Concept of Agent Banking:

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 is the

owner of an outlet who conducts banking transactions on behalf of a bank. Globally these retailers are

being increasingly utilized as important distribution channels for financial inclusion.

Importance of Agent Banking in Respect of Bangladesh:

Agent banking is comparatively a new idea that can help the formal banking sector reach out to the

marginalized people of the society through their agents, who will provide several banking services to the

people locally. Understandably, agents will be appointed in such areas where it will not be feasible for a

bank to open a full-fledged branch. Agents will provide banking services to the people on behalf of a bank

and the nearest branch of the bank will provide necessary logistic support. Definitely the agents will be

guided by profit motive in addition to the clearly-defined roles and responsibilities for them. The challenges

for banks will be to devise a business model that will generate adequate revenue to compensate all parties

in the value chain as well as shape up the agent network and tackle the operational challenges to selecting,

training and managing agents. In short, agent outlets will be mirror bank branches. To make the business

case work, banks may offer the operators guaranteed monthly payments at a certain rate of commission per

transaction on top of it and may also provide armored car services.

In Bangladesh, the outreach of microfinance institutions (MFIs) is vast with more than 650 licensed MFIs

operating in different regions with a client base of up to 40 million. Most of the big organizations like

BRAC, Grameen Bank and ASA have their outreach in almost all over the country. Having targeted the

poverty-stricken segment of people, they have done a great job in providing small-scale financial services

to these marginalized people and making them included in the financial system. But the services provided

by the MFIs have their limitations as well. They charge a high rate of interest and the procedure of collecting

overdue payments is cumbersome. The regulatory framework of MFIs still needs to pass the test of time.

The MFIs also have limitations in respect to providing a wide range of financial services to customers which

a scheduled bank can provide.

Keeping in mind the financial viability the formal commercial banks mainly focus on large-scale loans

which prevents them from rendering services to a large number of people. Despite efforts of commercial

banks to promote SME (small and medium enterprises) banking, less than 10 per cent of the population

lack access to formal credit. Another study conducted in 2011 by the Bangladesh Bank shows there are 67

bank branches and ATMs per 1,000 square kilometers in Bangladesh.

This reflects the fact that running any bank branch in a remote area is not very cost-effective. Setting up a

formal banking branch involves a large amount of fixed cost and a high monthly variable cost for

maintaining it. But the number of transactions that take place in rural, remote or less densely-populated

areas is not enough to make up for those costs. For this reason, there are not enough incentives available

for the formal banks to render their services in those areas by using their existing structure.

Agent banking can ensure the access of the marginalized people to several financial services, especially in

remote areas. It can work wonders in financial inclusion and enhancing financial activity in remote areas.

It can also prove financially viable for the formal banking sector. If the vibrant banking sector puts relentless

efforts by following the proper guidance of the central bank, agent banking can prove an effective tool for

enhancing financial inclusion and materializing the dream of a poverty-free Bangladesh.

Status of Agent Banking in Bangladesh:

On May 29, 2014 Bangladesh Bank gave permission to Bank Asia and NRB Bank to provide agent-banking

services, taking the banking sector one step ahead in financial inclusion.

Bank Asia can appoint 30 agents and NRB Bank 20 agents to extend modern banking services to clients,

according to the central bank decision.

Bank Asia, for the first time in Bangladesh, set off Agent Baking

In an effort to bring huge number of the country’s non-banking population under the banking network and

ensure financial inclusion, Bank Asia, for the first time in Bangladesh, set off Agent Baking pilot phase in

Sirajdikhan Upazila of Munshigonj district before the final approval of Bangladesh Bank to conduct agent

banking in permanent basis.

In presence of Dasgupta Asim Kumar, Executive Director of Bangladesh Bank, A. Rouf Chowdhury,

Chairman of Bank Asia formally launched the activities of Agent Banking at Bhabanipur Bazar on Friday

(17 January, 2014).

Upon approval from Bangladesh Bank, Bank Asia appointed agents in Bhabanipur, Joinser, Rajanagor,

Nimtola of Sirajdikhan and Chowkbazar of Sreenagar while appointment of agents in Chitrokoat, Noagaon

(Matborerhat), Lotobdi, Shekhernagar of Sirajdikhan, Boramukam Bazar of Lauhajang and Dewbhog of

Sadar Upazila in Munshiganj district is under process.

Meanwhile, the state-owned Agrani and Krishi Banks have introduced the service on trial basis, which has

gained positive response from the people. Still now, NRB Bank doesn’t have any operation on Agent

banking.

Policy by Bangladesh Bank for Agent Banking in Bangladesh:

Bangladesh Bank published the agent banking guideline on December 9, 2013 with a view to creating an

enabling environment for commercial banks to offer financial services to a new customer base. The

guideline will be ensuring safety, security and soundness of the proposed delivery channel to permit banks

to be engaged in agent banking.

Agent banking will allow an agent to provide limited scale banking and financial services to the underserved

population through engaged agents on behalf of a bank under a valid agency agreement. Agents’ activities

will be within normal course of banking business of the scheduled banks but conducted at places other than

bank premises and ATM booths.

According to the guidelines the following services can be provided under agent banking:

1. Collection of small value cash deposits and cash withdrawals (ceiling should be determined by the

BB from time to time),

2. Inward foreign remittance disbursement,

3. Facilitating small loan disbursement and recovery of loans, instalments,

4. Facilitating utility bill payment,

5. Cash payment under social safety net program of the government,

6. Facilitating fund transfer (ceiling should be determined by the BB from time to time),

7. Balance inquiry,

8. Collection and processing of forms and documents in relation to account opening, loan application,

credit and debit card application from public,

9. Post-sanction monitoring of loans and advances and follow up loan recovery,

10. Receiving clearing cheques, and

11. Other functions like collection of insurance premium including micro insurance etc.

Customers will not be charged directly by the agents for the services as banks will be paying reasonable

fee to its agents for the services provided. The maximum transaction ceiling is Tk 25,000 for agent

banking customers. However, the limit on the transaction value will not be applicable for withdrawal of

inward remittance. An agent banking customer will be able to make a maximum of four transactions a

day—two withdrawals and two deposits.

An agent will be eligible for the agreement after meeting some requirement and must provide its services

in a designated business premises, according to the guideline. 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. Besides, each bank has to maintain a current account with the agent and

the balance on that account may not cross Tk 10 lakh, it said.

With approval from the central bank and agreements with a commercial bank, nongovernmental

organizations, retail shops, micro-finance institutions, cooperative societies, post offices, and courier and

mailing service companies can perform banking transactions on behalf of the bank, without charging the

customers.

Bangladesh Bank, in its first guideline, said that Agent banking transaction must take place outside the

metropolitan, city corporation or municipality area.

But in June 1, 2014 BB published another circular and permit the banks to operate agent banking in

municipal (Pourashabha) areas alongside the rural areas. “But the bar on agent banking operation in

metropolitan and city corporation areas will remain,” the circular said.

In another amended circular, the central bank said that the bank branches located in the metropolitan, City

Corporation and Ka and Kha categorized municipalities will be considered as “urban branch” and the bank

branches located Ga categorized municipality areas and also union council areas will be considered as “rural

branch.”

References:

Online Newspapers:

businessnews24bd.com

Bdreports24.com

The Bangladesh Today

New Age

Dhaka Tribune

The Daily Star

UNBconnect

The Financial Express

Person:

A.N.M. Amin Ullah

Senior Executive Officer

Bank Asia Ltd, Uttara Branch

Column published in The Financial Express.