Chapter One Introduction The formal banking sector in the country has tried to expand its outreach and bring the unbanked people in the society under its umbrella. As a part of financial inclusion and offering limited banking services to both rural and urban unbanked people, Bangladesh Bank (BB) initiated Agent Banking. In order to ensure the acc ess of unbanked people, Agent Banking and obile ! inancial "ervices (!") have been introduced in Bangladesh. Agent banking and obile !inancial " ervices (!") offer an alternative to conventional branch#based banking to the customers through appointed agents being facilitated by the obile $et%ork &perator ($&)'"olution roviders instead of bank branches or through bank employees. It %ill also provide banking services to the bank customers through the engaged agents under a valid agency agreement, rather than a teller'cashier. Agent banking has %orked %onders in several developing countries in different parts of the %orld like Brail, *olumbia, eru, alaysia, +enya and so on. Agent banking has been a revolutionary inclusion in the financial system of Brail as the agents there deal %ith almost everything like bills and pension payments, cash deposits, %ithdra%als and money transfer. The list is not limited to these only, because the number of services provided by the agent bankers is increasing %ith the passage of time. (llah - a/ue, 0123) Brail is often recogn ied as a global pioneer in this area and over the years, it has developed a mature net%ork of agent banks covering more than 44 percent of the country5s municipalities. In Asia, countries like India, akistan and hilippines have also utilied the agent banking model to expand financial services. (Banar6ee, 0123) 7lobally agent banking activities are being increasingly utilied as important distribution channels for financial inclusion. Bangladesh Bank has also decided to promote this complimentary channel to reach to the poor segment of the society as %ell as existing bank customer %ith a range of financial services specially to 1
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PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH
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8/18/2019 PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH
Agent banking is no% a bu%ord in the banking industry. Agent banking is
comparatively a ne% idea that can help the formal banking sector as %ell as its
importance is immense in paving the %ay for financial inclusion. But, many of us,
including bankers, still do not have a clear perception of agent banking, its services,
risks and responsibilities and other regulatory issues.
Access to affordable financial services %ill lead to increase economic activities and
employment opportunities for rural households'nonprivileged segments of the
population, %ith a possible multiplier effect on the economy. Agent banking could
enable people to have a higher disposable income %hich in turn leads to greater
savings and a %ider deposit base for the banks and other financial institutions.
This is the area %here lot of researches could be conducted and immense value %ould be added to expand the banking services to the non privileged, underserved population
and the poor segment of the society, especially from geographically dispersed location.
1.4 Methodoloy
The key approach of this study is to measure the prospects and the challenges of agent
banking activities in Bangladesh. *ollecting of information from all customers is not
possible, %hereas, simple random sampling %as used in this study. As regards of the
selection of the respondents, both the bank officials and agents %ere selected. In
addition, customers of agent banking %ere also included in this study.
+eeping in the mind the background and the ob6ectives of the study both primary and
secondary data have been collected. The secondary information has been collected
from# articles in ne%spapers, Bangladesh Bank 7uidelines, presented paper of the
different conferences, related %ebsites and so on.
!ivisions"ercentae of aent outlets by
divisions#o. sa$ple has ta%en
<haka 1.=>120 00
*hittagong 1.0314?3 ?
+hulna 1.1>?23= 2
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8/18/2019 PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH
the disadvantaged and lo%#income segments of society at affordable costs. *ontrarily,
%here financial services are not available or affordable, it is financial exclusion. According
to 8orld Bank, an estimated 0.= billion %orking#age adults globally have no access to
formal financial services delivered by regulated financial institutions. The availability of
banking and payment services to the entire population %ithout discrimination is the prime
ob6ective of financial inclusion policy (a/ue, !inancial inclusion goals ; Barriers and
challenges, 012>).
An inclusion has no% come to mean much more than 6ust banking the unbanked. It no%
refers to the convergence of various bank and non#bank players to provide financial
services at lo%er cost, %ider reach and greater convenience to all end consumers of
financial services, unbanked or other%ise. o% does this agency banking#inspired thefinancial inclusion In one sentence; by opening up ne% opportunities. All banking
consumers are also consumers %rap up the financing deal once the purchase of other
products, %hich they procure from different channels. By partnering %ith an agent, banks
can participate in these transactions, %hich may be non#financial in nature but separately
the dealer is able to close the sale right a%ay and the financing partner has access to a
more or less captive market. This is 6ust one example of the linkage bet%een agency
banking and ne%#definition financial inclusion. Banks can enter into similar partnerships
%ith %hite goods dealers, large retail chains, and so on. They also have the option of
entering into different kinds of distribution alliances %ith a variety of agents, from
individuals to post offices to ne%s agents to grocers to regulators even, to serve the unmet
financial needs of unbanked as %ell as banked customers (Cayanti, 0120).
Branchless banking is the first step into financial inclusion and, therefore, should adhere to
the same government legislation of the banking sector at large, allo%ing the government to
have a unified policy. Agent banking can be %orked as a harbinger of branchless banking
in Bangladesh. Branchless banking is a fundamental driver of D#payments, %hich are not
necessarily limited to mobile. D#payments offer many benefits, from the improved
management of cash circulation to increased transparency and traceability and improved
oversight to help comply %ith regulations. Branchless banking allo%s governments to
distribute social %elfare and other government benefit programs safely, conveniently and
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securely %hile reducing graft and ensuring the aid reaches the intended recipients.
(roueh, 0123).
In the last decade, there has been an explosion of different forms of remote access financial
services, i.e., beyond branches. These have been provided through a variety of different
channels, including mobile phones, automatic teller machines (ATs), and oint#&f#"ale
(&") devices and banking correspondents. In many countries, these branchless channels
have made an important contribution to enhancing financial inclusion by reaching people
that traditional, branch#based structures %ould have been unable to reach. &ne of the main
obstacles to financial inclusion is cost; both the cost to banks involved in servicing lo%#
value accounts and extending physical infrastructure to remote rural areas, and the cost (in
money and time) incurred by customers in remote areas to reach bank branches. Agent banking is rapidly evolving and its regulation plays a central role in enabling (or
sometimes limiting) its spread. (Dnhancing !inancial Innovation and Acess, &ctober 0122).
The advantages of agent banking are multifold. !irstly, the heavy cost of servicing lo%
value accounts and providing physical banking infrastructure to unbanked areas %as a
ma6or impediment to financial inclusion in the past. 8orse, this model %as heavy on the
pockets of poor customers, %ho had to spend time and money to travel long distances to
the nearest branch. Agency banking rationalied banks: operational expenditure, and
reduced the cost to customers, %hile enabling %ider reach. In time, agents also took up the
responsibility of on boarding, managing and servicing customers, making agency banking
a lucrative option for banking institutions.
"econdly, *hannel innovation has revolutionied the face of banking around the %orld.
*onsumers: adoption of multiple channels has fueled their expectation of true multi
channel banking, %hich allo%s them to transition seamlessly bet%een touch points as they
fulfill several, or even a single transaction. Agency banking, an important channel
innovation that has improved banking penetration in underserved areas in the past, can no%
help banks tap into other segments, by becoming an integrated component of multi channel
banking.
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8/18/2019 PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH
!urthermore, changing customer demographics, competition and a host of economic
factors have forced banks to take a relook at their distribution strategy. Agency banking
enables them to extend their reach not only into areas %ith poor branch penetration but also
up to the doorstep of those %ho are reluctant or other%ise unable, to make a trip to the
nearest branch. @egulators %ant to achieve financial inclusion through a profitable, lo%
cost delivery model that simultaneously protects consumers and the integrity of financial
services. There might be instances %hen banking agents fail to provide /uality service or
compromise customer data. This can affect the credibility of banks, a matter of concern to
both banking institutions and their regulators. ence, banks must take care to sign up the
right agents, and regularly monitor their performance. (Cayanti, 0120)
In a gro%ing number of countries, banks and other commercial financial service providersare finding ne% %ays to make money delivering financial services to unbanked people.
@ather than using bank branches and their o%n field officers, they offer banking and
payment services through postal and retail outlets, including grocery stores, pharmacies,
seed and fertilier retailers, and gas stations, among others. !or poor people, Ebranchless
bankingF through retail agents may be more convenient and efficient than going to a bank
branch. !or many poor customers, it %ill be the first time they have access to any formal
financial services and formal services are usually significantly safer and cheaper than
informal alternatives. Agent banking through retail agents appeals to policymakers and
regulators because it has the potential to extend financial services to unbanked and
marginalied communities. But it also challenges them to ask; 8hat are the risks of these
ne% approaches, and are they different from those of conventional branch#based banking
o% should %e respond to these risks, so as to permit branchless banking %ith retail
agents to operate safely and expand access to finance (Timothy @. 9yman, 011?).
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encryption. Dnd to end encryption refers to a digital communications paradigm of
uninterrupted protection of data traveling bet%een t%o communicating parties %ithout
being intercepted or read by other parties except for the originating party encrypting data to
be readable only by the intended recipient, and the receiving party decrypting it, %ith no
involvement in said encryption by third parties.
*able 20 Syste$ reurie$ent of -ent an%in
Able to
support real
time
processing
Able to provide a
secured net%ork
including end to
end encryption
"hould be robust in
managing
infrastructure capacity
to support agent
banking services
At the end point,
devices should not
store the sensitive
customer information
e.g. in' ass%ord'
Biometrics
"ource; 7uidelines on Agent Banking for Banks
"econd phase of system re/uirement of Agent Banking it ayment Acceptance <evices
(A<). ayment Acceptance <evices (A<) must be able to support minimum T%o !actor
Authentication (T!A)'T%o#step verification for agent and customer registration. T%o
!actor Authentication (T!A) means providing unambiguous identification of users by
means of the combination of t%o different components. These components may be
something that the user kno%s, something that the user possesses or something that is
inseparable from the user. A good example from everyday life is the %ithdra%ing of moneyfrom a cash machine. &nly the correct combination of a bank card (something that the user
possesses) and a I$ (personal identification number, i.e. something that the user kno%s)
allo% the transaction to be carried out.
A< must be able to support the re/uirement of end#to#end encryption based on industry
standards algorithm (from end#point devices i.e. A< to host system) and A< must not
store any sensitive customer information like I$'ass%ord at the end#point devices like
A<.
Third phase of Agent Banking is Agent Banking Application'"oft%are must be able to
support host validation for I$'ass%ord authentication, be able to provide device
authentication during session activation and transaction processing at host level, be capable
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to have limit management feature for agents, customer, transaction and other limit
re/uirements, include transaction and system audit trail.
Chapter 9our
Reulatory Instructions on -ent an%in
Agent banking is comparatively a ne% idea that can help the formal banking sector reach
out to the marginalied people of the society through their agents, %ho %ill provide several
banking services to the people locally. Agents %ill provide banking services to the people
on behalf of a bank and the nearest branch of the bank %ill provide necessary logistic
support. In short, agent outlets %ill be mirror bank branches. The challenges for banks %ill
be to devise a business model that %ill generate ade/uate revenue to compensate all parties
in the value chain as %ell as shape up the agent net%ork and tackle the operational
challenges to selecting, training and managing agents.
8ith a vie% to ensuring the safety, security and soundness of the proposed delivery
channel Agent Banking 7uidelines have been framed by the Bangladesh Bank to permit
banks to be engaged in agent banking.
Banks %ill give much emphasis on the rural area to cover lion share of the target group but
at the same time %ill not ignore the rest of the target group by concentrating on the urban
area in a limited scope. The ratio of the number of sub#agents'outlets of a bank %ill be 0;2
for rural and urban area. That means, a bank must have at least 0 rural agent banking outlet
to have 2 urban agent banking outlet. Banks %ill provide priority to rural area for their
operation of agent banking.
Banks have to ensure the compliance %ith the minimum re/uirements to establishingsound systems and vigorous infrastructure to support agent banking. IT infrastructure must
be able to support real#time processing, provide a secured net%ork including end#to#end
encryption, and robust in managing structural capacity to support agent banking services.
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8/18/2019 PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH
(&") devices and banking correspondents. In many countries, these branchless channels
have made an important contribution to enhancing financial inclusion by reaching people
that traditional, branch#based structures %ould have been unable to reach. &ne of the main
obstacles to financial inclusion is cost; both the cost to banks involved in servicing lo%#
value accounts and extending physical infrastructure to remote rural areas, and the cost (in
money and time) incurred by customers in remote areas to reach bank branches. Agent
banking is rapidly evolving and its regulation plays a central role in enabling its spread.
Agent banking is /uickly becoming recognied as a viable strategy in many countries for
extending formal financial services into poor and rural areas. In recent years, agent
banking has been adopted and implemented %ith varying degrees of success by a number
of developing countries, particularly in 9atin America.
*able 30 *he adoption of -ent ban%in reulation by different countries
Countries Year Countries Year
*olumbia 011? exico 0114
Brail 0111 Dcuador 011G
eru 011= Jeneuela 0114
+enya 0114 Argentina 0121
India 011? Bolivia 011?
Bangladesh 012>
"ource; Alliance for !inancial Inclusion
Brail is often recognied as a global pioneer in this area since it %as an early adopter ofthe model and over the years has developed a mature net%ork of agent banks covering
more than 44K of the country:s municipalities. &ther countries in 9atin America have
follo%ed suit, including exico, eru, *olombia, Dcuador, Jeneuela, Argentina, and
Bolivia. &ther countries around the %orld have also utilied the agent banking model to
expand financial services, including akistan, hilippines, +enya, "outh Africa, ganda,
and India.
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8/18/2019 PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH
After 20 years of implementation, today Brail has 2?143> agents. eru, in its seventh
year, has 4013 agents. *olombia, in its fifth year, has 2>04? agents. India has =G>=2 agents
%ithin the nine years of adopting the regulation of agent banking. *ompare to othercountries, Bangladesh is novice in the ne% tools of financial inclusion.
*able &0 Si'e of aent net+or%; by year the $odel +as introduced
Mear of agent banking%as launched
Mear of agent banking
regulation %asintroduced
$umber of agentscurrently functioning
Brail2
0111 0111 2?143>
eru0 011G 011= 4013
*olumbia> 011H 011? 2>04?
+enya3 0121 0114 2?>>2
Bangladesh 0123 012> G>
"ource; Alliance for financial inclusion
1 *+ a) en o& ,ecember 2011
2 *+ a) en o& ,ecember 2011
3 *+ a) en o& ,ecember 2011
4 *+ a) en o& ,ecember 2011
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8/18/2019 PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH
Brail is the pioneer in agent banking. In addition, it introduced the agent banking
approximately thirteen years ago. There are many areas in our country %here the economic
condition of the people is not good and profits from those areas are not that much that can
offset a branch5s fixed and operational expenditure. Banks may thrive by covering these
areas through engaging local agents as agents do not have to incur any significant amount
of cost for rendering the services. In Brail, Banco Bradesco partnered %ith their national
post office as agents to cover such ne% areas.
Dxperiences in India and abroad has sho%n that traditional Banks have struggled to reach
the poor %ith financial services. @ecogniing this fact, many countries such as Brail,
Indonesia, alaysia, exico etc. have allo%ed non#banks to offer payments, deposits and
cash#in'cash#out services. "imilarly, in India, enabling an inclusive competitive landscapeshould be a top priority. India has several strategic assets providing favourable initial
conditions for transformational change to%ards digital financial inclusion. A strong
@unning any bank branch in a remote area is not very cost#effective. "etting up a formal
banking branch involves a large amount of fixed cost and a high monthly variable cost for
maintaining it. But the number of transactions that take place in rural, remote or less
densely#populated areas is not enough to make up for those costs. Agent banking can
ensure the access of the marginalised people to several financial services, especially in
remote areas. It can %ork %onders in financial inclusion and enhancing financial activity in
remote areas.
(.1 "resent status of aent ban%in in anladesh
The central bank has already issued licences to the nine banks till Cune 012= for runningagent banking, under %hich financial services %ould be offered through agents instead of
branches. &ut of nine banks (Bank Asia 9imited, <utch Bangla Bank 9imited, Dxport
Import Bank 9imited, Al#Arafah Islami Bank 9imited, $@B *ommercial Bank 9imited,
odhumoti Bank 9imited, "tandard Bank 9imited, "ocial Islami Bank 9imited, "outh
Bangla Agriculture and *ommerce Bank 9imited) t%o are operating it:s agent banking
activities.
*able (0 #o. of aent ban%in license receivin ban%s
Serial
no.#a$e of the ban%s
)icense
approved
by
Operation started
2 Bank Asia 9imited ay 012> <ecember 012>
0 <BB9 Culy 0123 Canuary 012=
> $@B *ommercial Bank 9imited
ay 0123 Cune 012=
3 Alarafah Bank 9imited Cune 012= Cune 012=
= Dxim Bank 9imited Cune 012= &peration is under processed
? "AB* Bank 9imited Cune 012= &peration is under processed
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8/18/2019 PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH
It %as a matter of interest that %hat reasons that motivated people to be an agent are. There%ere lots of factor involve in this motivation. ost of the agents have grocery shops,
construction:s business, pharmacy, mobile phone shop or other business. They %ant to
associate %ith big brand for their reputation. It %as the evidence that out of total
respondents 3>K agents involved themselves %ith agent baking for attaching their name
%ith brand or banks. ("ee figure G) !urthermore, >2K and 00K agents %ere motivated to
take agency due to transaction base income and employment.
9iure 60 9actors that $otivated to be aents
ran+ac)ion &ee income 31
Brin(+ more /eo/le in)o my +)ore 4
or em/loymen) 22
I an) )o be a++ocia)e i)- a bi( bran 43
"ource; Author:s survey
(.5 Challenes to operate aent outlets
Availability of net%ork as a challenge to agency banking in Bangladesh %as mentioned by
>0 (211K) of the respondents. ("ee figure 4) o%er failure and system failure %ere
respectively 3HK and >GK claimed by the respondents. o%er failure and system failure
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8/18/2019 PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH
BB introduced agent banking guidelines for all commercial banks aiming to provide
banking and financial services on a limited scale to the underserved population. BB alsoissues permissible agent banking activities in agent Banking 7uidelines. Although there are
lot of services permitted by BB, all services are not provided till today. *ash In, *ash &ut,
*ollection - preservation of A'* opening !orm - others receipts copy are almost offered
in all agent outlets. Balance in/uiry and fund transfers are also taken place in 4HK and
42K agent outlets respectively. ("ee figure 2>) H0K agents are providing issue of mini
statement and 2>K agent are providing foreign remittance services. Although our country
earn huge amount of remittances, agent outlets can not grab the opportunity due to poor
promotional activities, long term strategies of banks.
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8/18/2019 PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH
The customers %ho have an account in agent outlets %ant better services from agent
outlets. If customers get better services than other forms of banking specially in rural area,
they %ill include themselves in banking sector %hich is ultimate target of agent bankingdirected by central bank. igher the people includes in the formal banking sector, it %ill
make higher contribution of banking sector in our economy.
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8/18/2019 PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH
The bank should focus on proper training, development and motivation of agents.
Si<, agents in rural area are not %illing to provide all services %hich are pointed out in
agent banking guideline. They are not providing *ash payment under government social
safety net program, *he/ue receive for clearing, !acilitating small value loan disbursementand recovery of loan installments, passport fee collection and so on. Agents need to go
branch regularly as a result their communication costs, operational cost increase.
Therefore, they do not %ant to provide all services directed by central bank.
Banks should ensure that safety and soundness of the banking system especially &gent
Banking #ervices. These services are needed to provide banking services at a lower cost
and to foster financial inclusion. Banks must ensure the confidentiality and security of any
customer information in the agent*s possession.
Seven, the bank has less control over the customer experience at the agent than at its o%n
branch, for t%o reasons. !irst, the agent:s staff is not sub6ect to the same selection
standards and training as branch employees. "econd, in a retail store, the agent business is
sitting alongside a set of other retail products and propositions beyond the bank:s control.
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8/18/2019 PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH
+nder these circumstances, the bank should maintain a record of incidents reported at
each agent, with a view to identifying suspicious patterns and monitoring service quality.
Banks need to be cautious about agent activities because bank’s reputation is tied up with
the agent while approving agency. Banks needs to examine and consider the security of the
place prior to select an agent. Banks should also consider the rate of theft or robbery in an
area before selecting an agent. 'f needed, banks can also arrange an insurance coverage.
'n addition, banks may have written and pictorial instructions and those should be placed
at visible places inside any agent bank to make customers aware that no transaction is
completed without an automated printed receipt.
!inally, agent banking %ill be successful and it:s goal %ill be reachable if aforementioned
challenges can be faced efficiently and effectively by giving our hand. But, this is not thatmuch easy as it appears to be. If *hallenges can be handled in strong hand, agent banking
creates ne% era of financial inclusion in the banking sector of Bangladesh. Agent banking
can add motivation to financial inclusion if the BB along %ith commercial banks can
express the po%er of agent banking properly. To create long#term resilient and sustainable
economic, social and environmental values as %ell as strengthening the financial system of
the country, $ot only the BB should have a vision regarding this but also banks need to
have their vision, mission, goals and ob6ectives, %hich must fulfill the need and
re/uirement of their ne% customer. Agent banking can contribute in large scale by
including unbanked people into the banking arena if central bank and banks in Bangladesh
go hand in hand.
References
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8/18/2019 PROSPECTS AND CHALLENGES OF AGENT BANKING IN BANGLADESH
Cayanti, ". +. (0120). O &gency Banking9 6ew (rointers in (inancial 'nclusion.7
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of $airobi.O pp. 3#G.
ark ickens, <. . (0114). O"cenarios for Branchless banking in 0101O. (ocusnote :8, pp.
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roueh, . (0123). O Branchless Banking 9 &frica, the )iddle 3ast ; akistan. Total
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atricia, $. (0123). OImpact of Agent Banking on erformance of <eposit oney Banks in $igeria.O -esearch 4ournal of (inance and &ccounting ,5ol. :, 6o.<, pp. >=#>G.
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Timothy @. 9yman, 7. I. (011?). +se "f &gents 'n Branchless Banking (or The oor9-ewards, -isks, &nd -egulation. *7A. pp. 3.
llah, A. A., - a/ue, ". T. (0123, <ecember 1H). OAgent banking as a tool of financial
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Pachary . osoti, @. 8. (0123). OAn Investigation on "lo% Adoption of Agent Banking
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