Agent banking holds promise for faster economic recovery

The global economy may shrink by more than 5 per cent this year due to the impact of the ongoing recession brought on by the coronavirus pandemic and countries are using everything from fiscal measures to monetary policies to avoid contraction, create jobs and save lives.  

The deepest global recession in eight decades has sent hundreds of millions into poverty, and the recovery appears to be far off, according to a World Bank paper released last month.

But the crisis has encouraged incentives for economic transformation and adoption of digital business models, including increased use of digital financial services across the globe, the report said.

The financial sector, and banks in particular, is expected to play a key role in absorbing the shock, by supplying much-needed funding.

And Bangladesh’s banking sector, which has been hit by the pandemic as the economy came to its knees, has taken initiatives for the expansion of digital financial services to spur the economic growth.

One of them is agent banking, which has gained momentum amid the ongoing recession.

If it is harnessed well, this digital banking channel — thanks to its reach to the remotest parts where banks have not yet set their foot in — can turn into an important cog in the wheels of the economic locomotive that would pull the country out of the ongoing crisis.

Agent banking, which has been in operation since 2016, could help lenders give out loans and mobilise deposits in tandem in the days ahead.

The number of accounts created through agent banking, which is being operated by 23 banks, stood at 73.58 lakh as of June.

This is a 115 per cent rise year-on-year and 13.25 per cent from that three months ago, according to data from the central bank.

The lenders have mobilised deposits and given out loans exponentially in recent months by using the model.

Deposits soared 93.40 per cent year-on-year to Tk 10,220 crore at the end of June while loan disbursement grew 203 per cent to Tk 720 crore.

The central bank issued agent banking guidelines in 2013 as part of its efforts to bring the unbanked population under the banking umbrella to widen digital financial inclusion.

Digital financial inclusion was a development priority before the Covid-19 emergency; now, it is indispensable for both short-term relief and as a central element of broad-based, sustainable recovery efforts, according to the WB paper.

“There are challenges to accelerating digital finance, but also, increasingly, an understanding of how to overcome these obstacles and reduce risks,” it said.

“Digital financial inclusion can help revive the economy faster,” said Md Arfan Ali, managing director of Bank Asia.

Agent banking, one of the major components of the digital financial inclusion arsenal, can reach many people with government subsidies under the social safety net programmes and farm and small and medium-sized enterprises loans.

Besides, rural people now enjoy banking services at their doorsteps, which has encouraged them to park their liquid assets with the formal financial sector, Ali said.

The agent banking window has been providing excellent financial service to rural people exceeding that under traditional banking, he said.

Bank Asia, which has been a pioneer in popularising the model, is thinking about extending its agent banking operations by increasing its lending operation through the banking window.

A good number of small businesses now maintain their cash management through the agent banking platform.

“The phenomenon will increase to a great extent in the days ahead,” Ali said.

Under the process, the businesses pay for both sales and purchases through the window.

The bank, which has so far disbursed more than 38 per cent of its total outstanding loans amounting to Tk 720 crore, will extend its credit programme to a great extent in the near future.

Agents are also encouraged to expand their business as banks provide them with a hefty amount of commission for their services.

For lending, agents enjoy a commission of 1 per cent of the sum; for bringing in deposits, they get 2 per cent of the sum; and for remittance, they get Tk 50 per payment.

Branch-led banking will lose its importance gradually due to the growing popularity of agent banking, said Abul Kashem Md Shirin, managing director of Dutch-Bangla Bank (DBBL), another leading bank in the agent banking arena.

Lenders have to spend at least Tk 5 lakh to Tk 7 lakh per month to operate a branch.

Besides, compared to branches, banks are now having to spend a lower amount of funds to collect deposits through the agent banking window. This is applicable for lending as well.

Customers can now open an account with an agent within 5 to 7 minutes by filling up an electronic know-your-client (KYC) form.

This has widely attracted people towards agent banking.

Transactions at DBBL’s agent banking platform have been on the rise since the inception of the pandemic, he said.

DBBL now transacts Tk 350 crore to Tk 400 crore per day through agent banking. The figure was roughly Tk 200 crore before the pandemic.

Customers can even carry out e-commerce by using the NexusPay app and also purchase products from outlets of different brand using the QR (quick response) code.

The banking window has also been playing a great role in increasing the volume of inward remittance, Shirin.

“For instance, agents get Tk 50 per remittance transaction from DBBL. The hefty commission encourages them to provide the service door-to-door of clients,” he said.  

Agent banking has helped underprivileged people get banking services smoothly, said Md Anwarul Islam, general manager of the financial inclusion department of the central bank.

“So, the central bank is morally pursuing banks to speed up lending through the platform,” he said.

Two more banks have recently secured licences from the central bank to roll out agent banking.   

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