Nov, 2014

Hardware Installed at BB sites (DC & DR) June, 2015

Software Installed and Customization July, 2015

System Capability 1.00 million transaction per day

Technical and Business Training for BB team May, 2015

Aug, 2015.

User Acceptance Test (UAT) 24 Aug- 14 Sep, 2015.

System Integration Test (SIT) Sep. 15 to Oct. 28, 2015.

RTGS System Go Live 29 Oct. 2015.

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2015. All these missions was leaded by Ms. Mayumi Ozaki, Financial Sector Specialist (Rural and Microfinance)

Meeting with participating Banks: RTGS Implementation Teams had been formed for each and every bank to monitor their progress and assistance to join the RTGS system. BB conducts Monthly meetings with RTGS Implementation Teams on regular basis. Project Director chaired four special meetings on the development of RTGS Implementation with the senior level Executives of banks. BB intimated the development on the issues to CEOs of all banks in Bankers’ Meeting held in July 2015. CTO forum and BB arranged a Special Seminar at hotel Purbani and a press Conference at Press Club in May 2015 as part of Awareness event.

● Steering Committee Meeting: The steering committee for the project was formed under Bank & Financial Institutions Division, Ministry of Finance to oversee the project’s implementation progress, financial and audit affairs and make recommendations on strategic issues of the project. On February and September 2015 two meeting took place to oversee the project’s implementation progress, financial and audit affairs and on strategic issues of the project.

● Audit: Foreign Aided Project Audit Directorate the government audit authority audited the project from 26-27 August 2015.

Awareness programme: Now Bangladesh Bank is working to introduce Real Time Gross Settlement (RTGS) Systems in the country where fund settlement will take place in real time and gross basis under the project named ‘The Institutional Support for Migrant Worker`s Remittance; Real Time Gross Settlement (RTGS) Component-A’. The project is working not only to ensure the disbursement of fund, but also to make sure the benefit is well understood and can be taken by all segment of the society. So, by implementing RTGS successfully, project may ensure the availability of the service only. To make the service acceptable, available and accessible to all it requires a lot more both in education and in sensitization and building awareness.

Bangladesh earns 15.3 billion remittance in the year 2014-15 sent by the migrant workers of all over the world and the banking system disburse the same to its beneficiaries at the remote places of the country. Presently such remittances are distributed by the bank through EFTN and take about one to two days to reach the beneficiaries. RTGS could be the best solution for the banking channel to reach the remittances beneficiaries at the instantly same day bank receives the remittances. Here the education of bank official and the consumer need to be

16

addressed properly. To address these issues properly following initiative has been taken under the project utilizing its fund kept as contingencies:

● National Seminar for the high officials/ main decision maker of the banks, MFIs, Mobile Financial Services (MFS) service provider, related government entities and international Agencies.

● Workshop for the mid level officials and desk level workers as they will work with the system and make the best use of the system, and

● Public awareness campaign in major metropolitan cities targeting the end user.

Expected outputs after completion of the project: After the implementation of the RTGS project country`s payment systems will reach at an international Standard and the following benefits would be attained:

● Instant settlement of large value interbank transactions;

● Safe, secure and instant online payment settlement of the call money market transactions;

● Safe, secure and instant online payment settlement for Government Securities and Secondary Bond market transactions

● Instant payment settlement of the interbank domestic foreign currency transactions;

● Inward remittances flow will be enhanced.

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The concept of processing payments efficiently in a cost effective, prompt, and secured manner is creating a revolution in the financial world. A technological advancement one day is a human necessity the next day. That has been the case for the electronic payment system. The digital payment system is now considered as a basic need for the mass people around the world.

To address this need, most of the countries around the globe are

Keynote Speech:

Biru Paksha Paul, PhDChief EconomistBangladesh Bank

Creating New Channels for Reaching Wider Financial Inclusion in Bangladesh

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concerned for innovating new payment channels and generating new ideas for a well founded, strong, secured payment infrastructure which will open the doors of the financial sector to all. RTGS is one of such sophisticated payment channels that efficiently handles the large value payments within a short span of time and ensures vibrancy in the economy. As a faster developing country, Bangladesh cannot ignore the winds of change in the financial arena. Bangladesh Bank, as a pioneer in bringing changes in the financial sector of the country, has come forward and opened the door of financial prospects by initiating new channels of payment one after another.

Bangladesh Automated Cheque Processing Systems, Bangladesh Electronic Funds Transfer Network, Mobile Financial Services, and National Payment Switch of Bangladesh are the landmark of innovations in the payment infrastructure of Bangladesh which have reduced time and costs after enhancing security and efficiency. These systems have also widen the benefits of modernized payment channels for the common people. RTGS is another feather added in the crown of success of Bangladesh Bank. By opening this new dimension in the financial sector, Bangladesh Bank not only strengthened the financial infrastructure, but also has ensured the world standards in place. And there is no doubt that a well groomed payment infrastructure will induce more economic activities by raising the level of trust of the users, evidencing a broader umbrella of financial inclusion.

There is a wise saying: Don’t leave anything for tomorrow what you can do today. And that is the main philosophy behind the Bangladesh RTGS system. Mahatma Gandhi told his followers to keep in mind while working that tomorrow may not come, but he also advised to make their work that will be designed for tomorrow. The RTGS exactly serves the purpose of making a better tomorrow. It settles all the transactions exactly right now when the transactions are taking place. At the same time, it is making our banking and financial transactions competent for the tomorrow’s technologically smart world. If we hadn’t done it today, we would have lagged behind other emerging countries, paying the toll for not being abreast of technology and speed.

How does the RTGS help the economy? If we look at the quantity theory of money which says: MV = PY, higher velocity of money can increase the degree of monetization of the economy even if we print less amount of money. Say, you live in a village and there are twenty cow carts to help people move from one place to another. It would take hours and hours to cover even a couple of miles. However, this task of transport and communication can be done in a much faster and comfortable way with the help of only two motor vehicles instead of twenty cow carts. It is faster, efficient, convenient, and supportive of further work for the village people. If a village farmer can accomplish his task of taking crops from one place to another within one hour instead of eight hours that would be needed in a cow cart, the farmer can devote the rest 7 hours either

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for leisure or other productive activities. Herein lies the main logic of digitalizing our monetary and financial transactions as sincerely as possible.

This example can be set for financial transactions as well. We know that cash is the easiest means of settling payment which has been used for ages. But payment in cash requires direct presence of both parties at the same time, the same place, the baggage to carry cash, a good carriage, and sufficient security forces to protect the cash transaction from probable burglary or robbery. For these cumbersome issues of carrying cash and effecting payment through cash, cash can never become the preferred means of payments.

Even the other electronic means of payments like cheque truncation and electronic funds transfers require some time span to effect the final settlement. It will keep a hold on your claim for some period of time. But if we divert our payments in the RTGS channel, it will effect the settlement instantly and will credit beneficiary’s account immediately with no hold on his claims. This will ensure immediate fund flows from one region to another within a click and release our funds to reinvest in other means of economic activities. It will not only save our time but also will raise the velocity of our money, enhancing further monetization of the economy which is still 53 percent of GDP in Bangladesh.

Another point of the RTGS system is transparency which is often missing in areas of our everyday life. When a transaction takes place within a minute, it adds immense pleasure to the mind of

an economic agent. In simple microeconomics, it improves the level of utility maximization which is the objective function of a consumer. For a producer or a seller, whose objective is to maximize profits, a swift settlement of a transaction helps the producer expedite the goal of profit maximization, further helping the government expedite the task of revenue collection through an efficient taxing system.

From the viewpoint of a finance student, who believes in the time value of money, one hundred taka today is more valuable than the same amount of money tomorrow. Herein lies the main spirit of expediting all financial transactions as fast as possible with the aid of technology, innovation, and visionary leadership. Bangladesh Bank has remained committed to achieving these attributes by helping the depositors, creditors, investors, and consumers. The RTGS system is one of these attributes Bangladesh Bank is constantly trying to learn. The numerous awards of the BB Governor as the best banker of Asia are the great testimony to a smarter version of financial inclusion and innovative developmental central banking for a vibrant Bangladesh.

I strongly believe that the efforts of RTGS will certainly change the payment landscape of Bangladesh. But the dream of RTGS will not be achieved by simply implementing this new payment channel. It requires familiarization of its benefits to the millions of customers and that responsibility lies on all the parties connected in an economy. Unless you utilize this highway of efficient and

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secured payment to the fullest, it will be only an installation and will not be able to play the expected role of wider monetary circulation throughout the economy at zero hour and wider access to financial benefits.

The wider access of information technology has enhanced the desire of the people for new and sophisticated financial products and this desire is endless As a profit maximizing entity, all commercial banks has to address this demand side of their customer. Unless you; the commercial banks, address your

customers’ demand properly by embracing the technology driven products, you will not be able to bring smiles on the million faces of your customers. To secure your position in the competitive arena of the financial sector, you need to accept the RTGS channel as a blessing and design your own products to make the best use of this channel. It will secure your position, prestige, and profits as well as serve the economy to achieve a better position in the world. The RTGS is an added stamina to a vibrant Bangladesh.

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Introduction:Payment systems are the mechanisms that enable the smooth transfer of funds between buyers and sellers, and/or between banks. In the modern society, no economic activity is possible without the transfer of money. In this sense, it can readily be said that payment system is one of the most significant social infrastructures. So, the improvement of payment systems will never stop. Payment systems are social infrastructures that support all economic activities, and the financial market will require more sophisticated payment systems with greater safety and efficiency.

Modernization of Payment and Settlement Systems in Bangladesh:Real Time GrossSettlement- A NewInitiative

Subhankar SahaExecutive DirectorBangladesh Bank

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Key concerns in Payment Systems:To promote, operate, regulate and oversee a modern payment system Bangladesh Bank and any other central bank is continuously resolving following four concerns:

● Innovation Vs Regulation: Whether the central bank will be more liberal to innovation or will be more concerned about the regulation to mitigate risk.

● Responsibilities of bank and customer: What is the line between banks’ initiative to aware the consumers about risk and other issues and consumers’ duty to learn properly before using a new payment instruments?

● Pricing of new payment initiatives: What is the appropriate price of a new payment product? Who should decide the price? Is it a central bank’s duty or commercial banks‘ right?

● Accessibility: Should payment systems be limited within the financial institutions or other innovative organizations should be allowed?

Development of Payment and Settlement Systems in Bangladesh:Bangladesh Bank has been working relentlessly to reduce the time gap between the time of depositing and settling an instrument which is generally known as settlement time. Back at 70’s it was a complex, time consuming and risky thing to do. It usually took t

+3 for

intra-district and t+15

or more than that for

inter district cheques. At 90’s though time was reduced to t

+2 and t

+10 respectively, still

there was a demand from the customers’ side to reduce it more.

Looking back over several decades at the history of payment and settlement systems in Bangladesh, both efficiency and safety have significantly improved. To put this in perspective, certain periods from the independence to the beginning of the 2007, more emphasis was put on efficiency. In this period country enjoyed a journey from manual clearing system to a semi-automated clearing system, from manual payment method in commercial banks to automated payment method through core banking solution and a shift from cash to card and other payment methods. Since then emphasis has shifted to enhance both efficiency and safety of the system.

To be more specific, in November 2006, Bangladesh Bank with the financial assistance from the Department for International Development (DFID) of United Kingdom commenced a project to implement an Automated Clearing House (ACH) to facilitate both Cheque Truncation System (CTS) based Cheque clearing and Electronic Fund Transfer (EFT) system. After successful integration with the systems of participating banks and after completion of multiple level of testing, Bangladesh Automated Cheque Processing System (BACPS) went for the production on October, 2010. On the other hand, Bangladesh Electronic Fund Transfer System went live on Feb, 2011.

With the establishment of BACH, a high value cheque (5 lacs or above) can be settled within the day from any corner of the country. Whereas any regular value cheque and any electronic fund transfer

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Real Time Grosssettlement (RTGS):How it works

Shah Zia-ul HaqueDeputy DirectorBangladesh Bank

Bangladesh bank is committed towards provid-ing a safe, efficient, accessible, inclusive, interop-erable and authorized payment and settlement systems for the country. Payments systems will be driven by customer demands of convenience ease of use and access that will impel the neces-sary convergence in innovative payment products and capabilities. Regulation will chan-nelize innovation and competition to meet these demands consistent with international standards and best practices. Embracing new technology and innovation to unveil bouquet of simple, easy to use modern payment products and services for both retail and high value settle-ment systems would be the corner stone of this endeavor. Bangladesh Bank recognizes that building agility of payment systems, already

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shaped up its retail deferred net settlement payment systems and introduced first real time high value individually settling capac-ity: BD RTGS (Real Time Gross Settlement System).

What is BD RTGS: BD RTGS is a funds transfer system where transfer of money or securities takes place from one bank to another on a "real time" and on "gross" basis. Settlement in "real time" means payment transaction is not subjected to any waiting period. The trans-actions are settled as soon as they are processed. "Gross settlement" means the transaction is settled on one to one basis without bunching or netting with any other transaction. Once processed, payments are final and irrevocable. So, it is very important for bankers to understand the system, managing liquidity, minimize the risk for the betterment of own bank, to provide the best service to customers, as a whole to boost the economic activities of the country.

Infrastructure and Facilities in BD RTGS: BD RTGS solution makes it easier to optimize the cash flows, to enable flexible STP and to enhance liquidity management facilities necessary for the oversight and execution of monetary policy. The solution’s electronic delivery mechanism ensures secure delivery of payment orders to the central system and manages the queuing and delivery of payments and confirma-tions to the participants.

BD RTGS system is designed to maximize the use of liquidity in settling interbank transactions while at the same time reduc-ing the risk between the origination of payment instruction and its final execu-tion. The settlement process is always final and irrevocable and the involved Partici-pants have immediate access to the settled funds. For more elaborate settlement arrangements BD RTGS fully support Delivery-versus-Payment (DvP) and Payment-versus-Payment (PvP) options.

System Summary:● Topology: V

● Language: ISO 20022-Which is also declared as Universal Financial Industry Message (UNIFI)

● Connectivity: VPN and SWIFT

● Utilities: Local Currency Transactions, Foreign Currency Transactions and Government Securities Transactions

● Services: Inter Bank, Personal and settling other Deferred Net settlement Systems (DNS)

● Liquidity Management: Queue Manage-ment, Gridlock Resolution, Intraday Liquidity Fund (ILF)

● Features of ILF:

● Available against eligible Collateral

● Margin is required.

● Intraday Loan Contract.

● Free of interest.

● Reversed before End of Day (EoD)

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October 31, 2015Radisson Blu Water Garden, Dhaka

‘Development of Payment Systems in Bangladesh:Payment and Remittances throughReal Time Gross Settlement (RTGS)’

S E M I N A R O N

11.45-12.0012.00-12.05

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15.30-15.40

15.40-16.00

RegistrationGuests take the seatsWelcome SpeechMs. Nazneen Sultana, Deputy Governor, Bangladesh Bank

Speech of the Special GuestMr. Kazuhiko Higuchi, Country Director, ADB, BRM

Speech of the Special GuestDr. M Aslam Alam, Secretary, BFID, Ministry of Finance

Inaugural Speech of the Chief GuestDr. Atiur Rahman, Governor, Bangladesh Bank

Keynote PresentationDr. Biru Paksha Paul, Chief Economist, Bangladesh Bank

Break for lunch and prayer Project Status and Way ForwardMd. Nazmul Alam, Project Officer, ADB, BRM

Payment Systems Development in BangladeshMr. Subhankar Saha, Executive Director, BB

RTGS: How it WorksMr. Shah Zia-ul Haque, Deputy Director, Bangladesh Bank

Open DiscussionVote of ThanksMr. K. M. Abdul Wadood, General Manager, Bangladesh Bank

Tea

Program Schedule