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Future Of Banking: Inside The Rapid Growth Of Agent Banking In Bangladesh

Agent Banking, a newly initiated banking service distribution model in Bangladesh, is getting momentum and is being adopted by remote consumers where a bank branch is unavailable.

Recent data, released by Bangladesh Bank, shows that this new service delivery channel has registered a 52% quarterly growth in total amount transacted in the 3rd quarter of 2016, compared to the previous quarter.

This distribution channel has also registered growth of 109% and 36% in terms of the number of agents and the total number of transactions respectively.

Among existing 12 licensees of agent banking, Bank Asia is leading the path with 1200 agents. Dutch-Bangla Bank Ltd. is in 2nd position in terms of the number of agents.

A total of BDT 21.69 billion was transacted against 1.17 million transactions in the 3rd quarter of 2016 through agent banking, whereas BDT 14.24 billion was transacted against 0.85 million transactions in the 2nd quarter of the same year.

Drivers of growth

Highlighting the reason of the quick adoption of agent banking by few of the banks, Md. Ahsan Ul Alam, Head of Agent Banking of Bank Asia said to The Financial Express, "While initial investment for setting up a full- fledged rural branch could be around BDT 3.00 million, it takes merely BDT 0.50 million to set up an agent banking outlet".

At present, Bank Asia, DBBL, Agrani Bank, Al-Arafah Islami Bank, Social Islami Bank Ltd. (SIBL), Trust Bank, First Security Islami Bank (FSIBL), NRB Commercial Bank, South-Bangla Agricultural Bank, Modhumoti Bank, Mutual Trust Bank and Standard Bank. Among them, Bank Asia, DBBL, Al-Arafah Islami Bank, FSIBL, NRBC Bank, Standard Bank, SIBL and Modhumoti Bank has started their operation.

How it works and the way forward

According to BB regulations, Agents can take deposits, provide cash against cheque, facilitate payments of the utility bill and take the application of different bank services. However, they can not open bank accounts and disburse loans apart from agri-credit in rural areas.

Helix Institute of Digital Finance, a research arm that works on Digital Financial Services (DFS) noted that Bangladesh’s agent banking and MFS are still in hatching stage and needs to evolve further to achieve its potential and achieve financial inclusion.

The research body also suggested for regulatory relaxation in terms of product innovation in DFS. Echoing the same, Dr. Shah Md. Ahsan Habib, Professor of the Bangladesh Institute of Bank Management told The Financial Express, "SME loan and credit facilities for readymade garment workers should come under the scope of agent banking”. Mr. Ahsan also asked for better training and incentive for agents to ensure quality service.

Future of banking: Challenges and opportunities

Globally, the rise of digital banking service has been replacing branch banking largely and many of industry insiders are touting a future where banks will not have branches, rather small, smart and efficient service delivery locations on a limited scale.

The Recent rise of mobile penetration and internet usage on cellular devices has created a possibility of taking banking activities more on digital platform i.e. Internet Banking, Smartphone application etc.

However, Unlike Western countries with relatively small population, Bangladesh, characterized by huge unbanked population, needs some kinds of branch-setup to serve its vastly underserved people.

Industry experts think that agent banking can be a replacement of branches in the remote part of the country, if regulator makes necessary facilitation in regulation, such as the opening of bank accounts, primary assessment of loan application etc.

However, this is a far reality given the challenges agents face now in making a viable business. While agent banking becomes a boon for banks to ensure the last mile reach at a much lower cost, agents face first-year loss due to initial setup cost, a Bank Asia internal research noted.

Besides, on banks’ part, maintaining service quality, keeping compliant with the regulator, retaining agents in the business and business continuity in case of agent-exit are also major challenges.

Despite the challenges and regulatory limitation, licensee banks are investing and expanding their agent network and collaborating with NGOs, and Cooperative societies. Bank Asia has been setting the example in agent banking, which has opened 0.135 million accounts with the deposit of BDT 1.08 billion.
In the last two years, the bank has conducted 1.8 million transactions worth BDT 28 billion, and these figures are giving hope to other players in the scheme to pursue a future where agents, instead of branches, will be the key service delivery point.

In the last two years, the bank has conducted 1.8 million transactions worth BDT 28 billion, and these figures are giving hope to other players in the scheme to pursue a future where agents, instead of branches, will be the key service delivery point.

Nezam Uddin is a Co-founder at Future Startup and looks after finance.

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