Agent Banking and Financial Inclusion

Agent Banking and Financial Inclusion
Agent Banking has been a catalyst in financial inclusion in Bangladesh. According to a

report by the Bill & Melinda Gates Foundation, participation in financial services in the
country has increased to reach an all-time high of 47 percent in 2018 as a result of a 5
percentage-point surge (20% to 25%) in registered bank users. The aggressive growth of
agent banking has been credited for this surge. The latest data from Bangladesh Bank shows
there are 7.6 million accounts associated with agent banking in July 2020: representing year-
over-year growth of 114 percent.
Agent Banking is defined as the banking services provided outside of regular bank branches
by engaged agents under a valid agency agreement. It was first introduced in Bangladesh by
Bangladesh Bank (BB) circular on Dec 9, 2013 approving agent banking in the rural areas
where banks have no branches. The initiatives aims to bring the un-banked populations of the
country into financial inclusion targeting specially poor, less educated, woman or people who
less likely to do financial transactions in formal channel etc.
According to the Central Bank on Agent Banking, a Bank “Agent” means an entity that has
been contracted by Bank and approved by the Central Bank to provide the small scale
financial services on behalf of the bank. A bank agent is suppose to equipped with Biometric
device, PIN input pad or EMV certified P.O.S. terminal with which they can process
withdrawals and deposits of the consumer. These P.O.S. devices connect to the core banking
system via internet connectivity.
The Bank agency model has been a hub and spoke model, with agents being associated
with a nearby bank branch from which their liquidity is managed by the bank.
The policy says NGOs, micro-credit agencies, cooperatives, post offices, companies, mobile-
phone operators’ agents, union information service centers, local government institutions and
any individual capable of offering financial services based on information technology can be
appointed agents.
Bank Asia, Dutch Bangla Bank Limited & Al Arafah Islami Bank the pioneer banks who
obtained license from the central bank and started to provide the agent banking services
around the country. The latest report from the central bank shows there are 28 banks having
agent banking licenses with 23 in operation. With 3 million accounts, Bank Asia leads in the
number of accounts opened through agent banking with a share of 40.8 percent. This lead is
followed by Dutch-Bangla Bank Limited (DBBL) with 33.5 percent, Islami Bank Bangladesh
Limited with 10.23 percent, Al-Arafah Islami Bank with 3.6 percent, and Agrani Bank
Limited with 2.56 percent shares.
According to the Global Findex Database 2017 of the World Bank, only 40 percent of
people above 15 years of age in rural areas in Bangladesh have an account at a bank or a
financial institution. Agent Banking has led to a huge segment of this excluded population to
create accounts and access financial services. Most of the agents (86 percent of total) and
outlets (88 percent of the total) associated are located in rural areas. The model is highly
suitable for rural hard to reach areas and high proliferation in rural areas have led to rural
agent banking subscribers outnumber those in urban areas. Growth is higher as well: the
number of bank accounts in rural areas grew by 139 percent from July 2019 to July 2020
compared to only 60 percent in the urban areas.
In spite of the rising number of deposits, loan disbursements by agent banking are still
very meager. In July 2020, for example, deposits amounted to BDT 107.88 billion while loan
disbursements amounted to only BDT 949 million which means less than 1 percent of the
deposits were given as loans. This low loan to deposit ratio suggests agent banking is missing
out on providing credit to Cottage, Micro, Small and Medium Enterprises (CMSME). The use
of formal finance by CMSMEs in Bangladesh is quite limited and the finance gap is
estimated to be worth BDT 237 billion or USD 2.8 billion. Agent banking is in a great
position to lower the gap.
Agent banking has become popular in many developing countries in Asia, Africa and Latin
America. Instead of setting up branches, bank appointing agents to deliver the banking
services. Which is cost effective for the bank and bank reach towards the un-banked is
higher. Significant potential to expand outreach, especially in remote areas through
minimizing customers travel costs, while agents’ commissions from agent banking provide an
additional source of revenue for communities. The agents will also need to ensure compliance
with Anti-Money Laundering and Combating Financing of Terrorism standards set by
AML/CFT rules and regulations.
Although agent banks have accelerated financial inclusion in the country, especially in
rural areas, more needs to be done. Most of the labor force in Bangladesh is employed in the
informal sector where they lack options for savings and obtain loans. Engaging these huge
populations into formal financial services help them to save and access credit for
entrepreneurial ventures.
The way forward for agent banking is to partner with each other and with Mobile Financial
Service (MFS) providers. Such partnership will create synergies that will increase
accessibility to financial services.

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Agent Banking and Financial Inclusion

Agent Banking has been a catalyst in financial inclusion in Bangladesh. According to a

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