Re-evaluating the Success of Agent Banking in Bangladesh:
The contributions of Agent Banking have been hailed as a monumental step for Financial Inclusion, and perhaps for good reasons.
“Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs — transactions, payments, savings, credit and insurance — delivered in a responsible and sustainable way. Financially included individuals are those who have an account in their name with a full-service financial institution.” — World Bank.
If we consider financial inclusion to mean only having a bank account where people can transact, then Agent Banking has indeed played a role. Whether these people are indeed having access to “full-service”, specifically credit is questionable.
From my experience of having been onboarding lending partners for the past few years, I can say with conviction, that they Do Not. Let me explain.
In my opinion, the most important role of a financial institution is it’s ability to channel capital to people and businesses where it can expedite growth.
The concept of agent banking was devised as a means of stimulating economic growth by facilitating the flow of money into the rural areas, where the main branches of the banks did not exist. I presume, when the policy makers thought of agent banks, they thought of these institutions as a mechanism that would improve an individual/CMSME’s access to capital, and reduce their dependency on high cost micro finance loans — and not just as a system that allows people to receive money in bank accounts. Because people could already receive and keep money in their mobile wallets.
It is not that I am against the concept of Agent Banking. I just feel we have been looking at the wrong metrics, and lost sight of the real purpose. The applause has been going to banks that have been setting up the highest number of branches, and opening the largest numbers of bank accounts. While that is noteworthy, It’s a bit short-sighted, like looking at the registration/installation numbers of an app, but not at the user engagement.
In my humble opinion, while assessing the Agent Banking’s success in ensuring financial inclusion, the amount of loans disbursed through the agents, and the share of clients graduating from MFI loans to Bank loans should be an important metric. But I have seldom seen that factor being a point of highlight.
Below, I am sharing the set of statistics that have triggered this particular rant. All the images and statistics have been taken from the July-September 2020 quarterly report published by Bangladesh Bank.
As can be seen from the graph above, the volume of deposit far outstrips the volume of loans disbursed by agent banks. Even at a time when the pandemic was going on in full rage, and CMSME’s were in dire need of capital to keep their businesses running.
It is safe to assume that the banks are not making a loss, and as such, they are lending the money, just not at the regions where the money is being deposited. ie, the money is being collected from rural regions, and being invested in urban/corporate loans. Which I believe is the opposite of what the architects of agent banking intended.
Also, interestingly, the banks receiving the highest volume of deposits and account opening are not the ones doing the highest volume of lending. See the images below.
Brac Bank with only 329 agents have disbursed BDT 553 crores, whereas Bank Asia, with 3,889 agents, almost 10 times the number of agents have disbursed only 299 crores worth of loans.
As evident from the statistics above, the number of agents appears to be quite irrelevant to the increased access to credit a bank extends through agents — and thereby the economic impact a bank has. The table below shows the metrics for the 9 relevant banks.
To say that there are not enough credit worthy clients in the area is no excuse — as one can be certain that the same clients who are rejected by the agent banks are borrowing from MFIs, or other banks in the area. As such, it is the credit policies of the banks that presents as a problem, and not the creditworthiness of the borrowers.
May be it’s time to revisit the metrics based on which we measure the success and failure of agent banking, and set more meaningful benchmarks. And start appreciating banks which have fewer number of branches, but much higher economic impact.
After all, what we appreciate is what we reinforce. And if we do not start appreciating the right metrics, we may end up chasing empty numbers that fulfill check boxes, but does not deliver the value that it was designed to deliver.
Note: This write-up is based purely on my personal experience of working with different financial institutions. Like all personal opinions, I am certain this writeup too has it’s biases, and I am open to discussions and feedback on the topic. To provide feedback, please send an email to siff.me@gmail.com.
