Table of Contents

1 Concept of Agent Banking ........................................................................................1

2 Evolution ................................................................................................................1
3 Agent banking Services .............................................................................................2
4 Practices in our country .............................................................................................2
5 Lessons from other countries .....................................................................................4
6 Remarkable contribution/ Cases (Home country examples) ............................................4
7 Future opportunities .................................................................................................4
8 Challenges of Agent banking in Bangladesh .................................................................5
9 Conclusion ..............................................................................................................5
1. Concept of Agent Banking
Agent banking is a system where agents provide limited scale banking services to the
underprivileged population of a country. Under this system, a bank doesn't need to set up a
branch or assign teller or cashier at an underserved area; instead, the bank enters into an agency
agreement with an outlet owner who, as an agent, carries banking transactions on behalf of the
bank. Globally, agent banking has become a popular means of financial inclusion.

2. Evolution
Agent banking emerged from the goal to expand financial inclusion. Financial inclusion is an
objective to bring un-serviced group of people under the coverage of the financial system in a
cost effective way.

In Bangladesh, the path to financial inclusion began with microfinance institutions in 1990s
which saw remarkable growth for two decades. In 2011, Bangladesh bank introduced mobile
financial services to take advantage of the growing number of mobile phone subscribers as
distribution channels for financial services. Although, mobile banking sector experienced
remarkable growth in the number of users, it was limited in terms of the types of services they
can offer, e.g. they were not allowed to advance loans or overdraft. Furthermore, mobile banking
could not reach as large as 85% of day labors, garments workers and alike who needed frequent
remittance services. As such, it became important to improvise distribution channels that could
broaden the outreach of financial services. With this in consideration, Bangladesh Bank
introduced agent banking in 2013 by issuing guidelines for commercial banks.

The guidelines outlined all necessary details- registration process, selection and appointment of
agents, data security standards, customer security, and risk management, required for the
commencement agent banking operation by commercial banks. Around the same time,
Bangladesh Bank granted agent banking licenses to four banks. In 2015, two banks- Bank Asia
and Dutch Bangla Bank recruited 49 agents and 6 agents respectively (Nisha, 2020).

In 2017, Bangladesh bank published the “Prudential Guidelines for Agent Banking Operation in
Bangladesh” encompassing approved activities, agent approval criteria, banks and agents
responsibilities, anti-money laundering (AML) and combating the financing of terrorism (CFT)
requirements, supervision, consumer protection etc. The guideline brought forward many
changes notably- increase in daily cash deposit threshold for agent banking accounts to Tk 6 lakh
in 4 transactions, setting daily withdrawal limit at 5 lakh taka and transfer limit at 15 lakh taka.
The newly issued guidelines facilitated the adoption of agent banking model by banks in
Bangladesh, especially in areas where setting up a bank branch is not feasible. As of December
2020, the number of banks having agent banking services has risen to 26 banks and the number
of agents stands at 11,925.

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3. Agent banking Services
Agent banking aims to provide formal banking services and creating a branch like experience for
the marginalized customers through agents. The different types of services offered by agents on
behalf of the bank include:

• Collection of cash deposits in savings and current account and withdrawal of cash
• Collection of customer account opening documents and debit and credit card application
• Disbursing inward remittance from expatriates and intra-country migrant workers
• Accepting loan application and disbursing small scale loans and recovery of loans
• Disbursing social safety net payments to aged, widow and disabled beneficiaries
• Collection of utility bills for rural customers
• Transfer of fund from one agent to another at low cost
• Collection of tax, insurance premium

4. Practices in our country

Bangladesh Bank is the provider of regulatory framework for agent banking operation in
Bangladesh. The prime target for operating agent banking is to bring financial services to rural
population of the country in an easy and cost-effective manner. This motto is clearly reflected in
the framework that stipulates 3 agent banking outlets in rural area for every 1 outlet in urban
municipality.
Banks are required to recruit, train and supervise agents. Currently, an agent can enter into
agency contract with more than one bank but the agent needs to have separate outlet to represent
each contacted bank. The agents are connected with the bank’s server via IT devices that
supports agent and customer identification like biometric point-of-sales device, barcode
scanners, personal computers and others.
As of December 2020, 96 lakh accounts have been opened in agent banking. Besides, the gap
between male and female account holders is relatively low and has been decreasing over the
years, which shows promising socio-economic benefit from larger female participation in
financial system (see Figure 2). Agent banking has gained most popularity from migrant workers
and day labors as they can send money without any hassle to their families residing in remote
villages. As of December 2020, around Tk 488.06 billion in inward remittance was channeled
through agent banking outlets across the country. At the same time, this banking model has
predominantly focused on collecting deposits than disbursing loan as evident from the loan to
deposit ratio that is 11.85% (see Figure 1). It has been observed that banks and their agents have
been cautious in loan disbursement. Agents are apprehended to provide non-collateral loans
while collateral loans require documentations which discourage customers. Nevertheless, all
agent banking activities are increasing day by day.

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In terms of geographical concentration, agent banking has followed the agenda of financial
inclusion focusing on rural populace. According to a report published by the Bangladesh Bank
(2020), there are 7 agent outlets in rural areas for every 1 outlet in urban area.

Deposit and Loan disbursement in Number of accounts in lakhs

billion
Male 96
159.8
Deposit Female
Institution 74
Loan Total
102.2
52
75.2 39

52.8 44
31.1 34
20.1 18.9
14.0
1.1 1.9 2.4 4.5 7.2 0.382 0.785
1.4

Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20

Figure 1 Deposit and loan disbursement in billion Figure 2 Number of accounts in lakh

Currently, 26 banks have been granted licenses for agent banking operation in Bangladesh.
Over the years, Dutch Bangla Bank Limited (DBBL) and Bank Asia Limited have emerged as
the market leaders in terms of number of outlets and number of accounts.

Table 1 List of Banks offering agent banking services (Source Quarterly report on Agent banking, December 2020)

No. of No. of
Bank Name agent Bank Name agent
outlet outlet
Dutch-Bangla Bank Limited 4414 Mercantile Bank Limited 101
Bank Asia Limited 4381 The Premier Bank Limited 100
Islami Bank Bangladesh Limited 2273 AB Bank Limited 84
The City Bank Limited 1411 One Bank Limited 65
NRB Commercial Bank Limited 589 Midland Bank Limited 60
BRAC Bank Limited 481 Shahjalal Islami Bank Limited 52
Al-Arafah Islami Bank Limited 400 First Security Islami Bank Limited 41
Modhumoti Bank Limited 366 Eastern Bank Limited 29
NRB Bank Limited 316 Standard Bank Limited 26
Agrani Bank Limited 287 Exim Bank Limited 9
United Commercial Bank Limited 177 Prime Bank Limited 3
Mutual Trust Bank Limited 163 Padma Bank Limited 2
Social Islami Bank Limited 145 Jamuna Bank Limited 2

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5. Lessons from other countries
The Reserve Bank of India introduced the business correspondent model (the agent banking
model called in India) in 2006 in India. RBI has allowed a wide range of entities to act as
business correspondents of banks to ensure sufficient number of agents across the country to
provide financial services anytime and anywhere. As of December 2020, there are 1,176,221
agents and Rupees 725.8 billion in basic savings bank deposits (RBI, 2020). Agent banking in
India has shifted its scope of financial inclusion from rural areas to households. By using their
wide agent network they aim to deliver financial products, spread financial literacy, and extend
credit, insurance and pension facility to every household. Business correspondent model in India
gives compelling evidence that larger number and types of agents can enlarge the reach of
financial system.

6. Remarkable contribution/ Cases (Home country examples)

Agent banking has shown remarkable potential in delivering financial services amid the
economic breakdown brought by Covid-19 pandemic. Since the outbreak of Covid-19 in
Bangladesh in March 2020, all agent banking statistics recorded an all time high- number of
account holders rose by 48.3%, deposit mobilization hiked by 87%. At the same time, agent
banking has thought to have alternated loan sharks in rural areas as more than 12.1 billion in
loans was disbursed through this channel since the outbreak (Bangladesh Bank, December 2020).
When conventional banking sector came to a standstill during lockdown in pandemic, agent
banking gained momentum. This is because customers were able to take banking services from
their neighboring grocery outlets, which, at the same time, saved banks about Tk 6 million yearly
in branch expenses. Agent banking model was also utilized to disburse loans and government
stimulus packages to SMEs in un-served areas.

7. Future opportunities
In Bangladesh, only 40 percent of the rural population above 15 years of age has an account at a
bank or financial institution (World Bank, 2017). In 2018, a report by the Bill & Melinda Gates
Foundation showed that the participation of people in the financial system increased mainly due
to the aggressive growth of agent banking in the country. This is because the agent banking
model has several characteristics that facilitate access to financial services by the underserved
populace. It allows simple customer on boarding, ease of transactions, lower service charge cost,
easier accessibility in terms of distance of service point, and round-the-clock availability of
services. A larger number of populations will likely enter the financial system if agent outlets
continue to grow to become available in the vicinity of customers.

Besides, agent banking offers a larger variety of services that are not offered by mobile banking
e.g. credit disbursement. This makes it a suitable channel to launch more complex financial

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services. More importantly, availability of credit can boost investment in rural areas and thereby
increase their earnings and standard of living.

Agent banking has the potential to facilitate women's participation in the economy. Earlier,
women, particularly in rural areas, tend to save money in informal ways. Furthermore, even if
they had bank accounts, it would be in the name of their husband or another male person in the
family. Now, with agent banking at their doorstep, the participation of women has been growing.

8. Challenges of Agent banking in Bangladesh

The challenges faced by agent banking in Bangladesh can be viewed from two side- supply-side
and demand-side.

Supply-side challenges: First of all, the process of agent acquisition can take four to six months
on an average. During this time, prospective agents undergo many stages- from screening,
verification to approval from Bangladesh Bank. This delay, however, can cause some agents to
lose motivation and withdraw from the approval process. In addition to this, the fact that this
business model has fluctuating earnings makes it unattractive for agents. Finally, shortage in
supply of banking service is also caused by liquidity crisis of agents in the face of growing
number of daily transaction. Agents According to a report published by Business Finance for the
Poor in Bangladesh (2018), 22% of agents experience liquidity crisis in a month and 80% of the
agents address shortages crisis from personal savings.

Demand-side challenges: Low awareness about agent banking and its services has been
conducive to reaching potential customers. A study conducted by Business Finance for the Poor
in Bangladesh (2018), showed that only 19.7% of their respondents came across agent banking
advertisement in radio and television and the statistics for that of newspaper is 8.4%. This
indicates how heavily this model relies on word of mouth. Besides, 35.8% of those who
responded didn't know about the services this banking model offers. At the same time, agent
banking lacks in providing services desired by customers like credit facility available at agent
point.

9. Conclusion
Agent banking allows banks to provide limited range of services to underserved population
through agents from nearest agent outlet. In Bangladesh, this banking model emerged from the
objective of financial inclusion. It eliminates the cost of banks involved in setting up a branch in
rural area and the cost of customers to travel to bank branches from remote locations. Customers
can deposit and withdraw money, pay bills, tax and insurance, collect remittance, receive loans
and government payments through agents. Agent banking has gained popularity in countries like
Brazil, India, and Kenya. Although this banking model has experienced barrier to growth due to
high agent turnaround and low awareness, the business will likely grow as a doorstep branch-like
unit due to its simple and convenient mode of delivering financial services.
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