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Agent Banking Financial Service For Rural Mass

Khairul Hasan Munna

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05th-Jan-2021       
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Agent Banking has been a catalyst in financial inclusion in Bangladesh as the unbanked populations are availing financial services at the agent outlets throughout the country.  Within a short span of time since inception in 2014, this service has already gained massive popularity among the banking community due to its rapid growth and inclusive development.   The latest data from Bangladesh Bank shows there are 8.2 million accounts associated with agent banking in September 2020 representing year-over-year growth of 116 percent.
The Agent Banking model is highly suitable for rural hard to reach areas and high proliferation in rural areas have led to rural agent banking subscribers outnumber those in urban areas. The higher growth of rural accounts shows that agent banking is providing banking services to the major group of the population that has been deprived of these services previously.
Firstly, commercial banks try to select locally known and acceptable individuals/institutions from these eligible entities as agents. The familiarity of the selected agents among the local population helps convince the latter to form bank accounts. Popularity and good reputation of the concerned banks also work for attracting the targeted populations to the banking services.  
Secondly, the formal physical environment of a typical bank branch is often perceived as alien by a prospective rural bank account holder. On the other hand, an agent bank outlet is located in a prospective customer's known environment and conducted by someone known to them. These features make the outlet environment accommodating to the customer so that he/she is comfortable going to the outlet and carrying out banking activities. Sometimes the agent's representatives or employees go to provide door-to-services to the customers at their convenient.
Finally, all agent banking outlets are equipped with IT devices like point of sale (POS) devices with biometric features, barcode scanner to scan bills for bill payment transactions, and Personal Identification Number (PIN) pads. Typical banking operations would require the usage of identification cards, numbers, and codes to make transactions. Most people in rural areas do not maintain all of these documents. But with the help of the aforementioned devices, agent banking customers can easily carry out activities using only the customer's fingerprint or mobile number.
During the peak COVID period that ended on May 30, the government limited commercial banking operations to control the spread of the virus. Agents, being third-party entities, were not bound by the restrictions. They were still given the autonomy to choose whether to carry out operations. Most agents decided to carry out operations during the pandemic situation. In a newspaper report shows that around 80 per cent of agents decided to continue work. The continuation allowed customers to carry out transactions at the agent outlets. Disbursements of foreign remittance witness record surge in agent outlets during the Covid period.     
But there are bottlenecks to unlocking this huge opportunity. Cottage, Micro, Small and Medium Enterprises (CMSMEs) in Bangladesh face financial constraints including poor quality of the collateral, inadequate documentation, and ill-defined business plans. As a result, banks take time to process loan applications. The turnaround time for loan applications is thus 7 to 10 days. The higher turnaround time makes agent banking unattractive to SMEs for financing as they can access credit from Microfinance Institutions (MFI) at a faster rate.
On the other hand, banks also find it unattractive to lend to SMEs. The government capped the lending rate for loans at 9 percent and deposit rates at 6 percent and the regulation came into effect in April 2020. The capping of the rates makes lending unprofitable for banks. Since SMEs are riskier due to the aforementioned constraints, banks consider lending to them more non-appealing.
Although agent banks have accelerated financial inclusion in the country, especially in rural areas, more needs to be done. Most of the labor forces in Bangladesh are employed in the informal sector where they lack options for savings and obtain loans. Engaging these huge populations into formal financial services helps them to save and access credit for entrepreneurial ventures.
The agent banking operations are not out of problems. Sometimes the banks face problems from their agents who often commit violation of existing banking rules and regulations since they lack of proper training on banking operations. These acts of violation and misappropriation of customers' fund by the agents may smear the bank's image. The agents also face some problems from their respective banks' end. They hardly receive quick and prompt response from the banks when they face problems in providing services to the customers. This act may arouse the customers' dissatisfaction towards the agent banking activity.         
Despite some pitfalls, the agent banking service has witnessed tremendous success in customer enrolment and deposit collection. Now the concerned banks should give utmost concentration on credit or investment disbursement through their agent outlets across the country. If the banks can make investment in CMSMEs successfully, the rural economy shall gear up with significant development of the country. Policymakers and Bangladesh Bank should come forward with keen watch to the agent banking so that commercial banks can't drain the rural deposits to the urban areas instead of deploying those in underprivileged areas.    

(The writer works in a commercial bank and can be reached at hasan.khairul@gmail.com)

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