Concept of Agent banking:

Agent banking means the provision of banking services by a third-party agent to customers on
behalf of a licensed, prudentially-regulated financial institution, such as a bank or other deposit-
taking institution. Rather than a branch teller, the third party is the owner of the retail outlet who
conducts the transaction and lets clients deposit, withdraw, and transfer funds, pay their bills, inquire
about an account balance, or receive government benefits or a direct deposit from their employer.
Banking agents can be pharmacies, supermarkets, convenience stores, lottery outlets, post offices,
and many more. Globally these retailers are increasingly utilied as important distribution channels
for financial inclusion.
Transaction process of agent banking: Agent banking platform is made up of three key elements
i.e. the retail network !composed of the collection of retail outlets where transactions are originated",
the payment network !aggregates the transactions from the collection of retail outlets and routes
them to the appropriate issuer", the account platform !manages the service logic by authoriing
individual transactions and maintaining the value of accounts". #ach of these elements has very
different economics, and each presents key tradeoffs that providers need to face. $he process of
these key elements has been portrayed bellow%
Banking agents are the backbone of mobile banking, i.e., performing transactions over a mobile
device, most often a mobile phone. Banking agents are usually equipped with a combination
of point-of-sale !&'("card reader, mobile phone, barcode scanner to scan bills for bill payment
transactions, &ersonal )dentification *umber!&)*" pads, and sometimes personal computers
!&+s" that connect with the bank,s server using a personal dial-up or other data connection. +lients
that transact at the agent use a magstripe bank card or their mobile phone to access their bank
account or e-wallet respectively. )dentification of customers is normally done through a &)*, but
could also involve biometrics. -ith regard to the transaction verification, authoriation, and
settlement platform, banking agents are similar to any other remote bank channel. $he transaction
process for banking services in agent banking using a bank card is simple%
An e.isting bank client presents his card at the agent and requests a specific transaction and the
amount to be withdrawn, deposited, or transferred
$he agent selects the type of transaction on the &'( device or personal computer, enters the
amount, swipes the client,s card through the device, and lets the client enter his &)*
A General &acket Radio (ervice !G&R(", dial up, or satellite communication connects with the
bank,s server to authorie the transaction/ once the transaction has been authoried, the device
prints the client,s receipt
Why agent banking:
)n the last decade, there has been an e.plosion of different forms of remote access financial
services via different channels, including mobile phones, automatic teller machines !A$0s", point-of-
sale !&'(" devices and banking correspondents. )n many countries, these branchless channels
have made an important contribution to enhancing financial inclusion by reaching people that
traditional, branch-based structures would have been unable to reach. 'ne of the main obstacles to
financial inclusion is cost% both the cost to banks involved in servicing low-value accounts and
e.tending physical infrastructure to remote rural areas, and the cost !in money and time" incurred by
customers in remote areas to reach bank branches. Agent banking is rapidly evolving and its
regulation plays a central role in enabling to reduce those financial costs and ma.imiing its spread.
$he ma1or reasons behind the evolution of the agent banking and its benefit for the economic
development are given bellow%
Reduces cost: By using retail points as agents banking providers can offer banking services in
a commercially viable way since they are able to reduce fi.ed costs of physical infrastructure and
encourage entrepreneurs to use the service more often and thus provide access to additional
revenue sources. Agency banking represents a significant opportunity to reduce transaction
costs such as travel for clients by bringing financial services to hard-to-reach and geographically
dispersed areas.
Increased number of branches and enhanced accessibility to banking services: 2sing
small shops, petrol stations, pharmacies and other retail outlets as agents could have a dramatic
impact on improving access to financial services, especially in rural areas. )t not only gives
financial benefit to the bank but also deepens of the financial sector and raises overall levels of
financial literacy in the country.
Wider market coverage and customer loyalty: &erhaps the greatest benefit of agency
banking is to create customer loyalty. $aking the bank to the community not only widens and
deepens the financial market but it has also enhances customer loyalty and creates committed
entrepreneur-clients to respective banks.
The overall benefit of agent banking to all the parties of financial transactions is given
bellow:
Parties Clients Agents inancial institutions
!enefi
t
3ower transaction cost,
3onger opening hours,
(horter lines than in
branches, 0ore
accessible for illiterates
and the very poor who
might feel intimidated in
branches
)ncreased sales from
additional foot-traffic,
4ifferentiation from other
businesses, Reputation
from affiliation with well-
known financial institution,
Additional revenue from
commissions and
incentives
)ncreased customer base and
market share, )ncreased coverage
with low-cost solution in areas with
potentially less number and
volume of transactions, )ncreased
revenue from additional
investment, interest, and fee
income, )mproved indirect branch
productivity by reducing
congestion
Present status of agent banking in Bangladesh:
Agent banking is a new concept in Bangladesh, but practiced globally as an important distribution
channel for financial inclusion through agents of the banks. $he motivating factor to initiate this new
banking concept in Bangladesh was to give banking solution to the unbanked people who live
outside the formal banking network and are therefore deprived from essential financial5banking
services. 'n the other hand if the plan to offer services through agent banking is e.ecuted
effectively, many small and medium enterprises will feel motivated to start businesses in rural
areas, and it will spur employment generation and the tendency of the rural population to move to
urban areas will decrease.
)n an effort to bring the country,s non-banking population under banking network and ensure
financial inclusion, on 0ay 6789 Bangladesh Bank has given permission to two banks i.e. Bank Asia
3td. and *RB bank 3td. to provide agent-banking services. According to the central bank decision,
Bank Asia can appoint :7 agents and *RB Bank 67 agents to e.tend modern banking services to
clients. -ith approval from the central bank and agreements with a commercial bank,
nongovernmental organiations, retail shops, micro-finance institutions, cooperative societies, post
offices, and courier and mailing service companies can perform banking transactions on behalf of
the bank, without charging the customers. 'n behalf of the banks, the agents can transact cash,
distribute remittance, gather information for bank accounts, accept loan applications, transact and
recover loans and receive applications for credit and debit cards. Bank agents can also receive utility
bills and passport fees and distribute government assistance under social safety net programs.
;owever, if the agent commits any irregularity, the bank will have to bear responsibility. #arlier, Bank
Asia launched agent banking under a pilot pro1ect by appointing eight agents in (ira1dikhan upaila,
one in 3ouha1ang and two in (rinagar in 0unshigan1 district. $he agents have provided banking
services to more than 6,777 clients. 3ater, upon approval from Bangladesh Bank, Bank Asia
appointed agents in Bhabanipur, <oinser, Ra1anagor, *imtola of (ira1dikhan and +howkbaar of
(reenagar while appointment of agents in +hitrokoat, *oagaon !0atborerhat", 3otobdi,
(hekhernagar of (ira1dikhan, Boramukam Baar of 3auha1ang and 4ewbhog of (adar upaila in
0unshigan1 district is under process.
Policy of central bank regarding Agent !anking:
Bangladesh Bank is working relentlessly to realie the vision of =inclusive finance> to make banking
services available for un-served and under-served households and enterprises. )n this connection,
Bangladesh Bank has recently taken one more initiative to launch agent banking and issued
guidelines on agent banking on ? *ovember 678: as per authority conferred to it by Article @A!e" of
Bangladesh Bank 'rder, 8?@6 and (ection 9 of Bangladesh &ayment and (ettlement (ystems
Regulations, 677?. $he main issues of these guidelines can be classified under some specific
criteria and those are illustrated bellow%
Agent banking services and its fee: According to this guideline the banks can provide the
facilities of collection of small value cash deposit, cash withdrawal, inward foreign remittance
disbursement/ small value loan disbursement and recovery of loans, utility bills payment, cash
payment under social safety net program of the Government, fund transfer, balance inquiry,
generation and issuance of mini bank statements, collection and processing of documents in relation
to account opening, loan application, credit and debit card application from public, post sanction
monitoring of loan and advances and follow up of loan recovery, other functions like deposit
collection, payment of insurance premium, sale of crop and other insurances etc to their customers.
But on the other hand the agent is not allowed to provide the services like opening of bank accounts
and issuance of bank cards5 cheques, conducting money changing activities, dealing loan5 financial
appraisal and encashment of cheques. Aor the eligible services of the agent banks customers
should not be charged directly by the agents for providing services to them. Rather, bank shall pay
reasonable fee5 commission to their agents. ;owever, bank may charge commission5 fee as
applicable to its customers.
"ligible entities and their selection criteria: $he *G'5 0A),s, +ooperative (ocieties, &ost 'ffices,
*on Bank Ainancial )nstitutions, Agents of 0obile *etwork 'perators, 'ffices of rural and urban
local Government institutions like 2)(+, #ducated )ndividuals capable to handle )$ based financial
services, Agents of insurance companies, owner of pharmacy, chain grocery shops and petrol
pumps5 gas stations will be considered as the eligible entities as Bank Agent.
$he banks should apply due diligence and some issues i.e. competence, financial soundness and
cash handling capability, business reputation, technological knowledge of financial service, security,
internal control, audit coverage, reporting and monitoring capacity, ability to meet commitments
under adverse conditions should be taken into consideration for selection of agents.
Agent banking model% $he guideline for the agent banking has identified a standard model for all
sorts of agent banking criteria. Aor mitigating the agency problem, it is specified in the guideline that
the written agreements between bank and the agent should be carefully defined and legally vetted.
As per this model agent can act an agent of more than one bank at a time but at the customer end
point a retail outlet or sub agent of an agent shall represent and offer banking services of only for a
single bank. $he bank shall brand agent banking business in such a clear manner that the customer
can realie that the agent is providing services on behalf of the particular bank. $he agent of the
concerned bank should deposit a fi.ed amount of money or should have a credit limit with the bank
and up to that level it can make transactions with the clients. )f any transaction is tried beyond that
level system will automatically stop the transaction.
$he agents are to be equipped with )$ device like point of sale !&'(", card reader, mobile phone,
barcode scanner to scan bills for bill payment transactions, &ersonal )dentification *umber !&)*"
pads and may have &ersonal +omputers !&+s" that are to be connected with their bankBs server
using a personal dialup or other data connections. +lients shall use magnetic stripe bank card or
mobile phone to access their bank account or eCwallet respectively and the identification of
customers shall be done through a &)*5 biometrics. )n the customer end the transaction should be
operating through )+$ devices that are continuously and uninterruptedly integrated to the +ore
Banking (olution !+B(" of the bank. $he transactions should be e.ecuted on real time basis. At the
end point the customer will get instant confirmation of their transaction through visual basis !screen
based" or paper based !debit or credit slip".
Regulatory issues: -ithout having approval from Bangladesh Bank no bank shall be allowed to do
agent banking and Bangladesh Bank has the authority to withhold, suspend or cancel approval for
providing Agent Banking services anytime if it considers any action by any of the parties involved in
the system detrimental to the public interest. Banks willing to launch Agent Banking Business shall
seek prior approval from Bangladesh Bank, with full details of the services including tentative
implementation schedule. $he Agents shall be selected by the bank and a list of the Agents with
their names and addresses shall have to be submitted to the &ayment (ystem 4epartment !&(4",
Bangladesh Bank and will be updated on monthly basis. )n addition to this the copies of
agreement!s"50'2!s" signed between banks and their Agents also have to be submitted to
Bangladesh bank before launching the product. )n the end banks shall have to submit overall report
on Agent Banking annually to its Board as well as to Bangladesh Bank. )n the case of inward foreign
remittance !credited to *ostro Accounts of Banks" transfer, the system should not be used for any
cross border outward remittance of funds and arrangement through designated agents will be used
only for delivery in local currency.
Anti money laundering compliance and risk mitigation: Banks and its partners shall have to
comply with the prevailing AntiC0oney 3aundering !A03"5+ombating the Ainancing of $errorism
!+A$" related laws, regulations and guidelines issued by Bangladesh Bank from time to time and
shall have to immediately report to AntiC0oney 3aundering 4epartment of Bangladesh Bank
regarding any suspicious, unusual or doubtful transactions related to money laundering or terrorist
financing activities. $he banks also have to follow full DE+ format issued by Bangladesh Ainancial
)ntelligence 2nit !BA)2" for the agents as well as customers.
As per the guideline will be responsible for mitigation of all kinds of risks such as liquidity,
operational, fraud, cheating including money laundering and terrorist financing risks and must bear
all the liabilities that arise from any improper action on the part of their engaged agents. 'n the other
hand technical risks should be covered by the solution provider.
Technical aspects and data security: )n the guideline it is anticipated that the technology currently
available is able to provide adequate security for transmitting information from agent to concern
bank,s end customers. Eet, as per the regulation concern banks have to develop mechanism which
enables the agent to report any transaction as and when it occurs.
Agency agreement: Banks intent to provide agent banking service must sign service level
agreement with the agents. $he agreement should cover some ma1or issues i.e. the rights,
e.pectations and responsibilities, fee structure of the parties entered into agreements. )n the
contract it should also be specified that agents are not allowed to perform management functions
and the financial services by them are sub1ect to regulatory review. Aor that reason agents must
ensure safeCkeeping of all relevant record, data and documents 5files for at least si. years/ or
alternately, such record is shifted to the bank at regular preCspecified intervals. But all
information5data that the agents collects in relation to agent banking services, whether from the
customers or the commercial banks or from other sources, will be considered as the property of the
commercial banks, and any information pertaining to the banks must be kept confidential. )n addition
to the above criteria the agreement should also incorporate a condition for changing the terms of the
service contract, stipulations for default and termination of the contract.
Internal audit and monitoring% As per the guidelines of Bangladesh bank the banks must formulate
internal audit policy to monitor and control agents. $hey should visit the agent,s outlet offices at a
regular interval to ensure that the agents are working in accordance with the terms and conditions of
the agreement and following the rules, regulations and guidelines issued by the regulators.
Customer Protection: $he agent banking faces many challenges and risks i.e. lack of
confidentiality and security, issues of fraud etc. )n order to protect the customer from those
difficulties Bangladesh Bank has identified some ma1or customer protection issues in their guideline.
Aor the customer protection the banks shall offer products and services approved by their board
keeping conformity with the guidelines and the agent will not be allowed to create any financial
product or service at their discretion. $he banks shall take necessary steps to ensure that the
agents5retail agents5sub agents are known to the public in a specific area. $here should be clear
identification5logo and name of the Banks with contact address5telephone number displayed in a
visible manner on the agent,s service premises. $he local branch manager may also introduce the
agent5retail5sub agent to the public. $he banks shall have business continuity plan to ensure
uninterrupted services to the customers in case of failure or termination of agents and if any agent
works on behalf of more than one bank, it shall ensure that there are no overlapping in the database
of customers of different banks. 'n the other hand the fees5charges for offering the services shall be
published in the form of a brochure and be available in the outlets of the agents for client,s use and
consumption.
#ispute resolution% $he bank needs to ensure that adequate measures for customer protection,
awareness and dispute resolution are in place. $he bank must run a call centre to receive and
process disputes 69 hours a day via telephone, (0(, )FR and mail. #ach of the disputes received
by the centre must be resolved within : working days. $he banks have submit reports regarding
disputes5grievances and redressal of the same to the Bangladesh Bank at a regular interval and also
have to publicie it through electronic and print media.

Recent inclusion in the guidelines: After promulgation of the guidelines of ? *ovember, 678:,
additional guidelines have been provided by Bangladesh Bank on 69 0arch 6789 in the BR&4
circular -@. )n the circular the following inclusion has been provided%
$he authoriation of the agent bankers should be obtained from the &ayment (ystems
4epartment of Bangladesh Bank.
$he authoried agent banks has to maintain a current account with the contracted bank where
ma.imum balance can be 87 !ten" lac taka. $he bank concerned persons was not allowed as an
agent banker as per section 6G+ of Bank +ompanies Act, 8??8, but this circular added.
$he agent banker must conduct his business in the rural area and not authoried to do in the
0unicipality or +ity +orporation or 0etropolitan areas.
Regarding )slamic banks, it has been directed to conduct )slamic banking services at the client,s
level.
)n addition, the circular of Bangladesh Bank had stressed to cover the money transacted at
agent level must be covered under )nsurance policies. )t has also set the ma.imum transaction
ceiling at $k 6H,777 for agent banking customers and an agent banking customer will be able to
make a ma.imum of four transactions a dayItwo withdrawals and two deposits.
Conclusion:
Agent banking is a new idea for Bangladesh though countries like Brail, Ghana, Denya, )ndia, and
&akistan have already introduced the system. )n our country this banking model has been introduced
with a view to attain its attractive attributes i.e. providing affordable, accessible and appropriate
financial products and banking facilities to the unbanked and under-banked people in the rural areas.
$o attain this goal central bank is trying hard but it will not be possible if the banks do not handle the
challenges properly. $herefore, the banks must address the challenges that are posed by agency
banking in order to ma.imie the benefits of having this channel of banking and penetrate a financial
inclusion for this country.