When banks go to microborrowers, it is a win-win deal

For Mohammad Mostafa, high-interest-bearing small loans from local NGOs were insufficient to mechanise his work as an ironsmith using manual tools, which required arduous labour and yielded limited results.

However, a timely Tk10 lakh bank loan in 2020 became a game-changer for Mostafa. With the loan, he purchased an electric heat machine that replaced the labor-intensive bellows he previously used to blow air into the fire for melting iron and crafting household and farm articles. 

Today, Mostafa's iron workshop, established in his village home in Gaibandha's Gobindaganj upazila, employs 10 to 15 people and provides livelihoods to another 100 individuals in the supply chain.

Mostafa would never have considered approaching a bank for a loan had it not been for the presence of a sub-branch of NRBC Bank right at his doorstep.

Mohammad Mostafa attests to the positive impact of this initiative, stating, "We have been impoverished for generations. As a blacksmith, finding work was challenging. Previously, I would earn Tk200-300 per day, but now I earn Tk2-3 lakh per month. This transformation is solely due to the loan provided by the bank's sub-branch."

In 2019, Bangladesh Bank's initiative to allow commercial banks to establish sub-branches in remote areas aimed to integrate the unbanked and underprivileged populations into the formal banking network. 

This move has yielded visible dividends, spurring economic growth in rural areas and empowering individuals to pursue small-scale ventures that were once unimaginable without access to traditional banking services.

In January this year, the central bank issued a directive requiring banks to establish at least 60% of their sub-branches outside city corporations and municipal areas, at a minimum distance of 1km from nearby full-fledged branches.

Md Mezbaul Haque, executive director and spokesperson of the Bangladesh Bank, emphasised the significance of sub-branches as one of the key initiatives aimed at ensuring widespread access to banking services. 

In line with this objective, banking services are now reaching the doorsteps of individuals, he told The Business Standard, adding that in order to further extend the reach of banking facilities, financial institutions are encouraged to establish additional sub-branches and provide loans to marginalised communities.

Banking services reach remotest villages

The sub-branch concept has emerged as a superior alternative to previously introduced banking services like mobile banking, agent banking, or bank booths, which, while facilitating rural financial transactions, could not replace the comprehensive services offered by traditional bank branches.

There were 390 sub-branches in the country in 2019. In the span of just four years, approximately 3,500 sub-branches of various banks are now nurturing new entrepreneurs across the nation, from Gaibandha to Mymensingh to Noakhali.

Banking services have also been introduced in a small market in Basundhia Union, located about 20km away from the city of Jashore. Manager Mohammad Saiful Islam along with four other employees work at the Basundhia sub-branch of One Bank.

Over the past four years, the sub-branch has brought around 3,000 people, most of whom are farmers, under banking services.

Among them is a farmer named Abdullah Al Mamun. Although he had the desire to build a cattle farm, he could not arrange the necessary funds. Mamun did take several loans from NGOs, but due to the low amount of money and high interest rates, he could not build the farm. 

But, after taking out Tk3 lakh in loan from the bank sub-branch, Mamun has now become confident about realizing his dream.

"I had no idea that loans could be obtained so easily. I have started Tk3 lakh and will take more loans in the future," said Abdullah Al Mamun.

In another instance, Akhi Moni, a small cloth shop owner in Upo Shohor Tajhat, Rangpur, faced financial difficulties due to a lack of funds. 

She took a Tk5 lakh loan from a bank's sub-branch, enabling her to purchase seven Shataranjis. Now, Akhi Moni installs these machines house to house, employs women in their spare time, and earns a monthly profit of Tk1 lakh. She plans to establish her own factory soon.

There is a sub-branch of NRB Commercial Bank in Gobindi village in Gobindaganj, about 15km from the upazila headquarters.

Situated in a small market on the bank of a river, the sub-branch operates in a dark paved room without a building. The bank provides banking services to the poor people of the village, allowing them to easily access services such as account opening, bill depositing, lending, remittance bringing, and deposits. 

The officials working at the sub-branch serve the customers in a relaxed atmosphere, even allowing them to wear lungi and genji while visiting the bank.

Mohammad Nahid, the officer in charge of the sub-branch, told TBS that over the past three years, approximately 2,000 have joined their banking services. Notably, the sub-branch has disbursed Tk9.5 crore in loans to individuals who were not familiar with banking services.

According to Mohammad Nahid, people are increasingly interested in obtaining loans at the bank's low-interest rate of only 9%, thereby escaping the high-interest rates charged by NGOs. The bank offers loans without requiring collateral and also provides training to entrepreneurs after granting loans. 

Furthermore, the sub-branch boasts a 100% loan recovery rate, he added.

NRB Commercial Bank has successfully created around 64,000 entrepreneurs in various districts of Rajshahi, Rangpur and Mymensingh divisions. This achievement has been made possible through the operation of 641 sub-branches at the rural level.

Goainghat upazila in Sylhet district is located along the Indian border. A sub-branch of IFIC Bank is providing banking services in the upazila inhabited by Khasi community. Two officers are working in the sub-branch established in November 2021. This sub-branch has brought more than 1,000 people into banking services in one and a half years.

Jubayer Ahmed, manager of the sub-branch, said, "In just one and a half years, we have received a huge response from people. We are serving people by opening an account for just Tk10 without any kind of process fee. We provide loans of Tk50,000 to Tk5 lakh among farmers. So far, we have received a Tk4 crore in deposits. People are coming to us leaving NGOs."

A cost-effective model

Parvez Tamal, chairman of NRB Commercial Bank Limited, told TBS that the introduction of sub-branches is aimed at making the microfinance programme commercially successful. 

"By operating services in remote villages with a small staff and in small spaces, we can provide financial services at a low cost. Our goal is to create 100,000 entrepreneurs by 2024," he said.

Sub-branches function as small-scale banks and operate under the supervision of a branch. They offer all the services available in regular bank branches. 

Typically, a sub-branch employs a maximum of 10 officers and employees, but some sub-branches are run by only two officers. By reducing manpower and minimising expenditures on decorations, the sub-branches can keep costs low.

Increasing popularity

Many banks, including AB Bank, IFCIC Bank, Islami Bank, and First Security Islami Bank, have adopted a similar model and are now focusing on establishing sub-branches at the rural level. Rather than opening large branches at a significant cost, most banks are prioritising the establishment of sub-branches, even in cities.

This shift towards low-cost banking services is spreading across different parts of the country. As a result, new customers are being created and deposits are increasing. 

The sub-branch model presents a new opportunity for providing banking services, and experts in the banking industry believe that it will further advance the progress of financial inclusion.

According to data from the Bangladesh Bank, the total number of bank sub-branches in the country increased to 3,411 in December 2022 from 393 three years earlier. 

Among the banks, IFIC Bank has the highest number of sub-branches, with 1,290, followed by NRB Commercial Bank with 641 sub-branches. 

Other notable banks include Islami Bank with 229 sub-branches, Social Islami Bank Limited (SIBL) with 195 sub-branches, First Security Bank with 160 sub-branches, Pubali Bank with 151 sub-branches, UCB with 144 sub-branches, Jamuna Bank with 106 sub-branches, Al Arafa Islami bank with 60 sub-branches, One Bank with 39 sub-branches and AB bank with 32 sub-branches.

AB Bank also provides Smart Agriloans in rural areas through their sub-branches. To date, the bank has disbursed loans among 1,000 farmers from 400 unions through smart cards. 

Md Asadul Islam, manager of Maijdee sub-branch of AB Bank in Noakhali, told TBS that they acquired 300 customers within just three months. 

"We have successfully reached individuals who previously did not have access to banking services. Despite the prevalence of remittances in Noakhali, we are providing loans to farmers here," he said.

In addition to establishing sub-branches in almost all upazilas across the country, IFC Bank has also extended its network by setting up sub-branches in cities. 

Mohammad Shah Alam Sarwar, managing director and CEO of IFIC Bank, told TBS that their aim is to have sub-branches located every three miles in cities and every five miles in villages. 

"These sub-branches will provide comprehensive banking services similar to full-fledged branches. In this way, we want to connect one crore families to banking services, and to achieve this, significant investments have been made in technology, the business model, and human resources," he said.