Banking system needs to be digitalised

Banking sector is one of the major contributors to the economy of Bangladesh. The country's financial sector is dominated by the banking sector. Dominance of the banks makes the financial sector vulnerable on the one hand, but highlights the crucial importance of the sector in resource mobilisation and economic growth, on the other. The role of the banking sector in accelerating growth is contingent upon its soundness and depth.

The government has taken various steps to support the state-owned banks as well as the private ones to enhance the traditional banking facility for the people. There are around 9,000 bank branches along with about 18,000 branches of NGO-MFIs (Microfinance Institutions), 1,200 thousands of post offices and 183,000 co-operative outlets. This makes a total of about 0.21 million branches/outlets for the 56.6 million economically active population - thereby generating at least one financial service point per 270 people.

Apart from traditional banking, the banking sector in Bangladesh in recent years has made very good progress by implementing two new segments: agent banking and mobile banking. These two new segments drive more people to deposit their money with the banks. These two segments have reached common people, especially those who remained unbanked. They usually do banking only when it becomes an outmost necessity. The number of bank account holders has now marked a big rise.

Mobile banking is a system that allows customers of a financial institution to conduct a number of financial transactions using a mobile device like cellphone or personal digital assistant. Such banking differs from mobile payments, which involve the use of a mobile device to pay for goods or services either at the point of sale (POS) or remotely. Mobile transactions reached Tk 300.08 billion for the first time in June, 2017, according to Bangladesh Bank (BB). During the Eid celebrations in June last year, transactions through mobile reached Tk 10 billion a day on an average, up by 18.48 per cent from the previous month.

Agent banking refers to limited scale banking and financial services for those living in remote areas across the country through regular agents under agency agreement, rather than a teller or cashier. An agent is the owner of an outlet, who conducts banking transactions such as fund deposit, withdrawal, transfer of funds, paying bills, inquiring about an account balance on behalf of a bank etc.

There are 53.7 million mobile bank account holders (almost one-sixth of the total population) and the number is increasing every day. As of September 30, 2017, the number of agent banking accounts stood at 10,038,242 against 5,444,536 at the end of 2016, says a BB estimate. As many as 4,93,706 new accounts were opened in nine months. Another 10 million Tk 10 farmers' accounts kept with the state banks. Nearly 0.8 million students have bank accounts now. In addition, there are around 55 million formal bank accounts in the country. Altogether, the total number of bank accounts now stands at around 120 million or over 72 per cent of the country's 166 million people. If only the adult population is taken into account, nearly 95 per cent people have bank accounts, which is a remarkable achievement for Bangladesh compared to other least developed and developing countries.

A large amount of cash is now handled all over the country. Even in a remote village, a villager can go to his nearby agent banker or mobile banking agent to deposit or withdraw money. The volume of cash deposits in traditional bank branches is now higher than ever.

But people still face some troubles while handling cash. In spite of specific BB instruction on how to handle bank notes, people damage bank notes in various ways. The damage level of banknotes is very high in the rural areas. They damage notes through water, dust and mud. Most of the time, wet notes end up with tapes. People at times write and scratch over banknotes. Even banks put seal and write over the notes. People sometimes staple banknotes to make bundles. Such damaged banknotes become virtually unfit as medium of exchange.

Besides, there is a large amount of fake notes in circulation. There are big syndicates engaged in the illicit trade of fake notes. They are operating in large numbers in rural areas, where people are not so alert. Fake notes are sold at a discount - a note of Tk 100 denomination is sold at Tk 40, for example. It is reported that around 50 groups are engaged in the production of fake notes. Statistics show that Bangladesh is flooded by about Tk 200/250 million counterfeit notes every month. In most of the cases, the poor become victim when they try to use these fake notes.

The tellers in banks are yet to be upgraded to the level of handling one-stop cash processing. They still manually process all those cash, including manual counting at the time of receiving and disbursing cash. Some have air-base counting machines, but these can't recognise fake notes.

As the country develops, circulation of cash money will also increase. It is high time bank's cash processing system was reformed, upgraded and digitalised to better serve the people.

Mizanur Rahman is a faculty member at the Institute of Cost and Management Accountants of Bangladesh (ICMAB).

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