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Agent banking, a step toward inclusive finance

Prashanta Kumar Banerjee
Bangladesh Bank is working relentlessly to realise the vision of "inclusive finance" to make banking services available for un-served and under-served households and enterprises.
In this connection, Bangladesh Bank has recently taken one more initiative to launch agent banking and issued guidelines on agent bank-»ng.
The objective of these guidelines is to assist banks, interested to offer financial services through appointing agents, for formulating their own agent banking policy.
It is certainly a welcome step of BB to push commercial banks to offer basic products and services to all segments of the population at an affordable cost.
If we can bring the entire population under the banking system, this will transform the whole economy. In the preface of the guideline, it is stated that agent banking will provide the un-served population with limited scale banking and financial services through agents.
Brazil is often recognised as a global pioneer in this area and over the years, it has developed a mature network of agent banks covering more than 99 percent of the country's municipalities.
In Asia, countries like India, Pakistan and Philippines have also utilised the agent banking model to expand financial services.
This model allows banks of these countries to expand financial sendees into areas where they do not have sufficient incentive or capacity to establish a formal branch.
A number of factors like willingness of banks to introduce this service, selection of proper banks and agents for offering agent banking, nature of services to be offered by agents, proper monitoring system and prompt address of customers' complaints are of the essence to achieve this mission of BB.
Interest of banks to launch agent banking depends on whether it will generate more revenue for banks. It is recognised across the globe that agent banking systems are cheaper to operate than branch banking.
Agent banking minimises fixed costs by leveraging existing retail outlets and reducing the need for financial service providers to invest in their own infrastructure.
Clara Veniard in her paper, "How agent banking changes the economics of small accounts" presented in Global Savings Forum shows that setting up an agent costs 2 percent to 4 percent of the costs of a bank branch.
Most importantly, it will take financial services to the door of un-served population.
One can expect that this banking will gradually create banking habit among the un-served people and one day these people may become large and regular clients of several other sendees of banks.
By realising current and possible benefits of this new type of banking, it is therefore expected that commercial banks will come forward to make this initiative of Bangladesh Bank a success.
Selection of banks by Bangladesh Bank and agents by commercial banks is required to be done very
carefully.
Initially, Bangladesh Bank may permit some commercial banks to offer agent banking on the basis of a set of criteria like capital, NPL, network, IT infrastructure of banks.
In the same way, commercial banks may also select and appoint agents in different parts of the country in the light of the guidelines given by Bangladesh Bank.
Selecting geographical area for launching agent banking is also a crucial task. Agent banking should be launched in the area where banking and financial sendees are yet to be reached.
In this case, the digital map on financial sendees recently launched by BB may be helpful for Bangladesh Bank and commercial banks.
Permission for offering a number and types of services with a good amount of discount is a motivating factor for agents for taking agency from commercial banks. BB has already given an outline on permissible services for an agent.
11 ere, it is expected that agents should not just be used by customers to access their bank accounts and transfer money. They should be allowed to offer a range of sendees necessary for people living in the rural areas.However, commercial banks may categorise their agents under different groups, for example Diamond, Golden and Silver, and accordingly they may permit them to offer services on the basis of their capacity.
With respect to discount, we praise BB for exempting customers from paying discount. BB has kept a provision in its guidelines so that customers are not required to pay extra fees for using an agent.
Banks shall pay commission to the agents for each transaction carried out by them. It is true that besides the revenue from the agent banking, agents will undoubtedly get benefit from expanding their existing business resulting from increased footfall in their outlets.
Monitoring of agents is a crucial task for commercial banks. Bangladesh Bank has mentioned in its guidelines that banks must be held fully liable for monitoring agents.
In this respect, banks require to keep in mind the problems faced by the insurance companies of Bangladesh in monitoring their agents.
Insurance companies sometimes earn bad names for the irregularities of agents and employees working in the agent office.
For an effective monitoring, apart from a good monitoring model, it is suggested that the distance between the place of business of an agent and
the bank branch which supervises the agent must not be far away. Even then all irregularities might not be wiped out.
In this respect, banks must ensure the confidentiality and security of any customer information in the agent's possession. Banks should publicise the name and use of an agent in the locality in which it is operating and take measures to ensure that they are not misrepresented.
Finally, the banking community must be proactive to make agent banking—a bold step of Bangladesh Bank towards achieving inclusive finance—a success.
The writer is a professor and director at