Banks in Bangladesh are now focusing on opening sub-branches instead of agent banking outlets for being a more cost-effective and efficient means of brining banking services to the people's doorstep.

Additionally, banks can exercise direct control and monitor the day-to-day activities of their sub-branches, reducing the scope for conducting fraudulent activities.

On the other hand, agent banking outlets are independent entities that run banking activities in a specific area on behalf of their respective bank.

Besides, the opening of agent banking outlets slowed last year as some of them misused their funds and ultimately brought down the sector's reputation in the banking industry, according to bankers.

The number of agent bankers rose 1.78 percent year-on-year to 15,542 in the first 10 months of 2023 while the growth was 5.1 percent during the same period in 2022, 12.8 percent in 2021 and 31 percent in 2020.

Agent banking is most prevalent in rural areas as it helps facilitate banking services for underserved people by employing locals that have a pre-established relationship within the society they operate in.

Md Arfan Ali, a veteran banker and chairman of Zaytoon Business Solutions, said the ongoing inflationary pressure could be a reason for the contraction in agent banking activities.

This is because inflation is so high that people in rural areas are being forced to restrict their spending to meet higher living costs, leading to lower banking transactions, he added.

But citing data of the Bangladesh Bank, Ali said the volume of transactions made through agent bankers remains high as more than Tk 70,000 crore was transacted in October last year.

Transactions through agent bankers grew 25 percent year-on-year in the first 10 months of 2023 while the growth was 40 percent during the same period of the year prior, central bank data shows.

Preferring anonymity, an official of a private bank said banks became cautious about expanding agent banking services after it was found that fraudulent activities were carried out by some agent bankers.

"Banks do not want to take the blame for fraudulent activities carried out by their agent bankers. So, they prefer sub-branch banking," he added.

There are now more than 3,400 sub-branches in the country while there were just 393 as of December 2019, according to central bank data.

Golam Awlia, managing director and CEO of NRB Commercial Bank, said a sub-branch is as good as a main branch as it can provide the same services while remaining under the bank's control.

Also, there is a limit to the amount of space and people appointed for sub-branches, making them a low-cost solution for reaching rural people.

"Through their sub-branches, banks can authorise loans at low interest rates for rural people. For example, micro-financing has become a cost-effective solution for them," he added.

On other hand, there are risks associated with agent banking as some agent bankers misuse their funds.

"So, the sub-branch idea is definitely a good step for banks," Awlia said.

Nazmur Rahim, head of alternate banking channels at BRAC Bank PLC, said the number of agent bankers has risen exponentially over the years. So, a slowdown in the sector's growth is to be expected.

Besides, inward remittance fell over the past few months, impacting the volume of transactions through agent banking, he added.

Inward remittance disbursed through agent bankers dropped 7 percent year-on-year to Tk 26,288 crore in the January-October period of 2023.

Among the 61 scheduled banks in Bangladesh, IFIC Bank has the highest number of sub-branches in the country.

IFIC Bank currently has 1,166 sub-branches with deposits of more than Tk 10,000 crore collectively, according to the company's website.

Preferring anonymity, a top official of another private bank said vaults can also be set up in sub-branches to ensure more safety for peoples' money.

"All kinds of services, except foreign trade activities, are being provided by sub-branches. So, the banks have to give them the same attention as the main branches," he added.

In 2018, Bangladesh Bank issued a policy on setting up banking booths so that people could avail low-cost banking services.

Before that, banking services were only available through branch banking, agriculture branches, SME branches, collection booths (fast-track and electronic), and business development centres.

Then, in 2019, Bangladesh Bank issued a circular to transform the banking booths into sub-branches.