Agent banking service is a boon to rural unbanked population  

When the banking sector is plagued by massive non-performing loans, agent banking service (ABS) has made significant contribution to the rural economy over the past few years. It is still becoming popular in the grassroots areas across the country.

People are receiving remittances and they can pay utility bills through ABS. Some youth are finding employment opportunities as agents, who, too, are deploying additional workforce for their day-to-day operations.

Availability of mobile phones and internet facilities in rural areas have made it possible to launch ABS. Banks are now focusing on ABS for expanding their reach to remote areas. Services ABS offers include inward remittances, money transfer, different deposit schemes, and payment of utility service bills.

ABS is actually providing all sorts of banking services except encashment of cheque by clients and dealing with foreign currencies. However, some banks are now providing points of sale (POS) machine in the ABS to withdraw money instead of cheque. Biometric digital finger print is the key point of security of the ABS, which is a requirement for withdrawal of money. ABS account holders can easily accept ATM/VISA card to use ATM booth in convenient places and they can also use the same for various payments against purchasing goods and services where the POS is available.

ABS is becoming more reliable to the rural people. Private commercial banks are trying to make their entry into areas where no formal banking services are available. Clients are allowed to have deposits and withdraw cash through outlets operated by agents without visiting a bank branch. Many of such services are available in rural areas, whereas people earlier had to go to district towns or big cities for the banking services.

Although the Bangladesh Bank (BB) issued an ABS guideline in 2013, full-fledged operations of agent baking started in 2016.

However, the central bank guideline defines ABS as a limited-scale banking and financial service for those living in remote areas through any person under a valid agency agreement, rather than a teller or cashier. It is like a dealership or distribution business and all maintenance cost will be incurred by the ABS, whereas branch banking involves a huge cost and expenditures.

An agent is a third-party owner of an ABS, who conducts banking transactions such as cash deposits, withdrawals, small value loan disbursement and recovery of loans, transfer of funds, paying of utility bills under the government's social safety net programmes, and account inquiries on behalf of a bank.

At the end of 2019, the deposit collection through agent banking stood at Tk 75.44 billion, which was Tk 30.14 billion in 2018, according to the latest BB data. Of the deposits, an aggregate amount of Tk 20.86 billion was collected in urban area and Tk 54.58 billion in rural areas. The central bank officials also attributed the deposit growth in agent banking to expansion of the service to the grassroots level.

The number of accounts with agents increased to 5,257,769 at the end of 2019 from 2,455,475 in 2018 i.e. the number of agent banking accounts doubled in a year as banks are gradually expanding their agent banking activities.

Also, the number of agents increased to 7,914 in 2019 from 5,101 in 2018 and the number of bank agent outlets rose to 11,319 from 6,932 during the same period.

ABS has been able to attract a huge number of clients within four years of its formal inception in 2016, forcing most commercial banks to take up this alternative form of financial service alongside branch-based banking.

The purpose of introducing ABS is to provide a safe and secure alternative delivery channel for banking services to under-privileged, under-served population, who generally live in geographically isolated locations and beyond the reach of the traditional banking network.

The central bank launched agent banking in 2013 by giving license to Bank Asia. Since then, a total of 21 commercial banks have secured licenses from Bangladesh Bank, and 19 banks have ABS operations across the country.

The 19 banks are: Dutch Bangla Bank, Bank Asia, Al-Arafah Islami Bank, Social Islami Bank, Modhumoti Bank, Mutual Trust Bank, NRB Commercial Bank, Standard Bank, Agrani Bank, First Security Islami Bank, Midland Bank, The City Bank, Islami Bank Bangladesh Limited, The Premier Bank, United Commercial Bank Ltd, AB Bank, NRB Bank, Brac Bank and Eastern Bank.

According to the central bank's guidelines, through ABS banks are expected to provide maximum number of services to clients.

The BB also introduced mobile banking services in 2013 but transactions of mobile banking service is limited and most of the banking services are not available in rural areas.

Agent banking has been so popular, thanks to its simplicity to clients and cost-effectiveness for the banks. It has become popular because of its benefits for both the banks and clients, while the country's economy is also being benefited through financial inclusion, observed a research paper titled "Alternative delivery channel: Opportunities and challenges of the new banking environment" by Bangladesh Institute of Bank Management (BIBM).

It added that the banks have been able to increase customer volume, improve financial appearance, lower operating costs, expansion of business, increase deposit collection, improve banks' branding and widen their spreads.

A study by BIBM finds that 3.0 per cent of the clients of agent banking are day labourers, 29 per cent clients small traders, 7.0 per cent farmers, and 18 per cent are housewives.

The agent banking services are no more limited to services such as cash deposits, cash withdrawal, and receipt of remittances; banks have started giving out small loans through these outlets. Six banks -- DBBL, Bank Asia, Al-Arafah Islami Bank, Modhumoti Bank, Mutual Trust Bank and The City Bank -- have already provided credit facilities to their customers and Bank Asia disbursed the highest loan. Other banks are in the pipeline to disburse loans within a short time.

Still, there is some confusion among the rural people about agent banking service (ABS )and some consider it as NGO or multipurpose co-operative society working at grassroots level. Bangladesh Bank as well as relevant banks should develop a plan to raise awareness of the people about ABS.

Md. Zillur Rahaman is a banker and the views expressed in this article do not

represent his organisation.

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