E-commerce company Evaly's ever-increasing liabilities caused by a reportedly flawed business strategy – unusually high discounts in products and cashback offers incurring huge losses – has exposed it to the risk of collapse, observes the Bangladesh Bank.

According to an inspection report of the central bank, Evaly's liabilities to customers and merchants have risen to Tk403.80 crore, while its current asset is only Tk65.17 crore.

The report says till 14 March this year, Evaly did not deliver products against a cumulative sum of Tk213.94 crore in advance payments from customers. Moreover, the company owes Tk189.85 crore to the merchants from whom it bought products.

In other words, with all its current assets, Evaly can repay only 16.14% of its total liabilities or only one-third of the liabilities to the customers.

"Both current liabilities and losses of Evaly are steadily increasing and the company is caught in a vicious cycle of current liabilities and losses. The constant rise in liabilities puts the organisation at risk of collapsing," the Bangladesh Bank says in the report – made at the request of the Ministry of Commerce.

The central bank sent the inspection report to the commerce ministry on Thursday.

A team of six officers of the Bangladesh Bank conducted the inspection for five days.

"The company has been making losses since its inception and the amount of losses has been increasing over time. To repay previous liabilities and cover up losses, Evaly is raising money from customers by attracting them through various lucrative offers – such as 'Cyclone', 'Earthquake', etc – and selling products at large discounts or at prices below the market costs," says the Bangladesh Bank.

The gap between the company's assets and liabilities has grown abnormally and it is constantly making arrangements to pay off old liabilities by creating new liabilities – increasing liabilities to customers and merchants.

The company is constantly coming up with higher discounts in products and other offers to attract new customers, widening the gap between its assets and liabilities.

The total number of customers of Evaly as of 28 February this year was 44,85,234. Including the cancellation of the purchase orders, cashbacks given by Evaly and sold gift cards, an e-value to the tune of Tk73.39 crore was stored in Evaly's virtual IDs (account, holding, gift card, cashback) of these customers. But at the end of that very day, Evaly.com Limited had a total deposit of Tk2.04 crore in its 10 bank accounts.

Expressing concerns that the activities of Evaly will leave a negative impact on the overall financial stability of the country, the Bangladesh Bank says Evaly's liabilities to merchants are increasing abnormally even after taking advance payments from customers, since the company is selling products at prices below the buying rates.

"Selling products at huge losses is likely to create unhealthy competition in the e-commerce sector, which will encourage other companies to follow the same process. As a result, other e-commerce traders will suffer and at some point people will lose confidence in this," the central bank observes.

"As the arrears to customers and merchants continue to rise, there is a risk that a large number of customers and merchants will go unpaid at some point of time and this is likely to have a negative impact on the overall financial stability of the country."

According to Evaly's statement of financial position given to the inspection team of the Bangladesh Bank, the total assets deficit of the company as compared to total liabilities (excluding equity) as of 14 March this year was Tk315.49 crore, current asset deficit (excluding equity) as compared to the current liabilities was Tk342 crore.

In other words, the total asset of Evaly is only 22.52% of the total liabilities of the company and the current asset is only 16.01% of the current liabilities.

The company has fixed assets worth Tk26.51 crore against a paid-up capital of Tk1 crore, but it has no long-term liabilities.

The Bangladesh Bank states that such inconsistency between total assets and total liabilities, huge deficit of current assets as compared to current liabilities, and the process of creating fixed assets from current liabilities indicate faulty asset-liability management of the company.

 In case of failure to deliver a product within 45 working days of receipt of the purchase order, Evaly, in some cases, refund the customer with the market price of the product (which is more than the paid price) instead of its reduced price and publicise this through different media, says the Bangladesh Bank

"As a result, a large number of customers are attracted to Evaly in the hope of buying products at lucrative discounts or getting back a lot more money against the paid prices," it observes.

The Bangladesh Bank mentions in the report that Evaly has put the money of its customers at risk by giving huge discounts using a huge amount of money received in advance payments from the general customers.

Earning Tk1 costs Tk3.57

In the period between 1 July 2020 and 14 March 2021, the total revenue of Evaly stood at Tk28.54 crore. During this time, the company's sales expenditure was Tk207 crore.

Referring to the data, the Bangladesh Bank says, "The company, in its statement, has shown that it spent Tk3.57 per sale for an income of Tk1, but no satisfactory explanation has been found for this unusual expenditure."

Since the start of its operations in the 2017-2018 fiscal year, Evaly has been making losses and its losses are increasing every day.

In the first year, the company had a net loss of Tk1.68 lakh. The company's accumulated loss as of 14 March this year increased to Tk316.49 crore.

According to the Bangladesh Bank's report, a company may make some losses in the initial stage after starting operations. But increasing the number of customers by continuously making losses with a rather small capital and paying off old liabilities by creating new ones expose a company to grave risks and indicate a lack of efficiency in financial management.

No acceptable plan or possibility to overcome this amount in liabilities in the near future was observed during the inspection, says the central bank, adding that there is a risk that the organisation may collapse due to its continuously increasing liabilities.

No satisfactory assistance during inspection

On 14 March, the inspection team of the Bangladesh Bank started the inspection work at the office of Evaly.com Limited after detailed discussions with the company's Managing Director Mohammad Russell and other senior officials.

After informing him about the work plan for the following four days, the Bangladesh Bank officials sought the assistance of Mohammad Russell in providing various information related to the financial management of Evaly. But, over time, the Evaly authorities were not able to provide the inspection team with information on financial management of the company.

The company did not provide the inspection team with month-wise information on number of customers, number of purchase orders, amount of money received from customers, value of products delivered, number of cancelled orders, amount of refunds against cancelled purchase orders, amount paid to merchants, arrears to merchants, institutional sector-wise income and expenditure, taxes paid, profits, sales, discounts, profit and loss in the period between January 2019 and February 2021.

The Bangladesh Bank report says Evaly was requested to provide an opportunity to examine the replica database to collect information related to financial management and to verify the accuracy of the information provided by Evaly.  The inspection team was given the opportunity to examine the replica database for some time and was able to collect some information related to the customers of Evaly and their virtual IDs. After that the inspection team was not allowed to conduct its review of the replica database anymore.

The organisation orally informed the inspection team that they cannot be allowed to review the replica database due to limitations of the ICT system of the organisation. Other failings in information system management were, unavailability of monthly and old data, and non-regular updating and consequent discrepancies in the data provided to the inspection team with the data stored in the ICT system.

"However, the Evely authorities did not give an acceptable explanation to the inspection team for the limitations of the system or the lack of information on a specific date in the past or the fact that information updated from time to time is not stored. Overall, Evaly's assistance in providing the requested information in the inspection activities and in conducting query operations in the ICT system's database was not satisfactory," the Bangladesh Bank says in its report.