The Agent Banking Directive No. (1/2024) was released by the Central Bank of Myanmar (“CBM”) on February 6, 2024, and became effective immediately. Agent banking can help developing economies offer banking services to people who do not have bank accounts and increase the rate of financial inclusion in an economy.
What is Agent Banking?
Agent banking is a business model where traditional banks partner with third-party entities to act as agents, facilitating the provision of banking and financial services. This model, as outlined in the directive, is designed to broaden financial access without compromising the integrity of the banking system. The directive mandates that banks establish a framework for their agent banking services, promoting comprehensive financial inclusion and increased participation in the financial system.
Which services can be provided under Agent Banking?
The directive outlines the range of services that can be offered under agent banking. These include:
Facilitating cash deposits and withdrawals
Collecting bill payments and fund transfers to the bank
Collating documents related to loan applications
Distributing retirement salaries and managing the disbursement of social benefits, such as government grants and grants from social organisations
Acting as a liaison between the bank and the customer
Undertaking any other banking services as approved by the CBM
What are the qualifications for Agents?
To ensure the integrity and efficiency of the agent banking system, the CBM has established specific criteria for entities seeking to become agents. The basic criteria including but not limited to:
Execution of a formal agreement between the bank and the agent
Legal entity status of the agent
A minimum of two years of business experience (though not necessarily in the financial sector, financial service experience is requisite for CBM approval)
Meeting the fit and proper criteria
Certificate proving anti-money laundering and combating financing of terrorism training
Appropriate infrastructure and employee to carry out the service operations efficiently and safely.
How may Agent Banking be developed in Myanmar?
Agent banking services may be more accessible for businesses that have a network of agents and operate in the financial services sector. A good example is microfinance businesses, because they have a lot of staff who know the borrowers and can offer more financial services.
With microfinance businesses struggling to get more funding to grow their lending portfolios, agent banking gives them the chance to keep offering loans to clients, but instead of using their own money, they are delivering bank funded loans directly to their clients. A major problem will be how to make it profitable with a capped interest rate of 14.5% for commercial banks, while microfinance loans usually have an interest rate of nearly twice that.
Mobile money companies might be well positioned to offer agent banking services as they already have their own agents in locations and the required infrastructure for handling and moving cash.
While microfinance and mobile money businesses may be the obvious contenders to benefit from this directive, this is by no means confined to them. In other markets which already permit agent banking, the agents are often individual shop owners or businesses already established within communities.
While agent banking can be an opportunity for microfinance and mobile money businesses, it may end up being a disruptor for them. Specifically mobile money businesses could face increased competition with banks now also being able to develop their own third-party agent network to provide remittance services as well as other financial services.
Challenges facing agent banking
There are several challenges facing the implementation of agent banking in Myanmar.
Security is a problem with the instability and conflict in Myanmar making it difficult to move money around the country, this means it can be difficult to reach people to provide financial services.
One of the barriers to increasing financial inclusion is that the interest rate limit of 14.5% makes banks less willing to lend to small businesses and informal sector workers, because the expenses of small loans and gathering information are still too high. This does not rule out the possibility of offering other financial services.
Financial institutions have difficulty accessing enough information to assess how likely potential borrowers are to repay loans, which hinders their ability to offer financing.
By issuing the Agent Banking Directive, the CBM aims to increase financial access in Myanmar, but there are many obstacles to overcome before achieving this goal.
The first services that are likely to be offered are those with less risk, such as depositing and withdrawing money, and sending remittances. The more significant opportunity to provide more credit options to individuals and businesses that need capital may be harder to realise.