Jahangirnagar

University
Assignment ON
Assignment No-01
Agent Banking

Course Code: FNB-406

Course Title: Strategic Banking

Submitted To
Md. Alamgir Hossen
Assistant Professor
Institute of Business Administration
Strategic Banking

Submitted By

ID: 1916
Department of Finance & Banking
BBA Program (6th Batch)

Date of Submission :24-07-2018

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 “Agent Banking”
Agent banking is a unique and new service system to the banking sector and many people do
not fully understand the systems of agent banking. Agent banking is a which provides to
customers a limited scale banking and the various types of financial and transactional services
to people who doesn’t get any opportunity or services from banking sector in their area and
it will be provided through an agent who will be the representative of a certain bank and
provide all the possible banking services they can get.

Agent banking services is banking services which are provided through engaged agents under
a valid agency agreement, service agreement or a similar agreement. It is the owner of an
outlet or branch who conducts banking transactions on behalf of a structural bank. These
retailers globally square measure being progressively used as necessary distribution channels
for money inclusion. Bangladesh Bank has additionally determined to push this
complimentary channel to achieve to the poor phase of the society additionally as existing
bank client with a variety of monetary services particularly to geographically spread locations.
With a read to making sure the security, security and soundness of the planned delivery
channel Agent Banking pointers are framed by the Bangladesh Bank to allow banks to be
engaged in agent banking.

“Necessities of Agent Banking”

Agent banking is gaining popularity, particularly among Bangladeshis living abroad, because
of its convenient and cost-effective nature .The business seems so attractive that some banks
have dumped their mobile banking efforts and gone for agent banking. Agent banking offers
limited banking and financial services to the underserved population by engaging
representatives under a valid agency agreement. It is the owner of an outlet who conducts
banking transactions on behalf of a bank. Agents provide services such as cash deposits,
withdrawals, remittance disbursement, small value loan disbursement and recovery of loans,
and cash payments under the government's social safety net programmes.

It’s a win, win, win

The three stakeholders in the agent banking constellation are: the banks themselves, the
banking agents and (of course) the customers. All of them benefit from the agent banking
network model. The banks will be able to expand their customer base by onboarding new
customers that were previously out of their reach. By having banking agents instead of more
physical bank branches, the costs for infrastructure and manpower are reduced, while
revenues are increased.

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The banking agents benefit since they generate additional income, including sales from
additional walk-ins. They can also differentiate themselves from competitors since they are
now affiliated with well-known banks. Last but not least, the previously unbanked and
underbanked customers have now easy access to a financial institution near them. Apart from
reduced travel time and expenses, the transaction fees are also lower.

It’s a global success

The agent banking model has proven to be successful in Latin America, Africa, India and the
Far East. For example, the Kenyan Equity Bank was able to become profitable by reaching the
mass market for deposits via its agent banking network. This success was enabled by the local
government’s strategy to increase the percentage of banked Kenyans from 30% in 2013 to
about 70% by 2030. To enable this, the government amended the Finance Act 2009 allowing
banks to use banking agents to offer services on their behalf.

If we look at Latin America, we see that the leading countries that allow (and benefit from)
agent banking are Colombia, Brazil, Peru and Mexico. In FINCA has introduced agent banking
to keep customers safe. Since they had to travel long distances to their bank branch, they
were at risk of being robbed. Furthermore, they were also losing time and productivity due
to the long journeys. The agent banking network consists of local merchants and shopkeepers
who provide basic banking services. Due to the success in the Democratic Republic of Congo,
FINCA has since introduced agent banking in Tanzania and Zambia .In Bangladesh, Bank Asia
announced in January 2017 that it will add 2,000 agent banking outlets to its existing 1,200.
The bank originally launched its agent banking network in 2014 when the central bank
allowed agent banking in the rural areas where banks have no branches.

Agent banking is banking on the future

As we have seen above, agent banking is a win-win-win for all parties involved. The agents
win since they are able to sell a greater variety of specialized products and services on behalf
of the bank to customers in remote regions. The customers win by getting easy access to
accredited financial services providers and the banks win since they are able to increase their
market share. Agency banking will play an important role in the coming years for financial
inclusion. Acting as “proxy banks”, agents will provide individuals and small businesses with
the finance services they need to stimulate local development and economic growth

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 “Procedure of Agent Banking”

Any scheduled bank in Bangladesh aiming to initiate agent banking activities must apply and
obtain prior approval from Bangladesh Bank. The process of the application for approval is
stated below:
7.1.The bank shall apply as prescribed in Form A to General Manager, Banking Regulation
and Policy Department, Bangladesh Bank, Head Office, Dhaka in its letter head pad along
with duly filled up Form-A-1, Form-A-2, Form-B and the documents as listed in Form-B.
7.2. The bank has to submit following documents along with the application: a. Policy for
agent banking operation approved by BoD of the applicant bank, b. Internal audit and
monitoring manual for agent banking operation as approved by BoD, c. Business plan for
agent banking operation as approved by BoD, d. Detailed information (organizational
history, financial strength, IT infrastructure, management structure, division wise number of
sub agents and their address) of startup agent(s), e. Report on feasibility study including risk
assessment, f. Agent/sub agent due diligence policy and procedure, g. Draft of agreement(s)
between bank and agent. The draft must incorporate at least the issues stated in the section
13.0 of Guidelines on Agent Banking for the Banks and must be vetted by the legal retainer
of the bank.

7.3. The bank must commence its agent banking operation within 3 (three) months of
getting approval from Bangladesh Bank. The bank will notify Green Banking and CSR
Department, Bangladesh Bank within 7 (seven) days of commencement by submitting the
copy of agreement(s)/MOU(s) to be signed between bank and agent, details of agent and
list of sub agents as well as photograph of commencement day transaction at any
outlet/sub-agent point.

7.4. All the forms and papers those are required to be submitted to Bangladesh Bank for
approval must be duly signed and sealed by the competent/authorized official.

“Is there any agent banking in Bangladesh?”

Yes, in Bangladesh there are some banks are also started provides agent
banking services.

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 “Agent Banking of Bangladesh”

Two banks – Bank Asia and Dutch-Bangla Bank – started recruiting agents at the grassroots
level from Jan 19 to offer banking services through them. Another two banks – South Bangla
Agriculture and Commerce Bank, and NRB Commercial Bank – are going to launch the
service. The central bank issued licences to the four banks for running agent banking, under
which financial services would be offered through agents instead of branches. Bangladesh
Bank officials said Bank Asia had already appointed 49 agents in 32 Upazilas under 17
districts while Dutch-Bangla recruited six agents. The central bank had issued a circular on
Dec 9, 2013 approving agent banking in the rural areas where banks have no branches. In
another circular on Jan 6 this year, the central banks endorsed agent banking also in the
urban areas not covered by traditional banking system. Agent banking has been introduced
to bring them under banking service.” According to Bangladesh Bank, customers will not
require to pay any charge for the services they will receive through the agents. Small
amounts of money can be deposited or withdrawn besides receiving remittance through
agent banking. The agents can disburse small credit and collect loan instalments and utility
bills. The policy on agent banking stipulates that customers can receive government
assistance from social safety programmes and deposit insurance premium through the
agents. They can also transfer money from one account to another and check account
balance. Anyone can collect information about opening of bank account from the agents
and apply for loans, and credit or debit cards through them. The agents, however, cannot
make payment on any cheque, open any account, issue cheque books or bank cards, and
transact foreign exchange. An agent has to have the qualifications determined by the
central bank and give a security deposit of Taka 100,000 for appointment. They will get a
certain commission on transactions. The policy says NGOs, micro-credit agencies,
cooperatives, post offices, companies, mobile-phone operators’ agents, union
information service centres, local government institutions and any individual capable of
offering financial services based on information technology can be appointed agents. It
started off with 10 banks and now 16 commercial banks run agent operations -
Dutch-Bangla Bank Limited (DBBL), Bank Asia, Al-Arafah Islami Bank, Social Islami
Bank Limited, Modhumoti Bank Ltd, Mutual Trust Bank Limited, NRB Commercial
Bank, Standard Bank Ltd, Agrani Bank Ltd, Midland Bank, First Security Islami Bank,
The City Bank, Islami Bank Bangladesh Ltd, The Premier Bank Ltd, United Commercial
Bank Limited, and AB Bank Limited.
Meanwhile, Trust Bank, South Bangla Agriculture and Commerce Bank, Brac Bank Ltd,
and NRB Bank have secured licenses from the central bank to operate agent banking,
but they are yet to launch the service .

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 “Which Requirement Need Agent Banking for Getting
Agencyship”

Any scheduled bank in Bangladesh to commence agent banking must fulfill the following
requirements:
4.1. The bank must have their own Policy for agent banking operation approved by its
Board of Directors (BoD). The policy must cover agent selection criteria, management
procedure, operational structure and service standard of agent banking, monitoring system
of agents, customer protection strategies, legal and regulatory compliance, marketing and
branding strategy, selected products, schedule of charges, business continuity plan and
business contingency plan those must be contained in the separate chapter and articulated
in the policy in detailed manner.
4.2. The bank must have a separate department which will be run by a dedicated team. The
department will be headed by at least Senior Executive Vice President/General Manager or
equivalent for operating agent banking. This department must have a separate dispute
resolution cell/wing for complying with the instructions of the section 16.0 of Guidelines on
Agent Banking for the Banks.
4.3. The bank must have its own internal audit and monitoring manual for its agent banking
operation approved by its BoD.
4.4. The bank must have its own AML/CFT policies and procedures for agent banking as well
as Agent/sub agent due diligence policy and procedure approved by its BoD.
4.5. The bank must conduct a feasibility study along with risk assessment prior to apply for
agent banking approval.
4.6. The bank shall be held responsible for any unlawful/fraudulent activities performed by
Agent or Sub-agent.
4.7. The bank will take the necessary measures for the protection and security of the money
transacted at client level and the protection of customers. Apart from that, banks will take
insurance coverage for the money kept in the locker/vault of sub-agent/outlet.
4.8. Only shariah based banks can pursue shariah based banking in agent banking activities.
4.9. Bangladesh Bank will accord its approval to banks considering different aspects (capital
adequacy, liquidity situation, asset quality, profitability, internal control system and others)
of the overall performance of banks.
5. System Requirement:-
With a view to establishing sound systems and vigorous infrastructure to support agent
banking, banks have to ensure the compliance with the following minimum requirements:

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5.1 a. IT infrastructure must be able to support real-time processing;
b) Able to provide a secured network including end-to-end encryption; and
c) Robust in managing structural capacity to support agent banking services.
5.2. Payment Acceptance Devices (PAD) must –
a) Be able to support minimum Two Factor Authentication (TFA)/Two-step verification for
agent and customer registration;
b) Be able to support the requirement of end-to-end encryption based on industry
standards algorithm (from end-point devices i.e. PAD to host system); and
c) Not store any sensitive customer information like PIN/Password at the end-point devices
like PAD.
5.3. Agent Banking Application/Software must
a) Be able to support host validation for PIN/Password authentication;
b) Be able to provide device authentication during session activation and transaction
processing at host level;
c) Be capable to have limit management feature for agents, customer, transaction and other
limit requirements;
d) Include transaction and system audit.