Loan disbursements thru agent banking rise 41% y-o-y in March

Infographics: TBS

Loan disbursements through agent banking surged 41.27% year-on-year, reaching Tk16,482 crore in March, on the back of improved access to finance for rural people, according to Bangladesh Bank.

Comparatively, in March last year, loan disbursements stood at Tk11,667 crore.

Deposits and remittance inflows also grew by 16.52% and 23.11%, respectively, compared to the previous year, according to data from the central bank.

Bankers said that with the gradual expansion of agent banking, many people who were previously excluded from banking services at the rural level can now easily avail the services themselves, which is the key reason behind the increased flow of such loans.

Talking to The Business Standard on the matter, Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank Limited, said, "The rise in the number of customers in the banking system is due to the expansion of new services of the banks. Moreover, agent banking is flourishing because of the efforts of banks to provide services at the grassroots through agent banking."

He further said, "In the future, agent banking will become more popular. Banking services are now being provided through biometric models in rural areas. There are also message services for transactions, which reduces the risk of irregularities, thus encouraging more loan disbursements through agent banking. 

"Besides, many banks have started offering small loans through agent banking, due to which the number of loans are increasing. Moreover, since many are providing loans through digital channels, it has further boosted growth." 

Regarding the increase in agent banking loans, the managing director of a Sharia-based bank said, "As loans through agent banking are short-term and have a high recovery rate, banks are also favouring these loans.

"Additionally, since the rate of inflation has increased over the last two years, low income people are taking loans from agent banking to meet their expenses."

He also noted that agent banking plays a crucial role in providing financial services, particularly to rural women, small business entrepreneurs, and remittance beneficiaries.

Selim RF Hussain, managing director of BRAC Bank, said, "53% of our Small Business Loans originate from agent banking outlets. BRAC Bank's share of agent banking loan disbursements stands at 62% nationwide."

At the end of March, the total deposits through agent banking stood at Tk36,870 crore, up from Tk31,641 crore a year ago.

A 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 44.70%.

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 adds.

As per central bank rules, banks are allowed to disburse 87% as loans out 100% of their total deposits. However, Sharia-based banks can disburse 92% as loans. Therefore, the loan ratio is still very low in agent banking.

Regarding the low growth of loans in agent banking compared to deposits, a senior official of Bank Asia said, "Microfinance institutions in rural areas charge interest rates of up to 30%. The maximum interest rate for banks is now around 13%. At this rate, providing loans at the rural level becomes challenging for banks due to high transaction costs and lower returns.

He further said, "If the central bank provided an additional 1-2% incentive on loans through agent banking, loan growth would increase."

"Despite this, loans through agent banking in our bank continue to rise." 

Agent banking in Bangladesh has continued to grow in all dimensions in this quarter. As of 31 March, 31 banks are offering agent banking through 21,613 outlets operated by 15,835 agents.

The number of accounts opened through agent banking reaches 22,250,305 of which, 11,060,879 accounts belong to the female customers and 19,145,672 accounts (86%) 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.