Agent banking in Bangladesh: Pandemic & beyond

Agent banking, which takes banking services to the unbanked people in rural areas, has been going from strength to strength in Bangladesh.

Agents typically provide services such as cash deposits, withdrawals, remittance disbursement, small value loan disbursement and recovery of loans, and cash payments under the government's social safety net programs.

Every year new banks are adding agent banking to their portfolio. As of March 2020, 22 banks were offering agent banking, although 26 banks are licensed to do so. Unfortunately, the ongoing pandemic has slowed down the aggressive growth that agent banking was enjoying.

During the first phase of the pandemic in late March, many people resorted to withdrawing money from bank accounts to sustain themselves. Earnings in agency banking suffered the most until April 2020. Incomes started to pick up from May, mainly because of remittances sent around Eid-ul-Fitr.

Some experts believe that people have become more financially prudent to a large extent. A tendency to save for a rainy day has been picking up among agent banking customers.

By early June, around 80 percent of bank agents went back to regular operations. It is a major improvement if we compare it with April, when only about 30 percent agents were operational.

Following were the major challenges faced by agents

• Ensuring cash refill and rebalancing, since bank branches had limited operations at the onset of the pandemic, while RTGS was also down for some time. Some agents have borrowed cash from personal sources to maintain day-to-day operations.
• Ensuring the health and safety of agents and customers
• Keeping agents motivated to be in the business despite fluctuations in transaction volume and cost burden
• Limited working hours during the beginning of the pandemic

Strategies that banks are expected to adopt going forward

• Risk minimisation: As agent revenues dropped during the pandemic, many agents have considered alternate revenue sources like insurance, utility bill collection, and assisted e-commerce. These can help them recover from the dip in banking income.

During the restriction period, some agents have even provided doorstep banking services to trusted customers. Banks may consider sharing additional costs incurred during a crisis to financially safeguard the agents.

• Virtual learning: Banks have started regular online training that they conduct for the agents. The pandemic broke their inertia on not adopting digital training earlier. They have now realised that online classrooms serve the purpose with less cost and logistic support, and banks expect to continue this practice even after the pandemic.
• Simplified Know Your Customer (KYC): Banks may consider moving entirely to digital KYC, under which application forms will be reduced to two pages from its current 10-page version, and data will only be stored in a digital database. This can cut the cost of printing and physical storage and reduce the risk of coronavirus spreading through papers.

Two banks, namely, Eastern Bank and Sonali Bank have already started opening accounts based on e-KYC. Simplifying the KYC process will benefit the agent banking customers the most, as customers in rural and semi-urban areas often shy away from opening a bank account due to lengthy account opening procedures.

• Alternate verification: The verification process of agent banking has been under scrutiny due to the outbreak since it requires fingerprint identification. Banks are exploring alternate biometric like face recognition and iris scanner to replace fingerprint scanning.

Macro-level opportunities for agent banking

• Involvement in the new rural economy: Rural and semi-urban geographies may witness an increase in their population, as an estimated 1.5 million migrants, both international and domestic, may move back home because of job loss. Financial activities of the returnee migrants may inject money into the rural economy of Bangladesh, either through paid labour and agriculture or through other channels like social safety net payments for an example.

This offers additional potential for rural agents, as migrants will need financial services. Banks, through their agents, can be the catalysts for change in the rural economy of Bangladesh. New kinds of loans and deposit products can be designed around this new segment. In the future, agent banking could be competing with micro-credit institutions (MFIs).

• Expansion of loan portfolio: While the agent banking portfolio continued to be deposit heavy, there was significant growth of loan disbursement in one year. Year-on-year growth of loan product was 220 percent during Mar'19-Mar'20, whereas deposits through agent banking grew by 129 percent in the same period.

The agent banking network in the country has not been utilized to disburse stimulus packages so far. Agents' have a geographic advantage when it comes to reaching to MSMEs who are eligible for stimulus loans. Agents' involvement in stimulus disbursement can add to their loan portfolio as well.

• City-dwellers using agent banking services: Many people have been working from home. Some city dwellers have returned to their hometowns, which often lack bank branches. Many of them would not normally visit a bank agent but now do for convenience. This has two positive effects. The first is the growth of agents' incomes, while the second is less crowding at bank branches, which now permits the necessary social distancing. If the practice of remote work sustains in Bangladesh, it will be beneficial for agency banking.

Policy considerations

• Non-exclusivity: As per Bangladesh Bank guidelines, agents must be exclusive to a single bank; that is, one person cannot be an agent for multiple banks. While non-exclusivity offers several obvious benefits, the biggest one is that the pressure for banks to ensure agents' incomes will reduce. Non-exclusivity will benefit banks with small agent networks, but existing leaders like Bank Asia and DBBL, which enjoy market shares of 37 percent and 36 percent respectively, may oppose such proposals.

The initial investment of an agent banking outlet is between $600 to $800, depending on the area and size of the outlet. Banks are not willing to invest in expanding agency banking infrastructure due to uncertainty in the immediate term. If Bangladesh Bank removes the exclusivity clause, investments can be recovered sooner.

• Tax waiver: Agents who started an agency banking business within the past year are yet to recover their initial investment. Therefore, the impact of the pandemic has been the harshest on them. In addition to providing a tax rebate, National Board of Revenue (NBR) can consider waiving Value Added Tax (VAT) and Advance Income Tax (AIT) for agents who have been in business for under a year in the longer run.

The author is a market insight & digital inclusion expert. She can be reached at [email protected]