2018-07-09 05:31:33 BdST

Access to financing the major barrier for e-commerce start-ups


Access to entrepreneurial financing is the major barrier for e-commerce start-ups in Bangladesh, says a recent global report coming from ADB and UN.

The country is also suffering from huge rural-urban divide and gender disparity when it comes to e-commerce activities, said the report.

Asian Development Bank (ADB) and United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) have jointly conducted the study to review the current status and potential of business-to-consumer (B2C) e-commerce in the Asian region.

"Absence of legal framework and poor support from venture capital are also affecting the push-button-based transactions", says the report while trying to identify the reason for lack of access to entrepreneurial finance for e-commerce ventures.

To counter this, the government needs to establish appropriate regulations and ease legal bottlenecks to attract more e-commerce investment, the report suggested.

"For example, tax incentives and other policies promoting venture capital investments could be effective in drawing more capital inflows to e-commerce", it added further.

Referring to an earlier research, the study pointed out that Bangladesh's online grocery market is just 0.03 per cent of its overall grocery sales.

There is also a clear rural-urban divide when it comes to e-commerce activities, the report noted.

"80 per cent of visitors to e-commerce sites in Bangladesh were reported to come from three major cities", it said.

The report also took note of the growing popularity of Facebook and other social media based e-commerce activities in the country.

"In Bangladesh, about 15,000 small merchants earn $20 million (or roughly 40 per cent of total B2C e-commerce transactions) through sales using the Facebook platform", the report noted.

However, the study also cautioned that the contribution of social media to establishing 'sustainable e-commerce business models" for different industries remain "yet to be examined".

The report also drew special attention to the gender divide in e-commerce related activities in the country.

Referring to an earlier study, the report said that only 17 per cent of online purchases in Bangladesh are done by female while 83 per cent are by men.

"Facebook statistics also showed that among the 23 million Facebook users in Bangladesh in September 2016, only 21.7 per cent were females", it added.

The ADB-UNESCAP joint report also noted that almost 90 per cent of e-commerce transactions in the country remain cash-on-delivery, blaming it on the unavailability of e-payment options in the country.

When asked about the issue, insiders within the e-commerce industry affirmed that adequate financing is a major detriment to new e-commerce ventures in the country.

"Banks are currently not interested in investing in e-commerce ventures. Big business houses also do not come forward in investing in e-commerce", said Md. Abdul Wahed Tomal, General Secretary of E-commerce Association of Bangladesh.

"There are also lack of adequate research on the potentials of e-commerce in the country", he added.

Regarding the lack of e-payment solutions mentioned in the report, Tomal said, "While there are number of e-payment solutions in the country, there are limitations in terms of interoperability and fund transfer".

"For example, there are limitations in terms of how much money can be transferred overseas through online which is especially a problem for necessary overseas payment", he added.

With regard to the lack of venture capital, industry insiders noted that a set of 'Alternative Investment Rule' has already been adopted by Bangladesh Securities and Exchange Commission back in 2015.

"However, as of now, the Alternative Investment Fund Management Companies which have obtained registration from Bangladesh Securities and Exchange Commission (BSEC) under the said rules, have not been able to raise and register any fund", said Shameem Ahsan, Chairman of Venture Capital & Private Equity Association of Bangladesh (VCPEAB).

"This is primarily due to the lack of awareness and misunderstanding of the degree of risk and returns", he added.

Focusing on the lack of financing for e-commerce startups, the report has also called for developing an entrepreneurial ecosystem in countries like Bangladesh so that it can support start-ups.

"For instance, entrepreneurs and policy makers can work together to improve the business climate for venture capital, based on a better understanding of how venture capital works", said the report.

"The government and private sector could also team up to offer technical and business training programmes to develop strong e-commerce human capacity to attract venture capital funds", it added.

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