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Agent Banking ABCs

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Agent Banking ABCs

  1. 1. Agent Banking ABCs by Hasibur Rahman Mobile Commerce Services, Citycell
  2. 2. Background Starting its journey in 2011, Mobile banking, commonly referred to as mobile financial services (MFS), has recorded phenomenal growth in Bangladesh in terms of financial inclusion. But still half of the population lack access to the formal financial service. To bring this large number of people under the coverage of the formal financial sector Bangladesh Bank introduced “Agent Banking” in late 2013. It can help the formal banking sector reach out to the marginalized people of the society through their agents, who will provide banking services to the people on behalf of a bank and the nearest branch of the bank will provide necessary logistic support. Agent Banking bridges the gap between the bank and the unbanked people, makes banking services accessible to rural people, offers cost- effective banking services, minimizes the operating and establishment costs for banks.
  3. 3. What is Agent Banking!!? Agent Banking means providing limited scale banking and financial services to the underserved population through engaged agents under a valid agency agreement, rather than a teller/ cashier. It is the owner of an outlet who conducts banking transactions on behalf of a bank. Globally these retailers are being increasingly utilized as important distribution channels for financial inclusion. Bangladesh Bank has also decided to promote this complimentary channel to reach to the poor segment of the society as well as existing bank customer with a range of financial services specially to geographically dispersed locations.
  4. 4. Success Story (Brazil) Agent banking has worked wonders in several developing countries in different parts of the world like Brazil, Columbia, Peru, Malaysia, Kenya etc. Agent banking has been a revolutionary inclusion in the financial system of Brazil. In the early 2,000s about a quarter of Brazil lacked access to formal financial services which has been mitigated to a great extent after introduction of this mechanism. As reported by the Banco Central do Brasil, the central bank of Brazil, since the introduction of agent banking, 12 million current accounts were opened across the agency banking network within only three years and the total amount of transactions reached 2.6 billion reflecting the necessity of such a service.
  5. 5. Success Story (Columbia and Peru) Columbia and Peru also turned to the mechanism. Although in Columbia the bank branches covered 73 per cent of the municipality, the agent banking helped raise the coverage to nearly 100 per cent. In 2009 the total numbers of transactions in Peru and Columbia were 67 million and 29 million respectively which were quite big compared to the size of their respective economy. Agent banking in all three countries has been most successful in easing payments made by different households such as utility bills, taxes etc. As data suggest, such payments account for more than 70 per cent of the total transactions in remote areas.
  6. 6. Success Story (Malaysia & Kenya) Malaysia implemented agent banking under the guidelines of the Bank Negara Malaysia, in early 2012. By the end of 2012, 4,120 agents deployed and it crossed 5,000 agents by 2014. The rate of financial inclusion in the sub-district of Mukims in Malaysia was less than 50 per cent before the introduction of agent banking, but now this rate has increased up to 75 percent. Agent banking was first implemented in Kenya in 2010, when 32 percent of their total population lacked access to financial services. After launching agent banking, 10,000 agents have been licensed to supplement the. Within 2011 the total transactions in terms of value rose to US$ 24 million and the financial exclusion was reduced significantly.
  7. 7. Agent Banking in Bangladesh There are more than 50 commercial banks including the government- owned specialized banks and many other financial intermediaries actively performing in the market. Yet a large number of poor people do not have access to formal financial services as shown in a study conducted by the Institute of Microfinance. Keeping in mind the financial viability the formal commercial banks mainly focus on large-scale loans which prevents them from rendering services to a large number of people. Despite efforts of commercial banks to promote SME (small and medium enterprises) banking, less than 10 per cent of the population lack access to formal credit.
  8. 8. Agent Banking in Bangladesh (cont.) 700+ licensed microfinance institutions (MFIs) operating in different regions of Bangladesh with a client base of up to 50 million. Most of the big organizations like BRAC, Grameen Bank and ASA have their outreach in almost all over the country. They have targeted the poverty-stricken segment and provided small- scale financial services to these marginalized people. But the services provided by the MFIs have their limitations as well. They charge a high rate of interest and the procedure of collecting overdue payments is cumbersome. Therefore, agent banking has the potential to become an alternative financial service channel for rural populations along with the unbanked population.
  9. 9. Agent Banking in Bangladesh (cont.) In Bangladesh, 12 banks are licensed to provide agent banking, although there are currently two market leaders actively engaged in expansion: Bank Asia Limited and Dutch-Bangla Bank Limited (DBBL). Between the two of them, they expect that they will have agent points in every upazilla in Bangladesh by 2016. Right now, Bank Asia has over 300 agent points, while DBBL has more than 500 agent points across the country. Since agent banking is backed by the bank’s core banking platform, banks offering agent banking can provide a full suite of banking services on behalf of the bank. Loans offered by agent banking are often at lower interest rates, ranging from 10%-15%, compared to 25% - 30% for MFIs, depending on the repayment terms.
  10. 10. Agent Banking Services The Bangladesh Bank has come up with some guidelines on agent banking. According to the guidelines the following services can be provided under agent banking: Account opening and Balance inquiry Small value cash deposits and withdrawals Inward foreign remittance disbursement Facilitating small loan disbursement and recovery of loans, instalments Facilitating utility bill payment, fund transfer Cash payment under social safety net programme of the government Loan, credit and debit card application form collection and processing Post-sanction monitoring of loans and advances and follow up loan recovery Receiving clearing cheques, collection of insurance premium etc.
  11. 11. Agent Banking Service Limitations Agents are not allowed to provide the following services on behalf of the banks: Giving final approval of opening of bank accounts Giving final approval of issuance of bank cards/ cheques Dealing with loan/ financial appraisal Encashment of cheques and Dealing in Foreign currency.
  12. 12. Eligible Entities of Agent Banking The Banks may engage the following persons/ entities as their Agent: NGO‐MFI’s regulated by Micro credit Regulatory Authority of Bangladesh; Other registered NGOs; Cooperative Societies supervised by Cooperative Society Act,2001; Post Offices; Courier & mailing Service Companies registered under Ministry of Posts & Telecommunications; Companies registered under ‘The Companies Act, 1994’; Agents of Mobile Network Operators; Offices of rural and urban local Government institutions; Union Information and Service Centre (UISC); Individuals capable to handle IT based financial services, agents of insurance companies, owners of pharmacies, chain shops and petrol pumps/gas stations.
  13. 13. Agent Banking Model An agent can act as agent of more than one bank but the sub agent of an agent shall represent and offer banking services of a single bank. The bank shall assign one of its branches/offices to be responsible for the agent operating in the designated area of the branch. The agents are equipped with point of sale (POS) devices, like- biometric device, card reader, mobile phone, barcode scanner and PCs connected with their bank's server. Identification of customers shall be done through a PIN/ biometrics. The transactions should be executed on real time basis. and customer will get instant confirmation of their transaction through SMS and debit/ credit slip. Agent banking can provide all banking services on behalf of the bank. The agent of the concerned bank should deposit a fixed amount of money or should have a credit limit with the bank and upto that level the agent can make transactions with the clients.
  14. 14. Regulatory Instructions of Agent Banking Without having approval from Bangladesh Bank (BB) no bank shall be allowed to undertake agent banking business. Banks needs approval from Bangladesh Bank to launch Agent Banking with full details of the services. Transaction currency will be taka only. Banks shall have to submit copies of agreement(s)/MOU(s) signed between banks and their agents to Bangladesh Bank. The list of the agents with details need to be submitted to Bangladesh Bank and will be updated on monthly.
  15. 15. Regulatory Instructions of Agent Banking (Cont.) Inward foreign remittance can be transfer through designated agents will be used only for delivery in local currency. The system should not be used for any cross border outward remittance of funds. Banks shall submit overall report on agent banking annually to its Board as well as to Bangladesh Bank. Bangladesh Bank may withhold, suspend or cancel approval for providing agent banking services. Bangladesh Bank can amend the guidelines as and when required.
  16. 16. Agent Banking SWOT Analysis Strengths Support from Ministry Interoperable between Banks Supported by the core bank All payments are traceable Weaknesses Rural people are not techy People have trust issue System or power failure Opportunities Emerging market Positive Environment New banks are involving Threats Fraud practices Source of funds
  17. 17. Agent Banking over Branch Banking In the last decade, there has been an explosion of different forms of financial services, i.e., beyond branches. These have been provided through a variety of different channels, including mobiles, ATMs, POS devices and banking correspondents. The heavy cost of servicing low value accounts and providing physical banking infrastructure to unbanked areas was a major impediment to financial inclusion in the past. Worse, this model was heavy on the pockets of poor customers, who had to spend time and money to travel long distances to the nearest branch. Agent banking rationalized banks: operational expenditure, and reduced the cost to customers, while enabling wider reach. Agent banking, an important channel innovation that has improved banking penetration in underserved areas and also by becoming an integrated component of multi channel banking. Agent banking enables them to extend their reach not only into areas with poor branch penetration but also up to the doorstep of those who are reluctant or otherwise unable, to make a trip to the nearest branch.
  18. 18. Conclusion The most important aspect of agent banking is financial inclusion. The financial inclusion is a tool for inclusive economic growth and poverty alleviation. The adoption of agent banking has brought new era in financial inclusion of the banking sector of Bangladesh. The adoption of agent banking may not work effectively because accepting of agent banking is not free of challenges or cost. On the other hand, successful implementation of the agent banking may open a new chapter in our banking sector. Agent banking can ensure the access of the marginalized people to several financial services, especially in remote areas. If the vibrant banking sector puts relentless efforts by following the proper guidance of the central bank, agent banking can prove an effective tool for enhancing financial inclusion and materializing the dream of a poverty-free Bangladesh.
  19. 19. References Bangladesh Bank (https://www.bb.org.bd/) The Financial Express BD (http://www.thefinancialexpress-bd.com/) The Scribd (https://www.scribd.com/) The Microlinks (https://www.microlinks.org/) Bank Asia Limited (2013), “Agent Banking Manual” Bangladesh Bank (2013), “Guidelines on Agent Banking for the banks”