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Present Scenario of Agent Banking in Bangladesh

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 Present Scenario of Agent Banking in Bangladesh

Mohammad Monirul Islam1

Dr. Syed Md. Khaled Rahman2*
Dr. Fazle Elahi Md. Foysal3
1
Vice President and senior manager, Agent Banking Division, The City Bank Ltd.
2&3
Associate Professor, Department of Business Administration, Shahjalal University of Science & Technology
*Corresponding author

Abstract
Agent banking is the latest innovation in banking services available in Bangladesh aiming to
provide formal banking services to the unbanked, including populations that have
traditionally been more inaccessible. Although officially sanctioned by Bangladesh Bank in
late 2013, agent banking has only recently started to take off in Bangladesh in the 2015. The
agent banking model also heavily stresses rural access, and banks are required to have two
agent points in rural communities for every one agent point they have in an urban area.16
banks are licensed to provide agent banking in Bangladesh, although there are currently two
market leaders actively engaged in expansion. Bangladesh bank has recently made a
regulation that concerns that if a private bank wants to open a branch in the urban sector, they
must need to open two branches in the rural sector. Mind-set of the rural people is another
problem of this banking procedure. Many agent banking outlets or agents lack the trust &
reliability of the rural people.

1. Introduction:
Agent banking is the latest innovation in banking services available in Bangladesh. Agent
banking means providing limited scale banking and financial services to the underserved
population through engaged agents under a valid agency agreement, rather than a teller/
cashier. It aims to provide formal banking services to the unbanked, including populations
that have traditionally been more inaccessible. It is gaining popularity, particularly among
Bangladeshis living abroad, because of its convenient and cost-effective nature. The owner of
an outlet conducts banking transactions on behalf of a bank. Globally these retailers are being
increasingly utilized as important distribution channels for financial inclusion. It represents
another channel, like mobile financial services, promoted by the Government of Bangladesh
to promote financial inclusion. Bangladesh Bank has also decided to promote this
complimentary channel to reach to the poor segment of the society as well as existing bank
customer with a range of financial services especially to geographically dispersed locations.

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2. Background of Study:
In Bangladesh, starting its journey in 2011, Mobile banking, commonly referred to as mobile
financial services (MFS) has recorded phenomenal growth in Bangladesh in terms of
financial inclusions. Still half of the population lack access to the formal financial services.
To bring this large number people under the coverage of the formal financial sector
Bangladesh Bank introduced “Agent Banking” in late 2013. Agent banking can help the
formal banking sector reach out of the marginalized unbanked society through their agents,
who will provide necessary logistic support. Agent banking bridges the gap between the bank
and the unbanked people, makes banking services accessible to rural people, offers cost
effective banking services, and minimizes the operating and establishment costs of banks.
Agent banking services was introduced in 2015. The objective is to bring rural small
depositors under the banking umbrella.

3. Objectives of study:
The present study focuses on the current scenario of agent banking in Bangladesh. The
specific objectives of the study are:

i. To learn about Agent banking operation in Bangladesh

ii. To evaluate the growth and expansion of agent banking in Bangladesh

iii. To explore the reasons for recent growth of agent banking operation

iv. To identify problems, challenges and prospects of agent banking operation

v. To provide some policy suggestions for the development of agent banking in

Bangladesh

4. Methodology of the Study:

The study considered both primary and secondary data. Primary data was collected from the
respondents through personal and telephone interview. The main sources of secondary data
were journals, newspapers, annual reports, agent banking manuals and websites of relevant
organizations. Data were analyzed with the help of Microsoft Excel.
5. Conceptual Framework of Agent Banking:
Agent banking means providing limited scale banking and financial services to the
underserved population through engaged agents under. A banking agent is a retail or postal
outlet contracted by a financial institution or a mobile network operator to process clients’
transactions. Rather than a branch teller, it is the owner or an employee of the retail outlet

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who conducts the transaction and lets clients deposit, withdraw, transfer funds, pay their bills,
inquire etc. Banking agents can be pharmacies, supermarkets, convenience stores, lottery
outlets, post offices, and more. Globally, these retailers and post offices are increasingly
utilized as important distribution channels for financial institutions. Banking agents are
usually equipped with a combination of devices that connect with the bank’s server using a
personal dial-up or other data connection. Banking agents help financial institutions to divert
existing customers from crowded branches by providing a “complementary”, often more
convenient channel. Reaching poor clients in rural areas is often prohibitively expensive for
financial institutions since transaction numbers and volumes do not cover the cost of a
branch. In such environments, banking agents can play a vital role by offering many low-
income people their first-time access to a range of financial services. Banking agents are the
backbone of mobile banking, i.e., performing transactions over a mobile device. To enable
clients to convert cash into electronic money and vice versa which can then be sent over their
mobile phone, clients will have to visit a branch, automated teller machine (ATM), or
banking agent. Especially in remote and rural locations, where cash is still the most important
way to pay and transact, a mobile banking service is dependent on banking agents to enable
clients to effectively use the services.
Figure 1: Agent Banking Market Infrastructure

Bank

Branch-Cash
Business Development Rebalancing point for
Master Agent
Central/Head Offices

Master Agent/Distributor
(For Cash Rebalancing &
KYC & Doc Collection)

Agent Outlet

Teller/Cashier
(Customer Interaction person at
Agent Outlet)

Customer
Source: The New Age

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6. Results and Discussions:
6.1 Agent Banking Services Provided by Commercial Banks:
With a view to ensuring the safety, security and soundness of the proposed delivery channel
Agent Banking Guidelines have been framed by the Bangladesh Bank to permit banks to be
engaged in agent banking. Although the central bank issued an agent banking guideline in
2013, the first banks started full-fledged agent operations in 2016. 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. Bank Asia is
the pioneer of the Agent banking process. 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.

Table 1: Market Share of Commercial Bank’s Agent Banking

Name No. of accounts Percentage
DBBL 884680 60%
Bank Asia 380936 26%
Others 206030 14%
Source: Annual Reports
6.2 Logistic Support Required for Agent Banking Operation:

Agent banking services are provided by authorized banking agents. These agent points are
much smaller than bank branches and are equipped with
a. point-of-sale (POS) card reader,
b. mobile phone,
c. barcode scanner to scan bills for bill payment transactions,
d. personal identification number (PIN) pads,
e. personal computers (PCs)
By reducing the overhead required to set up a bank branch and through its use of technology,
agent banking allows financial institutions to reach underserved segments of the population,
particularly in rural and remote areas, in a more cost effective way. The agent banking model
also heavily stresses rural access, and banks are required to have two agent points in rural
communities for every one agent point they have in an urban area.

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6.3 Services Offered through Agent Banking:
• Collection and processing of documents in relation to account opening
• Cash deposit and withdrawal
• Savings products
• Fund transfer between accounts & Cheque deposits
• Inward foreign remittance
• Loan application, credit and debit card application form collection and processing
• Small value loan disbursement and collection
• Utility bill payments, Bulk disbursements & Account balance inquiries

6.4 Required Qualification for Performing as Agent:

• Agent must have a permanent resident and authorization
• Must have enough guidelines and knowledge for conducting Agent banking
• Agent should be financially self-dependent & have the ability to cash transaction
• Ability to meet commitment with customer
• Agent should have knowledge and ability to handle technology and its financial
services
• All transactions with the customers which are recorded should be preserved for
internal audit with enough securities
• Agent cannot be engaged with any personal and unauthorized activities
• Agent should have ability to perform the given responsibility accurately

6.5 Relevance to the Development Sector:

Given the fact that less than a third of Bangladeshi adults had an account at a financial
institution in 2014, agent banking represents a new channel for extending financial services to
previously excluded Bangladeshi. In particular, its focus on rural access makes agent banking
a potentially attractive channel for the populations that are often supported by the
development sector, especially in agriculture sector focused on rural populations. The focus
on rural agent points means that agent banking has the potential to become an alternative
financial service channel for rural populations, which now only have limited options.

6.6 Growth of Agent Banking:

Agent banking pilot launching was carried out on 19thJanuary 2015 to serve the un-banked
people with 100% secured transaction using their finger print from any corner of the country.
In June 27, 2015 Country’s first School Banking service was started through Agent Banking

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outlet. During this year 61 districts were covered by 1,497 agent outlets for expanding agent
banking in most geographically dispersed poor segment. Agent banking was further expanded
in 2017. DBBL launched 1,503 agent outlets covering 477 upazilas under 64 districts by the
end of December 2017. A total of 448 numbers of master agents are engaged in re-balancing
service to agent outlets for smooth operation of client service. To serve this untapped and
unprivileged market, a total number of 593 employees in 77 offices across the country are
continuously working together with agent points to meet customer requirements.

Table 2: Number of accounts and amount of deposits by agent banking

Period No. of accounts Deposits (crore tk)
Oct – Dec 2016 544536 380.68
Jan – Mar 2017 712499 481.38
Apr – Jun 2017 872865 651.21
Jul – Sep 2017 1038242 922.08
Oct – Dec 2017 1214367 1399.39
Jan – Mar 2018 1468797 1634.36
Apr – Jun 2018 1777400 2012.77
Source: The Daily Star
Table 3: Remittance, no. of agents & bank agent outlets during first two quarters of 2018
Period No. of bank agent outlets No of agents Remittance (Crore Tk.)
Jan – Mar 2018 4905 3216 2673.99
Apr – Jun 2018 5351 3588 3514.22
Change 466 372 840.23
Source: The Daily Star
6.7 Reasons behind the Expansion of Agent Banking:
a. Agent banking is the solution to Bangladesh Bank’s regulation
• Bangladesh bank has recently made a regulation that concerns that if a private bank
wants to open a branch in the urban sector, they must need to open two branches in
the rural sector.
• Now a days private banks are not smoothly expanding and they don’t want to operate
branches in rural areas because of higher expenditure.
• Agent banking acts as the substitute to branch expansions in rural areas for banks.

b. Local persons taking agency of banks also create much more social sustainability. That
paves the way for the agent to create a high reputation as well as expanding the social
reliance.

c. Government is highly benefiting the agent banking process by giving much acceleration
such as –

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 • Low rate BTCL lines are used by agent outlets for creating strong internet facilities.
• A Memorandum of Understanding was signed between Access to Information (a2i)
Programme of Prime Minister’s Office, Bangladesh Rural Electrification Board
(BREB), Bank Asia Limited and NRB Commercial Bank Limited on 08 March, 2017
• Union digital center (UDC) is collaboratively helping the agent banking process for
urban digitalization.
d. The future of agent banking is very bright. A master agent can operate more than 15 agent
outlets. In fact, big corporate houses tend to move into master agent banking.
e. Banks are commencing more to retail sectors.
f. Increase customer transaction volume helps to achieve economies of scale
g. Improve financial appearance lower operating costs,
h. Expansion of business increase deposit collection,
i. Improve banks’ branding widen their spreads

6.8 Customer Composition of Agent banking in Bangladesh:

Table 4: Composition of Customers Using Agent Banking Services

Customers Percentage
Housewives 18%
Employees 15%
Small Businesses 29%
Day laborers 3%
Farmers 7%
Students 7%
Others 21%
Source: The New Age
6.9 Problems:
a. No Loan or financial assistance: agent banking is an enormous scope of employment for
the people of this country. But no loan is provided for the entrepreneurs at the starting of
this business.

b. Mindset of the rural people: Mindset of the rural people is another problem of this
banking procedure. Many agent banking outlets or agents lack the trust & reliability of
the rural people.

c. No fixed income: The income of the agent banking is related with the sales as the agents
get 6% commission on sales.

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 d. Lack of responsibility from the bank: Banks providing agent banking service has a little
concern over the agents. The agents always demand regular visits, motivation & up to
date technological training. But the banks are not taking this process importantly.

e. Change in bank’s management creating dispute: Agent banking is very increasing sector
of banking. But many banks have launched this banking system but lack of the interest
and consistency to run this process. Many banks have slowed down the operation which
results in unemployment for the agents.

6.10 Challenges:
i. Selection and monitoring of agents
ii. Cheque book issue and clearing cheque
iii. Limited transaction time
iv. Power failure
v. Cash carrying or Management risk
vi. Physical and cyber security
vii. Settlement of complaints

6.11 Prospects:

i. Overall digitalization: The government objective of agent banking is to create the

digitalization of rural people. Government is providing assistance by giving offices to
the agent outlets to UDC (Union Digitalized Centre )
ii. Providing banking service to rural people: Agent banks provide banking service
without loan, creating a huge acceleration to rural people by saving their time and
money.
iii. Agents can operate on behalf of more than one agent banks: Agents can operate more
than one agent banking activities but there is a regulation that is the two outlets of the
agent bank cannot be near one another.
iv. Enlarging the business by seasonal business: Agents can be highly benefitted by doing
seasonal business and agent banking both at the same time.
v. Direct-Sub direct agents: Agent banking can become excessively by the agent-sub
agent formation. DBBL is performing this activity only at this moment.
vi. Gaining trust: Lack of reliability among the rural people is a main obstacle to agent
banking process. But the ever increasing growth of this sector brings about the fact
that rural people are gaining trust nowadays.

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6.12 SWOT Analysis:
•Substitute to bank •Lack of
branches trust,awareness &
•Structured reliability
distribution channel •Lack of service
•high transactions

S W

O T
•Rural digitalization •change in managerial
•Automation in govt decisions
utility sectors •digital currency
acting as a
competitor

Source: Field Survey-2018

7. Recommendations:

i. Agents should work together with the bank to change the mindset of the rural people
to reduce the lack of trust & reliability.

ii. Government should assist the agent outlets to continue the training and technological
seminars & Adaptations.

iii. Agents operate the outlets just like a branch manager operates his branch. So the
respective banks should give necessary assistance and workshops for the development
of them.

iv. Master agents playing a vital role in the agent banking system. So the banks should
encourage other firms like corporate houses to take part in this process.

v. There are still a lot of agents who don’t want to continue this business because there is
no fixed income or allowance. Agents lack many facilities like primary loans and
insurance benefits etc.

8. Conclusion:
Agent banking has created an enormous opportunity for the people of this country to work for

the digitalization of the rural area. Until now, 16 banks are providing this service. Agent

banking is greatly encouraging two generations to perform the banking activities on behalf of
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their respective banks. Government’s desire is to create the rural digitalization by reinforcing

the banking activities. Soon the people of rural areas will consider the agent outlets as a bank

of their own.

References:

Annual Reports:

Agrani Bank Ltd. Annual reports, 2017-18

Al Arafah Islami Bank Ltd. Annual reports, 2017-18

Bangladesh Bank (2013). Guidelines on Agent Banking for the Banks (Version-13).

Dutch-Bangla Bank Ltd. Annual reports, 2017-18

NRB Commercial Bank Ltd. Annual reports, 2017-18

Social Islami Bank Ltd. Annual reports, 2017-18

Newspapers:

Dhaka Tribune (3rd June 2018). Retrieved from https://www.dhakatribune.com/business/

2018/06/03/the-rapid-growth-of-agent-banking-in- Bangladesh

Dutch Bangla Bank Ltd. (2018). Agent Banking. Retrieved from https://www.dutchbangla
bank.com/electronic-banking/agent-banking.html

Marketlinks (2016). Agent Banking. Retrieved from https://www.marketlinks.org/sites/

marketlinks.Org/ files /resource/files/Tipsheet_AgentBanking101_July2016.pdf

The Daily Star (2018). Agent Banking Becoming Strong Source of Deposit. Retrieved from
https://www.thedailystar.net/round-tables/agent-banking-becoming-strong-source-
deposit -banks-bangladesh-1611034

The Daily Star (2018). Agent Banking Getting Popular. Retrieved from https://www. the
dailystar.net/business/agent-banking-getting-popular-1380442

The Daily Star (2018). Building Payment Ecosystem. Retrieved from https://www. the daily
star.net/news/round-tables/building-payment-ecosystem-digital-bangladesh-1622734

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 The Daily Star (2018). Growing Reliance on Agent Banking. Retrieved from https:// www.
thedailystar.net/business/reliance-agent-banking-growing 1577536

The Daily Star (2018). Lending Through Agent Banking. Retrieved from https://www.the
dailystar.net/news/business/banking/lending-thru-agent-banking-the-rise-1628158

The New Age (2018). Agent Banking Accounts Increase by 21%. Retrieved from http://
www.newagebd.net/article/49370/agent-banking-accounts-increase-by-21pc

The New Age (2018). Bangladesh Lagging Behind Neighbours in Financial Inclusion.
Retrieved from http://www.newagebd.net/article/50232/bangladesh-lagging-behind-
neighbours -in-financial-inclusion-bibm-study

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