The Bangladesh Bank (BB) considers a mobile financial service (MFS) account active if the customer makes a transaction with the account in the past 90 days.
However, the central bank has not implemented a similar metric for tracking the activity rate for accounts opened at agent points.
The number of transactions per agent banking account[1] (shown below) is the average rate of agent banking activity. The period of calculation is 30 days.
[1]We have used BB's financial inclusion statistics to generate the general activity rate.
Useful insights can be drawn from the activity rate
Providers and regulators should measure the activity rate of agent banking accounts because it gives insights into customer's use of the service.
These insights may be used to refine services and products for the underserved segments of the population.
For example, we see from the figure above that:
a) The lowest activity in the past three years was in April, 2020.
This dip was caused by the Covid-19 pandemic, which hit Bangladesh at the end of March, 2020.
Many outlets remained closed during this period. Further, operational outlets received 50% less customer footfall during this time.
b) Activities in the months of May, June, and July, on average, spike.
This is due to the remittance received in agent banking accounts during Eid.
We may choose to focus on a particular observation on the activity rate and dig deeper as well.
For example, we may be curious – were urban and rural areas affected differently during the Covid-19 pandemic?
Both urban and rural agent banking activity fell sharply[1] to about 0.5 monthly transactions per account in the wake of the pandemic.
However, certain factors drove the recovery of the activity over the next three quarters.
1. Provider's focus and agent recruitment: Bangladesh had 14,509 banking agents as of August 2022.
In the past three years, the rate of agent recruitment was the highest between June and December, 2020 at 36%.
This was a result of the COVID-19 pandemic.Providers recruited more agents in this period to serve their customers.
Studies from October 2020 indicate that a few banks, such as Bank Asia, Brac Bank, and City Bank were trying different strategies for agent banking to help their customers.
These strategies included a) hiring additional agents to expand the reach of their services and b) investing and expanding digital services, such as mobile apps and loan infrastructure to help agents meet customer needs.Agent banking channels were used to disburse a part of the Social Safety Net allowances announced by the Bangladesh government to ease people's distress during the pandemic.
2. Inward foreign remittance (IFR): Remittance by overseas workers spiked in the wake of the Covid-19 pandemic.
From March to July, 2020, IFR through agent banking increased by around 126.8%.
This was primarily because a lot of workers liquidated their savings abroad and sent them back home and due to a temporary halt in hundi transfer.
3. The distribution of cottage, micro, small, and medium enterprise (CMSME) stimulus packages through the agent banking channel.
The Bangladesh government announced a) special working capital loans for the CMSME sector worth $2.32 billion and b) a refinance scheme worth $1.16 billion.
Banks disbursed these loans and expanded their rural portfolio, especially those with a strong rural presence, such as Brac Bank, Bank Asia, City Bank, Dutch-Bangla Bank, and Al Arafah Islami Bank.
What should be borne in mind before calculating agent banking activity rate?
While the number of transactions per agent banking account can broadly explain the trends in agent banking activity -- it is not an accurate metric.
The activity in agent banking accounts must be separately measured as is done for MFS wallets.
If the Bangladesh Bank decides to track agent banking activity, it should note two major aspects compared to MFS activity:
1. MFS and agent banking activity are inherently different: The pattern of MFS use-cases differs from that of agent banking accounts.
By volume of usage, customers use MFS the most as a payment facility for airtime recharge, cash-in, P2P, and cash-out.
They use agent banking accounts to make deposits and receive bank transfers, IFR, and loans.
Therefore, the frequency of MFS usage is much greater than that of agent banking and should not be directly compared to agent banking activity.
2. Agent banking activity, as well as MFS activity, must be measured in suitable periods: The 90-day period used as a criterion for active MFS accounts is a relic from Bangladesh Telecommunication Regulatory Commission's (BTRC) method to measure active mobile phone and internet subscribers.
Active MFS users can be measured in 30 days or as monthly active users (MAU).
This is the leading practice of measuring app usage globally and MFS usage in many parts of the world, including Kenya.
Agent banking activity can be measured in a longer period as the activity of rural segments can be irregular or seasonal and is often driven by payments, such as G2P and loan schemes, among others.
Therefore, a 180-day period instead of 30 or 90 days to track agent banking activity of rural users is more meaningful.
The Prudential Guidelines say that the Bangladesh Bank promotes agent banking "to reach out to the unbanked and underserved segments of the society as well as existing bank customers with a range of banking services especially to geographically dispersed locations."
To stay true to that vision, agent banking services must be improved from time to time.
We believe that the agent banking activity rate is an important metric in this regard.
Broadly speaking, it can help to understand how useful customers find agent banking, and why or why not.
Akhand Tiwari is an international financial inclusion consultant from MSC, a boutique consulting company that works on financial, social, and economic inclusion. He can be reached at akhand@microsave.net
Manoshij Banerjee is a financial inclusion consultant from MSC. He can be reached at manoshij.banerjee@microsave.net
[1]From about 1.0 monthly transactions per account.