Speakers on Thursday highlighted the transformative role of agent banking in rural areas and said its impact on financial inclusion is impressive for the economy.
They said Bangladesh made remarkable strides in reducing poverty and improving the socio-economic status of its rural population over the past five decades.
However, access to finance remains a significant constraint to sustained development in these regions, with Micro Finance Institutions.
The speakers said this in a workshop titled ‘Scope and Possibilities of Digital Financial Services in Bangladesh’ organised Policy Research Institute (PRI) for journalists in the capital on Thursday.
Two separate presentations were placed in the workshop on ‘Agent Banking: Progress, Challenges and Way Forward’ by Dr Ahsan H. Mansur, Executive Director, PRI, and ‘Impact of Digital Financial Services on Households and firms: Empirical Evidence from Bangladesh’ by Dr. Bazlul H. Khondker, Director, PRI.
Mansur underscored that Micro Finance Institutions (MFIs) charging high-interest rates. In light of this, the agent banking model has emerged as a vital solution, offering cost-efficient financial services to unbanked communities across the country.
Dr. Ahsan Mansur highlighted the success of agent banking, emphasising its presence in rural areas where agents, who are community members, build trust with customers.
Currently, the model has reached an impressive 16.5 million (1.6 lakh and 50 thousand) clients, a testament to its effectiveness in providing financial services to previously underserved regions.
Moreover, agent banking has witnessed significant growth among women, addressing accessibility challenges faced in regions where cultural norms restrict women's mobility.
“Despite its accomplishments, agent banking faces certain challenges that need attention,” Mansur pointed out.
Dr. Bazlul H. Khondker illustrated the progress of an ongoing study of PRI that seeks to assess the economic impact of financial inclusion in Bangladesh from a macroeconomic perspective.
The study aims to estimate the impact of financial inclusion on growth, poverty, inequality, rural investment and major macroeconomic variables using Financial Social Accounting Matrix (FSAM).
The FSAM will incorporate financial sector variables into the real Social Accounting Matrix or SAM (2017) to estimate the impact of DFS on the economy.
The study also found that 91 percent of entrepreneurs had to start business with personal or family savings, or by borrowing from friends or family, without any financial support from formal financial sources and credit.
Around 82.25 percent CMSMEs stated they require additional financial support for future growth. As preferred sources of financing, around 42 percent mentioned MFIs, followed by 25.53 percent, state-owned and 21.28 percent private banks.
“There is a need for financing the rural cottage, micro and small firms for their business expansion and sustainability. If MFS and formal financial sources can meet that demand, there is huge potential for growth in the rural economy”, said Dr. Bazlul Khondker.