Agency banking runs into hurdles in Kenya
Kui Kinyanjui
Business Daily
A new banking model that hoped to enhance access to financial services by allowing small businesses to operate as satellite branches is coming under pressure from increasing operational hurdles.
Agency banking — which allows commercial outlets like shops and supermarkets to act in some capacity on behalf of formal banks — was formally launched six months ago, but just a handful of banks have so far taken up the option.
“We are facing problems converting these outlets into what we would be comfortable to call outsourced banks. Our agency selection criteria is showing some weaknesses, and we are now re-organising what we demand of agents in order to favour cash heavy operations in order to meet this demand,” said James Mwangi, CEO of Equity Bank.
Keen to take advantage of the cost-saving and accessibility brought about by the agency banking model, Kenyan financial institutions have over the last six months embarked on an aggressive entry into the segment. But many are finding that agents lack capacity to handle large transactions of cash and under-spend on security measures.
So far, Equity Bank, Postbank, Co-Op Bank and Kenya Commercial Bank have launched forays into the segment, with some already claiming that identifying agencies that are able to provide cash to customers is becoming an industry challenge. Recent data from the Central Bank of Kenya (CBK) reveals that the regulator has licensed over 10,000 establishments to act as agent banks, with Equity claiming to have outsourced some of its operations to 5,000 active outlets.
CBK data shows 8,809 agency outlets were opened in 2010, most of which are being operated by Equity and Co-operative banks.
KCB hopes to open about 2,500 agency branches this year, while Postbank hopes to open 500.
But identifying agents who are capable of handling cash transactions efficiently has been a challenge for the institutions, with consumers reporting that cash is often scarce even as rising fears of security mount at the outlets.
Analysts say that the development may arise from the fact that many of the available outlets have already been snagged by mobile phone companies, who have relied on their agents to fast-track uptake of mobile money solutions such as M-Pesa, YuCash, Orange Money and Airtel Money.
Currently, over 30,000 outlets around the country are enrolled as mobile money transfer agents, leaving banks with a smaller pool of businesses from which they can pick the cash-rich operations they need to roll out agency banking model. Some banks, like Co-operative, have instead opted to partner with cash-rich Saccos in order to get around this issue.
The development could force some banks to consider deeper partnerships with mobile firms, a solution that the government has increasingly been advocating for. “We are encouraging banks to share infrastructure to gain economies of scale; and to reduce overheads through increased use of ICT, agency, and mobile banking. We will extend credit referencing to sharing of positive information by banks,” said Finance minister Uhuru Kenyatta.
Support the drive
Mr Kenyatta said the state was keen to support the drive towards greater access to credit, including encouraging the agency banking model as well as reviewing the legal, regulatory and supervisory frameworks for the financial sector to improve them further and ensure conformity to the new Constitution.
With over 6.9 million customers and just 130 branches, Mr Mwangi said Equity was relying on the model alongside several other technology deployments to extend services beyond the typical brick and mortar model employed by banks.
The Central bank should review transactional limits at the Agency points down ward as a measure of managing the operational challenges like security,liquidity levels;as it enhances regulatory and supervisory capacity/framework.
I also believe that the regulator should review the infrastuctural standards like space,location before approval to operate is granted.
Requirements of becoming an equity agent
As many financial service providers around the globe come under immense pressure of ICT compliance in their service delivery, it is imperative that issues related to security, transaction limits, and banking risks will keep soaring. In this environment, it is critical that all banking institutions engaged in this business model treat banking policies and procedures with utmost keeness to protect the economy from robbery and money laundry.