The country's banking industry is expected to brace for tough competition from within in the near future due to the fast emergence of digital banking services.
The digital banking services would emerge mostly from the existing mobile financial services (MFSs), challenging the services offered by agent banking or sub-branch banking and microcredit offered by bank-led micro-finance institutes (MFIs).
The existing MFIs will have to change their business models which are unlikely to survive and remain competitive due to high interest rates, said economist Dr Ahsan H Mansur, speaking on the future banking industry landscape at a training session in the city on Thursday.
"Many leading NGO-MFIs have already started diversification of their business from microcredit," said the executive director of the Policy Research Institute (PRI) of Bangladesh.
The PRI organised the training programme for journalists on "Scope and Possibilities of Digital Financial Services (DFS) in Bangladesh" at its conference room at Banani, Dhaka.
Delivering the welcome remarks, PRI Chairman Dr. Zaidi Sattar said Bangladesh will be a cashless society within the next 5-10 years when artificial intelligence (AI) will be used in digital financing to revolutionise the services.
The training programme included two technical sessions, facilitated by Dr. Ahsan H. Mansur and Dr. Bazlul H. Khondker, Director at the PRI.
In his session on "Agent Banking and Financial Deepening", Dr. Mansur also shed light on the transformative role of agent banking in rural areas and its impact on financial inclusion.
Bangladesh has made remarkable strides in reducing poverty and improving the socio-economic status of its rural population over the past five decades, he said.
However, he added, the access to finance remains a significant constraint to sustained development in the rural areas, with the MFIs charging high interest rates. "In light of this, the agent banking model has emerged as a vital solution, offering cost-efficient financial services to the underbanked communities across the country."
Dr. Mansur highlighted the success of agent banking, emphasising its presence in rural areas where agents, who are community members, built trust with the customers.
Currently, he added, the model has reached an impressive 16.5 million clients, a testament to its effectiveness in providing financial services to previously underserved rural areas.
"Research indicates that agent banking is highly cost-effective compared to traditional branches, boasting lower fixed costs per transaction and greater profitability for transactional accounts with low balances and frequent transactions."
He said during the pandemic when traditional banks faced limitations, agent banking outlets played a crucial role in maintaining banking operations.
"Moreover, agent banking has witnessed significant growth among women, addressing accessibility challenges faced in regions where cultural norms restrict women's mobility."
"Despite its accomplishments, agent banking faces certain challenges that need attention," he said, adding that the need for more agent outlets in closer proximity to customers and the uneven distribution of outlets across districts must be addressed.
He said limited agent capacity and the inability to cross-sell financial products are potential obstacles that may require additional marketing and technology investments.
Dr. Mansur emphasised that agent banking holds the potential to further enhance services and credit access for rural entrepreneurs, including women and youth.
"It is expected to gradually replace MFIs due to its convenience and lower costs. To ensure the inclusion of women and achieve a balanced distribution of outlets, banks should set specific targets for outlets in different regions and increase the recruitment of female agents."
Looking ahead, he said the expansion of digital banking services may present challenges for agent banking in the medium to long term.
Therefore, investments in agent training and technology infrastructure are crucial for its sustained success, he added.
"Efforts should focus on expanding agent skills, improving digital literacy, enhancing connectivity, strengthening security protocols, and building trust in the agent banking model."
Ultimately, he said, the agents can play a pivotal role in facilitating digital banking support and promoting its adoption, leveraging the benefits of digitalisation.