PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH

Chapter One Introduction The formal banking sector in the country has tried to expand its outreach and bring the unbanked people in the society under its umbrella. As a part of financial inclusion and offering limited banking services to both rural and urban unbanked people, Bangladesh Bank (BB) initiated Agent Banking. In order to ensure the acc ess of unbanked people, Agent Banking and obile ! inancial "ervices (!") have been introduced in Bangladesh. Agent banking and obile !inancial " ervices (!") offer an alternative to conventional branch#based banking to the customers through appointed agents being facilitated by the obile $et%ork &perator ($&)'"olution roviders instead of bank branches or through bank employees. It %ill also provide  banking services to the bank customers through the engaged agents under a valid agency agreement, rather than a teller'cashier. Agent banking has %orked %onders in several developing countries in different parts of the %orld like Brail, *olumbia, eru, alaysia, +enya and so on. Agent banking has been a revolutionary inclusion in the financial system of Brail as the agents there deal %ith almost everything like bills and pension payments, cash deposits, %ithdra%als and money transfer. The list is not limited to these only, because the number of services provided by the agent bankers is increasing %ith the passage of time. (llah - a/ue, 0123) Brail is often recogn ied as a global pioneer in this area and over the years, it has developed a mature net%ork of agent banks covering more than 44 percent of the country5s municipalities. In Asia, Asia, countries like India, akistan and hilippines have also utilied the agent banking model to expand financial services. (Banar6ee, 0123) 7lobally agent banking activities are being increasingly utilied 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 %ell as existing bank customer %ith a range of financial services specially to 1

geographically dispersed locations. 8ith a vie% to ensuring the safety, security and soundness of the proposed delivery channel channe l Agent Banking 7uidelines have been framed by the Bangladesh Bank (BB) to permit banks to be engaged in agent banking. To promote promote and establish the agent baking, BB provides regulatory frame%ork for agent banking and ensures compliance %ith Anti‐oney 9aundering and *ombating !inancing of Terrorism Terrorism (A9'*!T) standards. 1.1 Rational of the study There has been no comprehensive study on status of banks of the country in their

agent banking activities and their compliance of the BB:s Agent Banking 7uideline. The study %ill assist to meet this particular gap and identify %here there are the scopes of improvements. The study is expected that it %ould help bank policy makers in identifying the key challenges involved in agent banking operations and coming up %ith strategies that %ill lead to improve the performance of banking activities in Bangladesh. "econdly, the study %ill also be helpful to academicians ac ademicians %ho %ill use this study as a source of reference. Thirdly, the findings of this study %ill assist to take strategy to perform  better in banking sector. !inally, !inally, the study %ill help the banks in identifying and understanding the external environment and competitive strategy that can be applied to ensure the superior performance of the banks in Bangladesh. 1.2 Objectives of the study The ob6ective of the study is to identify the prospects of agent banking implemented in

Bangladesh and point out the challenges to operate the agent banking activities in an efficient manner. In addition, this study helps to; Assess ho% agent banking activities are practiced b y the banking the banking financial •

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institutions in Bangladesh. Identify the prospects of agent banking in banking in Bangladesh and !ind out the challenges that may be considered as opportunities or barriers to

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operate the agent banking activities efficiently in Bangladesh. ut for%ards'raise out some suggestions'recommendations %ith a vie% to

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ensure reliable agent banking services in B04? agents. India ha s =G>=2 agents %ithin the nine years of adopting the regulation of agent banking. *ompare to other countries, Bangladesh is novice in the ne% tools of financial inclusion.

*able &0 Si'e of aent net+or%; by year the $odel +as introduced

Mear of agent banking %as launched

Mear of agent banking regulation %as introduced

 $umber of agents currently functioning

Brail2

0111

0111

2?143>

eru0

011G

011=

4013

*olumbia>

011H

011?

2>04?

+enya3

0121

0114

2?>>2

Bangladesh

0123

012>

G>

"ource; Alliance for financial inclusion

1 *+ a) en o& ,ecember 2011

2 *+ a) en o& ,ecember 2011

3 *+ a) en o& ,ecember 2011

4 *+ a) en o& ,ecember 2011 23

Brail is the pioneer in agent banking. In addition, it introduced the agent banking approximately thirteen years ago. There are many a reas in our country %here the economic condition of the people is not good and profits from those areas are not that much that can offset a branch5s fixed and operational expenditure. Banks may thrive by covering these areas through engaging local agents as agents do not have to incur any significant amount of cost for rendering the services. In Brail, Banco Bradesco partnered %ith their national  post office as agents to cover such ne% areas. Dxperiences in India and abroad has sho%n that traditional Banks have struggled to reach the poor %ith financial services. @ecogniing this fact, man y countries such as Brail, Indonesia, alaysia, exico etc. have allo%ed non#banks to offer payments, deposits and cash#in'cash#out services. "imilarly, in India, enabling an inclusive c ompetitive landscape should be a top priority. India has several strategic assets providing favourable initial conditions for transformational change to%ards digital financial inclusion. A strong  banking net%ork (2,2=,111 branches) linked to e+uber (@BI5s *ore Banking "olution), no% spreading into unbanked rural areas. A significant outreach of India ost (2,==,111 outlets), &" and AT terminals %hich can facilitate a vibrant cash#in'cash#out net%ork across the country.

Chapter Si< 24

!ata -nalysis and Interpretation  @unning any bank branch in a remote area is not very cost#effective. "etting up a formal  banking branch involves a large amount of fixed cost and a high monthly variable cost for maintaining it. But the number of transactions that take place in rural, remote or less densely#populated areas is not enough to make up for those costs. Agent banking can ensure the access of the marginalised people to several financial services, especially in remote areas. It can %ork %onders in financial inclusion and enhancing financial activity in remote areas. (.1 "resent status of aent ban%in in anladesh

The central bank has already issued licences to the nine banks till Cune 012= for running agent banking, under %hich financial services %ould be offered through agents instead of  branches. &ut of nine banks (Bank Asia 9imited,

Operation started



#o. of district coverae; aent and custo$ers

*er$inals used in aent office, point

•

&" %ith Thumb @eader 

•

* to run bro%ser based soft%are by agent

•

&" %ith $!* card

•



•

*ustomers; 2=111

reader  •

•

=G

•

"mart phone (In future)

26

• •

 $@B* B

ay, 0123

&" %ith thumb

!ive I"* surrounding ) *hittagong is in the second position, @a6shahi, @angp ur, +hulna are in follo%ing position to open a agent outlets. ost of the industries are situated in 2K and 00K agents %ere motivated to take agency due to transaction base income and employment. 9iure 60 9actors that $otivated to be aents

I an) )o be a++ocia)e i)- a bi( bran 43 or em/loymen) 22 Brin(+ more /eo/le in)o my +)ore 4  ran+ac)ion &ee income 31

"ource; Author:s survey (.5 Challenes to operate aent outlets

Availability of net%ork as a challenge to agency banking in Bangladesh %as mentioned by >0 (211K) of the respondents. ("ee figure 4) o%er failure and system failure %ere respectively 3HK and >GK claimed by the respondents. o%er failure and system failure 32

includes &" machine does not perform, Biometric achine does not %ork, electricity failure, electronic devices failure and so on. " ome respondents claimed that they lost money in road %hile depositing the money in bank branches and they %ere the victim of robberies. &thers includes operational tasks such as banks %ere reac tive in events, mini statements could not be provided due to lack paper, technological experts %ere not available to put into affect the devices. 9i/uidity an d capital %ere not considered as challenges because the agent %ho got the agency from bank %as financially sound. ost of  them have either enterprise, shops, pharmacy and so on. (.6 ender of custo$ers

@espondents (specially customers) %ere characteried basing on their gender and level of education. ("ee figure 21) In terms of gender, >0 respondents %ho covered GGK of the respondents %ere found to be males %hile 2>K %ere female 9iure 70 Challenes to operate aent outlets

Poor ne)or connec)ion Poer &ailure "y+)em &ailure

Challenges

.obbery or ;iacin( $)-er+ "ource+ o& &un+ i:uii)y 0

20

40

60

80

100

Percentage

"ource; Author:s survey

33

"ho%ing the different genders of respondents %as important since it sho%ed that both genders %ere considered in this study and hence the sample %as representative and hence not biased. 9iure 180 ender of custo$ers

100 80 Percentage

60 13

40 20 0

88 'ale

emale Gender

"ource; Author:s survey "ho%ing the different genders of respondents %as important since it sho%ed that both genders %ere considered in this study and hence the sample %as representative and hence not biased. It %as evident that more males have involved in agent banking than female this is because males %ere more economically empo%ered than %omen. oreover, agent outlets are situated in baaars, markets %hich are normally male dominated place. In the rural area of our country, females do not go to markets or baaars in villages. "o, it is difficult for them to do banking through agent outlets in those areas. (.7 -e of custo$ers

iddle age people are more involved themselves in agent banking. !rom the respondents, ("ee figure 22), =1K agent:s age are in >2 to 31 years. It is the g roup of people are energetic, future leader. eople open agent account considering the long term banking, operational activities of banking through agent outlets behalf of branch. Above =1K

34

customers have completed higher secondary school education and 0G K have completed secondary education level. ("ee figure 20) It indicates that educated people in rural areas are coming under the banking umbrella. 9iure 110 -e of custo$ers

4150 19

2030 31 3140 50

"ource; Author:s survey Those %ho have completed primary education and those %ho have never been to school or through any other form of learning have not involved themselves in agent banking since they don:t have re/uired kno%ledge to do transactions in banks.

35

9iure 120 :ducational bac%round of the custo$ers

16

=raua)e

53

;i(-er +econary

Levels of education

28

"econary 3

Primary 0 ) H0K agents are providing issue of mini statement and 2>K agent are providing foreign remittance services. Although our country earn huge amount of remittances, agent outlets can not grab the opportunity due to poor  promotional activities, long term strategies of banks.

36

9iure 130 Co$$on services offered throuh aent outlets

o ec on

/re+era on o e er+ Collec)ion o& bill+

orei(n remi))ance /aymen)

6 13 72

I++ue o& mini +)a)emen)

Services

91

Balance in:uiry

97

un )ran+&er Collec)ion > /re+era)ion o& &orm

100

Ca+- e/o+i) an ca+- i)-raal

100

0

20

40

60

80 100

Percentage

"ource; Author:s survey (.11 )evel of custo$er=s satisfaction reardin aent ban%in

Those people %ho have agent banking account, =4K of them have very good experience, ("ee !igure 23) 0GK, ?K have good and excellent respectively experience %ith agent  banking activities because agents can help fill in account opening forms in their remote areas. They may inform the people of the benefit of depositing money in a bank account rather than keeping hard cash at home. eople in remote areas may hesitate to visit branch  premises or seek any information from customer care. But, they %ill feel homely %hen they visit the local agents and the local agents also can help them accordingly.

37

9iure 140 )evel of custo$er=s satisfaction reardin aent ban%in

60 50 40 28

Percentage

30 20 6

10 0

=oo

?ery (oo

"a)i+&ac)ory

6

@%cellen)

Level of satisfactions

"ource; Author:s survey (.12 Custo$er=s trust on aent ban%in

It can be observed that 43K of respondents sho%ed ("ee !igure 2=) that customers have trust %hile dealing %ith agents and the company the agents represent, %hile ?K said some customers lack trust on them as agents and by extension the company they %ork for. Trust issues are very critical in banking industry, customer account details must be kept private and confidential to be able to earn trust. "ome customers fear about the embelement of fund because some "omobay "omiti, *o#operatives %ere made fraudulent activities %ith them. &n the other hand, obile banking becomes more popularity among the general  people. eople associate the agent banking %ith mobile banking although those are different from each other.

38

9iure 1&0 Custo$er=s trust on aent ban%in

). OAgent Banking# A "tep !or%ards To%ards Acheiving Inclusive !inance.O B'B) Bulletin , Jol. 2?, $o. >-3, "eptember - ). OAgent Banking, A "tep To%ard Inclusive !inance.O The  aily #tar , pp. ?. Bangladesh Bank.(012=). &nnual -eport /01!/02.