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Bangladesh is one of the fastest growing economies in world. We have set a new benchmark for growth and development. Our policies are ushering socio-economic changes previously thought impossible. Consequently, a monetary policy decision is transforming rural Bangladesh. It is a silver lining under the lingering dark clouds of inequality. Bangladesh Bank introduced agent banking to promote financial inclusion of the underserved. Admiringly, millions of rural people gave gained financial identity, one of the primary conditions for reducing inequality. The latest Household Income and Expenditure Survey released by the Bangladesh Bureau of Statistics (BBS) found that the income share of the poorest five percent of our population was 0.23 percent of overall income. Therefore, this policy implementation could not have come at a better time and the execution has also been remarkable.

Cloak of Invisibility
According to the World Bank, half of Bangladeshis aged 15 or more remain without a bank or mobile money account of any kind. “The Global Findex Database” also evaluates the demographics of economic exclusion in Bangladesh. An overwhelming number of women are financially excluded compared to men, which points to lower participation in entrepreneurship amongst women in the poorest demographics of our country. There are mainly two underlying reasons behind the poor state of financial inclusion, affordability, and availability. Responders expressed their disappointment over the cost of maintaining an account, for them having a bank account is a luxury they cannot afford. Similarly, availability is another issue. They also asserted, financial institutions being too far away is another reason for them not having a bank account. One of the biggest obstacles of providing bank-based services to the poorest population is the cost associated with traditional banking methods. Banks avoid operating branches in rural areas with poor population citing viability issues. The amount of resources spent on conducting transactions for the poor with a small balance and small transactions exceeds the benefits.

Agents of Change
Agent banking is a medium to provide formal banking services to the unbanked, including those who were previously inaccessible. According to Bangladesh Bank’s guidelines on the service, it is provided by authorized agents who are permitted to set up “Agent Points.” These points are essentially bank branches equipped with the necessary arrangement of POS (Point of Sales) devices such as mobile phones, computers, and biometric devices.

Agent banking provides a cost-effective way for banks to reach out to the poor population living in remote areas by significantly reducing overhead costs. Agent points are owned by third-party owners who conduct various banking transactions on behalf of the bank. According to the guideline set by Bangladesh Bank agents are allowed to facilitate collection and withdrawal of cash, loan services, foreign remittance disbursement, utility bill payment, cash payment under the social security net of Bangladesh Government, fund transfer and balance inquiry.

Lifeline for the Underserved
Agent banking gained instant popularity. Just over a year of inception, nearly 550,000 new accounts were opened, and almost Tk400 crore was deposited. According to a report by the central bank last year, the total number of accounts created a 1.5 million hit, at the same time total money deposited amounted to Tk 1635crore. But the success of the banking should not be measured in the number of deposits or the number of accounts created. The purpose of the project was to provide financial identity to the poorest of the poor, and the demography of the account holders indicates that it is serving the intended purpose. A study of Bangladesh Institute of Bank Management (BIBM) reveals 3% of the clients of agent banking are day laborers and 29% clients are businessmen at a small level, 7% are farmers, and 18% are housewives.

Agent banking has enabled the hard-earned foreign currency to be sent home legally. In the past, when families of expatriates back home did not have access to any financial services, they had no choice but to send the money through an informal way known as “Hundi.” The practice was hurting our economy as the dollars were not making it to the central bank. Now they can send money directly to their families in remote villages free of cost without facing any obstacles. It is a massive advancement in empowering families of migrant workers, who used to rely on shady black markets to obtain hard earned remittance. Through agent banking, inward remittance of nearly Tk 3,000 crore was funneled into our economy until March 2018. That figure increased by 31% by the next three months. Not only agent banking has helped to improve our current account balance, but it has also empowered a large segment of our rural population by ensuring voluntary utilization of remittance.

The emergence of Rural Women Empowerment
Of the people who do not have a bank account, an overwhelming number of them are women. Statistically, only 39% of women own a bank account against 50% of men. Agent banking has turned the script on its head. Faster growth in the number of female customer accounts than of males under agent banking network is being witnessed. Within a year of inception of the service, the number of accounts of females increased 99% to 316,916 in September from 159,149 in December last year while those of males grew 87 % to 722,015 from 385,387. Women in rural Bangladesh are mostly confined within their house or neighborhood, a primary reason for them not being able to take part in financial activities. Agent banks bring financial facilities within their grasp which encouraged millions of women across the country to open their bank accounts.

Godsend for Liquidity
Deposits made through agent banks have been skyrocketing since the start of operations, a diametrical scenario in the urban banks where it has plunged following some recent scandals regarding loan scams. It comes as a massive relief to private banks who were reeling from the deposit crisis. The liquidity crisis has become so dire that banks are now offering double-digit interest rates in a desperate attempt to enhance their liquidity position. Recently, the majority of the banks are now taking 10 percent following the cash crunch made worse by high default loans and massive government borrowing.

In this time of crisis, agent banking has been a boon for banks. Bangladesh Bank data showed Tk 3,112 crore was deposited through the agent banking channel in 2018. Presence of banking service has changed the financial behavior of the rural population. They are inclined to save more money as now they have a safe place to do so, that will also pay them some interests. That’s why banks forecast that deposits will increase a few times in the future. Correspondingly, banks are scrambling to open more agents banking facilities across the country rather than opening branches. According to the Central Bank, currently, there are 19 banks providing agent banking services. This includes Dutch-Bangla Bank Limited (DBBL), Bank Asia, Al-Arafah Islami Bank, Social Islami Bank Limited, Modhumoti Bank Ltd, Mutual Trust Bank Limited, NRB Commercial Bank, Standard Bank Ltd, Agrani Bank Ltd, Midland Bank, First Security Islami Bank, The City Bank, Islami Bank Bangladesh Ltd, The Premier Bank Ltd, United Commercial Bank Limited, AB Bank Limited and BRAC Bank. Among them, Dutch Bangla Bank Ltd and Bank Asia are enjoying the largest market share.

Challenges & Solutions
Within a very short time, agent banking has shown a remarkable success. However, some challenges to need to be addressed. There are some trust issues between agents and rural clients. The mistrust stems from the previous incidents of scams run by multi-level-marketing agencies. The rural population often fails to distinguish between financial entities. The incompetency of agents aggravates it. They often fail to engage with clients effectively, which leads to reduced economic activities. There is also a gender issue that requires attention. Rural women are not entirely comfortable interacting with male agents that deter a lot of them from opening an account. Perhaps the biggest challenge for agent banking to overcome is the financial illiteracy of rural clients. The lack of understanding of basic financial knowledge discourages a large number of people from opening bank accounts. They are often unaware of the benefits or scared of dealing with the formalities of a financial account.

The solutions to these challenges are uncomplicated. Increasing the efficiency of agent operations has to be a top priority. It starts with the selection and monitoring of agents. An exhaustive background check of the agent is necessary to counter any reliability issue. Banks must ensure constant support for agents so that they have a clear understanding of their responsibilities and the services they can provide. They also require assistance to understand floating money calculations. Most importantly, engaging with all the stakeholders to promote financial literacy will increase the number of accounts opened and overall financial activities.

Effectuation of agent banking in Bangladesh was indeed a masterstroke. It has revolutionized the rural economy and ushered a socio-economic revolution. It has bestowed financial identity to millions of poor people in rural Bangladesh, which will play a crucial role in reducing overall inequality. Like every major policy, this has challenges and a lot of room to improve. It truly is a silver lining in the banking sector among the dark clouds of defaulters and liquidity crunch.

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