Diversity of Global Agent Banking Models

Diversity of Global Agent Banking
Models and Its Applicability in
Bangladesh
Md. Saiful Islam
Research & Development
Department,
Mutual Trust Bank Ltd.
Dhaka, Bangladesh

&

Mohammad Omar
Faruk
Research & Development
Department,
Mutual Trust Bank Ltd.
Dhaka, Bangladesh

Pre se n t ed i n : In te rn ati on a l C on f e re n c e o n B u s in e s s An d
E co n o mi cs
Ve n u e : Un iv e r si ty o f D h aka , B a n g lad es h

D a te :  Oc tobe r 25 - 2 6, 2 016

Agent Banking


Agent banking, one of the prominent nonconventional banking windows, ofers fnancial
services.



Facilitates many fnancial services including
banking transaction, cash deposit, cash withdrawal,
fund transfer, bills pay, account balance quarry and
many more.



Getting popular as an easy, less costly and rapid
fnancial inclusion media across the globe.



Connects unbanked people to the mainstream
DIVERSITY OF GLOBAL AGENT BANKING MODELS AND ITS APPLICABILITY IN
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Grounds for Agent Banking


Removes the geographical barrier of the locality
and takes banking to the remote areas .



Offers banking through specifed channel outside
the bank branches.



Makes it cost effective for banks in concentrating
at low-value transactions .



Eliminates the large fx cost of setting up a bank
branch.
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OBJECTIVES OF THE STUDY


To explore the diversity and uniqueness of agent
banking models practicing across the globe.



To understand the diversity of the conceptual
models of agent banking in practicing countries.



To explore the takeaways for Bangladesh from
the global agent banking models.

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DATA AND METHOD


Secondary Data
 Published journals,
articles, reports of development

organizations
 Circulars and policies of the central and the commercial
banks
 Online newspaper and blogs, and websites of banks



Content Analysis



Limitations: Analysis is heavily
readily available literature
DIVERSITY OF GLOBAL AGENT BANKING MODELS AND ITS APPLICABILITY IN
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dependent

on
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LITERATURE REVIEW: GLOBAL PERSPECTIVE

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LITERATURE REVIEW: BANGLADESH PERSPECTIVE


Limited scale banking and fnancial services
through engaged agents under a valid agency
agreement, rather than a teller/ cashier



12 banks got license for agent banking while only
7 are in operation.



About BDT 3.58 billion was transacted through
agent banking channel in April 2016

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Theoretical Framework
Diffusion of Innovations Theory



Rogers theory of difusion of innovations explains
the adoption rates of various types of
innovations.



Earlier adopters play a major role as change
agents to support the difusion process.

Agency Theory



Agency theory is concerned with resolving
problems that can exist in agency relationships.
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FINDINGS
Agent Banking Models
Bank-led Model
 A distinct alternative to conventional branch-based banking.
 Conducts fnancial transactions at a retail agents which is nominated

by bank.
 Customer-account relationship rests with the bank.
Non-Bank-led Model
 Account management functions are conducted by a non-bank (e.g.,
telco).
 A bank has a limited role in the day-to-day account management.
 Its role in this model is limited to safe-keeping of funds.
 SMS messages will enable the system to verify the transaction.
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FINDINGS

Diversity in Agent Banking Policy
 In
some countries, banks have successfully
expanded their outreach by engaging local agents
or correspondents to ofer their services.

 Brazilian regulation allowed agents only
municipalities that did not have bank branches

in

 Indian regulators required agents to be located
within 15 kilometers of the of a “base branch” of
appointing bank in rural areas, and within 5
kilometers in urban areas.
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Diversity of Agent Banking
Components
Agent Types


Many countries permit a wide range of individuals and legal

entities to be agents for banks.



For example, India permits a wide variety of eligible agents,
such as certain nonprofts organization, post ofces, retired
teachers, and for-proft companies, including mobile network
operators (MNOs).



Kenya takes a diferent approach, requiring agents to be forproft actors and disallowing nonproft entities



Brazil permits any legal entity to act as an agent, but prevents
individuals from doing so.
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Diversity of Agent Banking
Components
Agent Location


Some countries impose restrictions on the location of agents.



Due to concerns that agents could threaten bank branches,
Brazilian regulation originally allowed agents only in
municipalities that did not have bank branches.



This restriction was lifted in 2000, enabling the expansion of
agents in Brazil.



Indian regulators initially required agents to be located within
15 and 5 km of appointed bank respectively in rural and urban
areas which regulators expanded it to 30 km later.



Banks can seek exemption from this requirement in areas
with underserved populations where a branch would not be
viable.
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Diversity of Agent Banking
Components
Agent Compensation


Most regulatory approaches leave the issue of agent revenue to
free negotiation between the agent and the fnancial
institution.



In India, agent regulation initially denied banks and agents
have the ability to charge customers for using agents while
permitted, later, to charge reasonable fees under policies
approved by the bank’s board.



Latin American countries, generally permit banks to charge
for agent transactions, although banks do not always apply
such charges due to competitive or affordability concerns.



In Pakistan, agents cannot alter the fee structure set by the
bank in any way.
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Diversity of Agent Banking
Components
Agent Exclusivity


In areas facing a defcit of suitable agents, some regulators
believe ‘no exclusivity’ provisions will increase the chances
that multiple banks will penetrate into remote areas.



Kenya prohibits agent exclusivity but do require each service
provider to have a separate agreement with each agent for
supervision and liability purposes.



In Pakistan, the Branchless Banking Guidelines explicitly
contemplate the adoption by banks of an ‘open architecture’
that would enable agents to serve multiple banks without
separate contracts with each bank.

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Gender Dimension of Agent
Banking


According to Helix Institute of Digital Finance, a woman as an
Agent is another addition to the drive of agent banking in most of
the developing countries.



Women agents enhance the communication and comfort
level for women customers.



Women agents can add snow-ball effect of relationship
network to agent banking and connect those who usually do not
come to bank.



Agency business of woman agents is considered an auxiliary
source of income for household.



Sometimes women may be uncomfortable with interacting
to male agents.
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DIVERSITY OF GLOBAL AGENT BANKING MODELS AND ITS APPLICABILITY IN
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Challenges of Agent
Banking
 Physical security can pose a challenge with regard to
security of cash and even the people managing and
working with agents.
 The specifc security challenges are robbery, theft
and fraud.
 Distance to the nearest bank branch may be a
challenge particularly in the rural areas.
 Right selection of Agents is a challenge.
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Applicability of Global Models in
Bangladesh
 As this study found, diversity and uniqueness of
agent banking models used in different
countries vary as per the necessity and goal of the
program of country concerned.
 Incorporation and revision of model should adopt
trail and error approach.
 Customization, rather than direct replication, of
successful models of similar socio-economic
settings should be adopted.
 Global Agent banking models implied innovation of
new components derived from local context.
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Applicability of Global Models in
Bangladesh
This study perceived some strategies that Bangladesh
can follow:
 Introduce exclusively women agent banking
model for remote rural areas, especially
Muslim/Islamic minded areas.
 Local individual/indigenous agents for hill
tracts of Chittagong
 Incorporate
banking

micro-fnance

staffs

in

agents

 Spread agent banking in peripheral rural areas,
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Conclusion
 There is no one-size-fts-all regulatory solution
for the provision of fnancial services through agents,
and markets may experiment with a number of
approaches before fnding one that works.
 Regulators
should
adopt
a
test-and-learn
approach,
permitting
private
sector
experimentation, monitoring the market, and
ultimately developing regulations based on identifed
market needs.
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Thank
You
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