Agent banking for financial inclusion

The concept of 'agent banking' is new in the country. The term is now a much-talked-about issue in the banking industry. It may play a pragmatic role in paving the way for financial inclusion. The central bank of the country has already introduced a guideline for 'agent banking' to be followed by all commercial banks. Considering the importance of the matter, commercial banks have already taken initiatives to introduce 'agent banking' with a view to bringing the un-banked people under banking services.
Agent banking normally means providing banking services to the customers outside the branch premises through appointed agents. According to a Bangladesh Bank (BB) circular, "Agent banking means providing limited-scale banking and financial services to the underserved population through engaged agents under a valid agreement, rather than a teller/cashier. It is the owner of an outlet, who conducts banking transactions on behalf of a bank".
Agent banking offers banking services on a limited scale to semi-urban and rural people through a person or entity authorised under a valid agreement by a commercial bank. The appointed agents or entities or their employees provide services to customers during the usual business hours of scheduled banks on their own premises rather than on any bank premises or at any ATM booth.
Small-value cash deposit and withdrawal, foreign remittance, disbursement of small-value advance and recovery, utility bill payment, cash payment under the social safety net programme of the government, fund transfer, balance enquiry, account opening, loan application, debit and credit card application, receiving, clearing cheques, and post-sanction monitoring of advances are included in agent banking services.
The agents are not permitted to give final approval of account opening, issue bank cards or cheque books, encash cheques and deal in foreign currency.
As per the BB circular, eligible banking agents are non-government organisations and micro-finance institutions, cooperative societies formed under the Cooperative Society Act, 2001, post offices, registered courier and mailing services, registered companies, agents of mobile network operators, offices of rural and urban local government, union information and service centres and educated individuals. Agents must maintain an account with their principal bank. Every transaction has an impact on an agent's account with the bank. The agent must deposit a certain amount of money in a bank in advance as security money before launching the service.
Agent banking can pave the way for inclusive growth and financial inclusion through reduction of social cost, targeting new customer segment, especially low-income people, expanding outreach, marketing and recommendation, credit recovery and customer care.
Agent banking is not free from some drawbacks which are risks of theft or robbery, reluctance to utilise technology, lack of proper infrastructure, simultaneous transactions in both deposit and withdrawal, risk of fraudulence by agents, conflict of interest with similar service providers, agents' indifference, selection of improper agents, selection of improper business establishments and so on. Agent banking can add an impetus to financial inclusion, if the BB, along with commercial banks, can tap the potential of agent banking properly. The BB may encourage banks to go for agent banking. Commercial banks, on the other hand, will have to plan and execute this type of banking. But this is not that much easy as it appears to be.
Banks may think about selection of right places, stores, agents, ATMs and POs. But these are just the beginning. Banks need to have their vision, mission, goals and objectives, which must fulfill the need and requirement of their new customer base. If not, this is going to be a failed venture.
Then banks may adopt a 5/10-year strategic plan and a short-term plan as well for establishing an agent banking network. A dedicated team/department should be formed comprising IT experts, financial analysts and marketers headed by high officials of banks. A few indicators i.e. business transaction, un-banked population, checking existence of banks' branches, inward foreign remittance, etc. need to be analysed before deploying an agent in a new area.
Most importantly, a bank will have to establish its own marketing and sales team. This will be a sheer imprudent act to depend solely on agents for selling a new concept in remote areas, as it is an IT-based financial service. In the Bangladesh Bank circular, marketing has also been given priority.
According to the BB circular, marketing communication can be made in local language, while dealing with the people in remote areas. In addition, banks may arrange drama shows with the help of projectors in villages and marketplaces. Then the people will have a clear perception of necessity, benefits and security aspects of agent banking. Banks may distribute leaflets showing the steps on how to use POs, alongside other benefits. Banks should not go for TV commercials or a big marketing campaign at the very beginning of establishing an agent banking network. But it may be different depending on the vision of a bank. The bank should focus on proper training, development and motivation of agents.
Another important aspect of agent banking is financial inclusion. Studies have proved that financial inclusion is a tool for inclusive economic growth and poverty alleviation. Financial exclusion, meaning lack of access to financial services, limits opportunities for enterprise development and employment and imposes a premium on the cost of basic services. Financial exclusion thus makes it difficult to reduce inequalities and alleviate poverty. According to the Working Paper Series: WP1101 of the BB Research Department, the number of bank branches per 1000 square kilometres increased from 44.24 in 2005 to 53.34 in 2010. This is a very slow growth because of the high cost of setting up a branch. But agent banking that involves low costs can help enhance the financial inclusion. Moreover, customers including the poor and illiterate people will find it easy to enjoy services from the agents.
The goal of agent banking is not mere maximisation of profit. There is a far greater cause which is to bring un-banked population under banking services for overall development of the nation. It is an initiative that helps social inclusion, national integration and consolidation of citizenship. Implementation of agent banking is an art, even within the stringent rules and regulations of the BB. It is high time to popularise agent banking with a view to gearing up the initiatives of financial inclusion for achieving the target of sustainable economic growth of the country.
The writer is a banker.
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