Promoting growth of agent banking

Introduction of agent banking system across the country has taken the banking service to the doorsteps of the common people who so long did not have access to formal financial service. In the traditional banking system, clients have to go to cities and towns for banking purposes; but it is the other way round in case of agent banking. Agent banks, aka agency banking, are the banks of the common people at their closer vicinity. Such a service was completely unthinkable for common people in the past when banking transactions were the exclusive affair only of the affluent sections of society. Now people even at the grassroots level with limited financial capacity can avail themselves of the service despite their financial illiteracy.

Agent banks have fulfilled an important need of the people. Within a decade since its introduction in 2013, this innovative financial service system has proved its usefulness in bringing millions of unbanked and underserved communities under the purview of banking services. One of the core advantages of agent banking over traditional banking is that the agents are usually members of the local community having better scope for developing trusted relationship with the service seekers.

Agent banks have brought about a radical change in people's attitude towards the banking system and have achieved significant success in terms of both loan disbursement and deposit collection. With reference to Bangladesh Bank data, this paper reports that loan disbursement by this new category banks reached Tk 9.70 billion in November 2024 from Tk 8.54b in the same month a year ago, posting an increase of about 14 per cent. Deposit collection also showed more than 14 per cent growth to Tk 402.22b from Tk 351.69b in November 2023. Success of these banks is also reflected in the total number of accounts and concentration of the same in rural areas. According to the FE report, 86 per cent of the total 23.89 million accounts are located in villages.

This high percentage of agent bank accounts in rural areas is itself a success in the sense that this system has won the confidence of the rural people and encouraged them to bank with them. This rising popularity of agent banking is an indication of its potential for financial inclusion of people. The steady rise in financial activities demonstrates the growing acceptance of the services. According to the report, the steady upward trend in loan disbursement from Tk 7.73b to Tk 9.7b in January and November 2024 respectively points to rising demand for credit in rural areas, indicating increased liveliness of rural economy.

However, agent banking is not free from challenges. Despite impressive performance, reduction in the number of agents and outlets raises question about the sustainability of the new system. While efforts must be made to find out the problems behind this decline and solve them, incentives should be given to the agents for the expansion of the banking network. For further growth of the agent banking system, experts suggest framing of targeted policies that will encourage banks to expand their network, particularly in areas where people do not have easy access to banking services. The agent banking system will help raise collection of investible surplus and expand rural economy. This innovative banking system should be further expanded at the grassroots level to reach its benefits to the unbanked people.

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