Loan disbursements through agent banking rise 60%

Loan disbursement through agent banking jumped by a remarkable 59.81% year-on-year to reach Tk14,192 crore by the end of September, fuelled by enhanced financial inclusion for rural communities, according to a Bangladesh Bank report.

At the end of September last year, loan disbursement through agent banking stood at Tk8,880 crore.

Central bank data shows deposits and remittance inflows through agent banking also grew by 14.80% and 27.99%, respectively, compared to the previous year.

Bankers attributed the surge in loan disbursement to the gradual expansion of agent banking services, which has opened up access to finance for many rural communities that were previously underserved.

Mohammad Ziaul Hasan, deputy managing director of Bank Asia, told The Business Standard, "Biometric authentication is now being used to provide banking services in rural areas, and transaction-specific SMS services are available. This has reduced the fear of irregularities and has contributed to the spread of agent banking."

Moreover, the easy availability of small loans from many banks has fueled loan growth. The widespread adoption of digital channels for loan disbursement has further accelerated this growth, he said.

Agent banking loans are typically offered for a duration of six months to a year, and the recovery rate is exceptionally high. Additionally, the escalating inflation rate over the past one and a half years has compelled individuals with limited income to seek loans to meet their essential expenses, the senior banker added.

The Bangladesh Bank report showed that the rising trend of agent banking indicates that there is remarkable potential to bring the rural unbanked under the umbrella of formal banking services.

"Agent banking is playing a pivotal role in providing adequate financial services, especially for rural women, small business entrepreneurs, and beneficiaries of remittances," reads the latest report.

The total deposits through agent banking stood at Tk35,200 crore at the end of September 2023, up from Tk30,663 crore a year ago.

The central bank report stated that the volume of loan disbursements through agent banking is still not significant compared to the volume of deposits, with the loan-to-deposit ratio standing at 40.31%.

This is due to the fact that most banks have yet to develop feasible infrastructures for loan disbursement and recovery through agent outlets, the report added.

Banks can disburse Tk87 as loans out of Tk100 of their total deposits. Besides, Sharia-based banks can disburse Tk92 as a loan. As such, the loan ratio is still very low in agent banking.

Why loans against deposits are low

Discussing the disparity between loan growth and deposits in agent banking, Ziaul Hasan pointed out that microfinance institutions in rural areas charge interest rates as high as 30%. However, the maximum interest rate of banks is now capped at 11%. Banks face difficulties in providing loans in rural areas at this lower rate due to the higher costs associated with transaction processing and recovery.

Hasan further stated that if the central bank had permitted banks to charge an additional 1-2% interest on agent banking loans, loan growth would have been significantly higher. "Despite these limitations, Bank Asia continues to expand its agent banking loan portfolio. As of today, Bank Asia has a loan portfolio of around Tk1,100 crore."

Agent banking in Bangladesh has continued to grow in all dimensions. As of 30 September, 31 banks have offered agent banking through 21,448 outlets operated by 15,540 agents.

The number of accounts opened through agent banking reaches 20,684,537, of which, 10,287,881 accounts (or 49.74%) belong to female customers and 17,818,966 accounts (86.15%) belong to the customers in the rural areas.

The Bangladesh Bank launched agent banking in 2013 with the goal of providing a safe alternate delivery channel for banking services to the underserved population, which typically lives in geographically remote areas that are beyond the reach of formal banking networks.