'As per the central bank’s provisions, it is expected that the agents will provide the maximum number of services to the clients. Therefore, they should not limit themselves only to facilitating account access to customers or transferring money'
Within just one-and-a-half years of its inception, agent banking has been able to attract a huge number of clients, forcing most commercial banks to take up this alternative form of financial service in addition to branch-based banking.
Agent banking is a limited scale banking and financial service for those living in remote areas across the country through persons under a valid agency agreement, rather than a teller or cashier, according to Bangladesh Bank agent banking guideline 2013.
An agent is a third party owner of an outlet who conducts banking transactions such as cash deposits, withdrawals, small value loan disbursement and recovery of loans, transfer of funds, paying bills under the government’s social safety net programs, and account inquiries on behalf of a bank.
Although the central bank issued an agent banking guideline in 2013, the first banks started full-fledged agent operations in 2016. The business took off almost immediately, with 544,536 accounts opened with deposits of Tk380.68 crore opened between October and December that year.
By the end of March this year, the number of agent banking accounts stood at 1,468,797 with deposits of Tk1,634.36 crore, according to the latest estimate of Bangladesh Bank.
It started off with 10 banks and now 16 commercial banks run agent operations - Dutch-Bangla Bank Limited (DBBL), Bank Asia, Al-Arafah Islami Bank, Social Islami Bank Limited, Modhumoti Bank Ltd, Mutual Trust Bank Limited, NRB Commercial Bank, Standard Bank Ltd, Agrani Bank Ltd, Midland Bank, First Security Islami Bank, The City Bank, Islami Bank Bangladesh Ltd, The Premier Bank Ltd, United Commercial Bank Limited, and AB Bank Limited.
Meanwhile, Trust Bank, South Bangla Agriculture and Commerce Bank, Brac Bank Ltd, and NRB Bank have secured licenses from the central bank to operate agent banking, but they are yet to launch the service.
Secret behind the growth
Agent banking has been able to get such popularity mainly for its simplicity to the clients and cost-effectiveness for the banks.
According to a research paper titled, “Alternative delivery channel: Opportunities and challenges of the new banking environment” by Bangladesh Institute of Bank Management (BIBM), agent banking has become popular because of its benefits for both the banks and clients, while the country’s economy is also being benefited through financial inclusion.
According to the paper, the banks have been able to increase customer volume, improve financial appearance, lower operating costs, expansion of business, increase deposit collection, improve banks’ branding and widen their spreads.
Agent banking has facilitated customers by providing full-fledged banking services at their doorsteps in the remote area, and it has made convenient and easy for channeling remittance.
Until March, 31, 2018, Tk2,674 crore of inward remittances was channeled through 4,905 agent banking outlets across the country.
The agent banking outlets are now not only limited to services like cash deposits, cash withdrawal remittance payment only, the banks have started giving out small loans through the outlets.
As of March 31, this year, six banks have disbursed Tk122.25 crore in credit through their agent banking outlets.
Though substantial progress has been made in the area of agent banking in terms of the number of agents, account-holders and deposits, there are a number of challenges confronting the growth of this new tool of banking.
The BIBM research paper identified seven challenges for banks.
The challenges are: selection and monitoring of agents, cheque book issue and clearing cheque, limited transaction time, power failure, cash carrying or management risk, physical and cyber security, and settlement of complaints.
Another research paper by BIBM titled “Agent Banking: Effectiveness in Financial Inclusion,” says product lending is still absent in the agent banking outlets.
“As per the central bank’s provisions, it is expected that the agents will provide the maximum number of services to the clients. Therefore, they should not limit themselves only to facilitating account access to customers or transferring money,” it says.
Central bank data says agent banking is concentrated in two banks, with DBBL and Bank Asia covering more than 86% of agent banking accounts.
By the end of March 2018, a total of 884,680 accounts were opened through DBBL and 380,936 accounts through Bank Asia.
A senior official of Bangladesh Bank said the central bank was preparing a revised draft of the existing agent banking guideline, which will be finalized and approved very soon.