MICRO-MERCHANT RESEARCH INTO ACTION SERIES
By Mubashshira Rahman, consultant, UNCDF
While individually their businesses are small, together micro-merchants transact more than $18.42 billion annually and interact with millions of customers every day. Yet they are an underserved cash-based group largely left out of modern digital payments and other financial services.
More than 1.3 million micro-merchants operate in Bangladesh and almost 50,000 people enter the area each year. Who are they? How do they manage money and businesses? Are they digitally connected? Can these entrepreneurs play a role in social and economic growth that includes women? UNCDF initiated a review of micro-merchants through SHIFT SAARC, the Shaping Inclusive Finance Transformations programme for the South Asian Association for Regional Cooperation countries.
The UNCDF review aims to support micro-merchants to earn a better living and raise awareness of a commercial opportunity in financial services and Fast Moving Consumer Goods. A key conclusion is the importance of digitization, credit and banking to suit their needs.
The review involved 2,100 micro-merchants across the country and used a combination of qualitative and quantitative methods. For the purposes of this research, micro-merchants were identified as those “employing no more than 15 employees and/or holding assets worth less than BDT 1 million, excluding land and buildings”, as per the National Industrial Policy 2016. In addition to this definition, micro-merchants sampled for this study needed to be exclusively engaged in retail trade in FMCG sector.
The results will be shared through a series of info-sheets, blogs, interviews and technical notes providing data, analysis and insight. As a start, we take a glimpse into the forthcoming micro-merchant review – the full report is coming soon – and present a few key highlights.
Micro-merchants are young, with more than 4 in 10 aged 16 to 30. Some 6 in 10 have completed at least conventional primary education. Their businesses are most commonly small neighbourhood kiosks, shops or stores with monthly sales ranging from $436 to $3,195. In the past, the majority of micro-merchants came from student backgrounds, but in recent years there has been a growing influx from other sectors entering the retail business.
A large number of micro-merchants – 6 in 10 – say they have had a trade licence at some point, meaning that they were formalized businesses at some point. However, micro-merchants are not leveraging any formalized structure to access formalized services such as bank loans, nor are other sectors leveraging micro-merchant segment to expand products and services.
Almost all micro-merchants have mobile phones, and of those with phones, 3 in 10 micro- have a smartphone. This number is likely to increase as smartphones become more affordable. Currently, micro-merchants use smartphones to browse the internet and use social media, but in the future this technology could be used to manage business accounts, accept payments from customers, transact between businesses and people, as well as pay suppliers and manage orders.
The size of the micro-merchant credit market is approximately $778 million. Their enterprises are fueled with credit, suggesting high demand among micro-merchants for finance. Some 6 in 10 micro-merchants borrowed in the last year. The average business loan was $1,116 and the average personal loan size was $872. Many are bank clients, but they mostly borrow from micro-finance institutions: only 1 in 10 micro-merchants borrow from banks. Access to credit is a key constraint with 9 in 10 micro-merchants saying that among all financing they need credit the most.
Micro-merchants are aware of digital financial services, especially mobile financial services (MFS). They appreciate the convenience of sending and receiving money through MFS. However, only 3 in 10 micro-merchants are currently having an MFS account, with a very few using MFS to pay suppliers as the suppliers do not accept payments this way at the present time. This appears to be a business opportunity with room to further digitize payments between businesses.
Micro-merchants value the relationships with their customers above all else, which is as expected for small neighbourhood stores. Over time, micro-merchants get to know their customers’ buying preferences, purchasing power and credit needs. They use this intrinsic knowledge to predict FMCG inventory requirements and determine product sales and turnaround time. This appears to be a business opportunity for FMCG companies and the financial sector to expand their products and services to the untapped or hard-to-reach consumers who are the micro-merchants’ daily customers.
The initial findings shared here suggest several opportunities for retail industry and the financial services sector, such as greater digitization of payments and more credit products to the market, to name a few. Join us in our future blogs as we explore both the opportunities and this market segment in more details.
To learn more about SHIFT SAARC and other UNCDF work in Bangladesh visit: