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How is agent banking the future of banking as an alternative delivery channel?

On 4 May 2019, Business Finance for the Poor in Bangladesh (BFP-B) presented the findings of a policy study on agent banking in a seminar “Future of Banking: Agent Banking as Alternative Delivery Channel to reach the last mile.” The study focused on the growth of agent banking, and policy recommendations that regulators can undertake for helping agent banking to thrive.

Due to geographical dispersion, poor infrastructure, and high cost of setting up banks, a large part of the population does not have access to finance. Agent banking as alternative delivery channel is changing the scenario by bringing banking solutions to the doorstep.

Through the agent banking platform, engaged agents carry out banking transactions from their outlets under a legal agreement with banks. 19 banks currently provide agent banking services through 4,493 agents with 6,933 outlets.

In 2018, 31 billion Taka was deposited and almost 2 billion Taka credit was disbursed through the agent banking channel. Since the launch of agent banking in Bangladesh, the industry has seen significant growth and has been contributing to financial inclusion in the country.

Mr. Ahmed Jamal, Deputy Governor, Bangladesh Bank and Project Leader, BFP-B Project was present as Chief Guest of the seminar. Ms. Afsana Islam, Deputy Team Leader of DFID Bangladesh and Mr. Md. Nazimuddin, Executive Director, Bangladesh Bank and Project Director, BFP-B Project were present as speakers of the seminar. Feisal Hussain, Team Leader, BFP-B commenced the seminar greeting the esteemed guests. Rashed Al Hasan, Manager of BFP-B Policy Component and Ferdous Hasnain Ivan from Microsave presented the findings of the policy study “Addressing market demand through agent banking : lessons learnt” at the seminar. The event concluded with a panel discussion and Q&A session between the panelists and the audience. This blog post explores more about the discussions of the seminar.

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Major findings of the study:

  • From 2017 to 2018, agent banking saw a 122% growth in Bangladesh.
  • 90% of users preferred to use agent banking services as compared to mobile financial services. This is due to higher transaction limits, lower costs and higher security associated with agent banking.
  • Average daily transaction value was 360,000 Taka and average daily e-float of 430,000 Taka was maintained .
  • 60% of agents are yet to breakeven.
  • 35% customers are women, however only 3% of the agents are women. 95% of female users mentioned they would be comfortable dealing with women agents in agent outlets while another 72% of the total users mentioned that women agents can be trusted for making financial transactions.

“We all need to accept that regulations should are not barriers to development. Regulations are evolving, and regulations are the outcome of best practices.” — Afsana Islam, Deputy Team Leader, DFID Bangladesh

KEY RECOMMENDATIONS AND THEIR IMPLEMENTATION

Recommendation 1

Allowing non-exclusivity of master agents to serve multiple banks with each agent outlet representing more than one bank.

Action

Policy revision by amending the clause 15.1 following PSD circular no. 5 on Agent Banking 2013, clause 6.1. This should be undertaken by regulators.

Recommendation 2

Reduce Turnaround Time (TAT) at both provider and regulator end, and review documentation requirements for agent approval. Faster TAT will reduce agent attrition and agent acquisition cost.

Action

Rationalising elaborate documentation requirement by agents and expediting internal screening and review process at provider and regulator end.

Recommendation 3

Allocating a certain portion of existing refinancing scheme for banks to provide loan through agent banking channel to improve deposit to credit ratio. For example, improving the ratio to 10:1 would entail 1.3 billion Taka additional loans for 39% more rural clients.

Action

Regulator may encourage banks to allocate fund from Bangladesh Bank refinancing schemes to route through agent banking and also relax provisioning requirements for such loans.

Recommendation 4

Introducing e-KYC, using digital signature and national ID or mobile network operator (MNO) database for verification for account opening through agent banking to expedite customer on-boarding activities.

Action

Regulators and government implementing agencies must collaborate to launch and expedite ongoing efforts for e-KYC.

From left to right: Khondkar Morshed Millat, General Manager, Sustainable Finance Department, Bangladesh Bank; Mohammed Abul Hashem, Deputy General Manager, Financial Inclusion Department, Bangladesh Bank; Md. Iqbal Hossain, Joint Director, Banking Regulation and Policy Department, Bangladesh Bank; Md. Arfan Ali, President and Managing Director, Bank Asia

From left to right: Khondkar Morshed Millat, General Manager, Sustainable Finance Department, Bangladesh Bank; Mohammed Abul Hashem, Deputy General Manager, Financial Inclusion Department, Bangladesh Bank; Md. Iqbal Hossain, Joint Director, Banking Regulation and Policy Department, Bangladesh Bank; Md. Arfan Ali, President and Managing Director, Bank Asia

PANEL DISCUSSION

At the panel discussion after the presentation, panelists shared their insights and discussed the key recommendations. The panel discussion session was moderated by Mr. Khondkar Morshed Millat from the Bangladesh Bank.

Mr. Mohammad Abul Hashem and Mr. Md Iqbal from the Bangladesh Bank emphasised that Bangladesh Bank has already extended its hand towards agent banking and will take further steps to make the regulations better for all key players.

Md. Arfan Ali, President and Managing Director of Bank Asia stated “In order to progress, Bangladesh must focus on providing financial services to cottage businesses. All of the agent banking goals have not yet been achieved by the country, but we are progressing step by step. Agent banking booths are virtual branches and are collaborative models which are very helpful for all. We believe this collaborative model can bring about financial inclusion and Bangladesh can be benefited from it.”

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Mr. Ahmed Jamal, Deputy Governor, Bangladesh Bank and Project Leader, BFP-B Project shared how Agent Banking is contributing in our economic sector by bringing back progression under banking service. We are now able to establish almost 11,000 bank branches in our country. Agent banking’s ultimate purpose is to bring the underserved people in the shade of banking service. If agent banks want to sustain in market for long term, they need to follow commercial direction. Agent banking is also contributing towards women empowerment. He emphasised on the need for e-KYC for cost reduction and cited that regulatory factors also should be reviewed again regarding digitalisation. He wrapped up his speech with the expectation of all type of necessary support from Bangladesh Bank.

Ms. Afsana shared that DFID is supporting BFP-B project is to ensure lack of financial services for Micro and Small Enterprises (MSEs) in Bangladesh is minimised. The project has been supporting Dutch Bangla Bank and Bank Asia from the starting. The financial sector is yet to enhance services to the rural level. The study recommendations echoes the markets needs and validated by market players. Policy makers can realise the real world scenario and can make changes if needed. DFID is also supporting the National Financial Inclusion Strategy of the Government which is committed to taking financial services to all Bangladeshis.

ABOUT BUSINESS FINANCE FOR THE POOR IN BANGLADESH

BFP-B partnered with Dutch-Bangla Bank Limited and Bank Asia Limited for their agent banking ventures. The partnerships resulted in an increased 5600 agent banking outlets, mobilising BDT. 17,820 million savings, and disbursing BDT. 842 million loans to more than 2500 clients. Business Finance for the Poor in Bangladesh is a £26m strategic partnership between the UK and Bangladesh governments to boost access to financial services for small businesses.

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