Uganda: Agency Banking - Stanbic to Hire 1000 Agents

Stanbic has identified about 1000 agents to deal with as soon as the proposed new agency banking is legalised, according to the Chief Executive Officer of Uganda's largest bank, Patrick Mweheire.

In an interview with The Independent, Mweheire said the new banking model will "revolutionalise the financial sector".

"To Stanbic and the entire financial sector, agency banking will cut the cost of doing business which will improve performance and pave way for gains in terms of new jobs and other benefits," he said.

He said that 25% of Stanbic's branches make loses which negatively impacts on its financial performance and compromises their ability to design and implement new products and tailored services for better customer services.

"It is cheaper for us to reach everyone through agents instead of opening a branch everywhere that costs a minimum of Shs2 billion," he said.

Mweheire urged government to speed up work on the regulatory framework for agency banking model because Stanbic is "already ahead of what the regulators are doing."

Under the agency banking model soon to be legalised, licensed financial institutions will be allowed to use an agent to provide special financial services on their behalf outside the conservative avenues of bank branches, Automated Teller Machines (ATMs), and even mobile money.

The agents being considered under the arrangement include village and town shop owners, mobile money agents, pharmacies, consumer goods distributors, petrol station operators, and more.

Financial institutions, such as commercial banks, will fit these premises with machines to enable customers to deposit and withdraw money either in cash or cheque.

The entire process will be regulated by the central bank - Bank of Uganda - and the coming new regulations will stipulate what services and activities the agent can undertake on behalf of the financial institution.

BoU ready to regulate

Christine Alupo, the director of communications at Bank of Uganda (BoU) told The Independent on Feb. 17 that agency banking regulations were finalised by the BoU last year and cleared by the Minister of Finance Planning and Economic Development.

"The last step is for them to be gazetted which is being handled by the Ministry of Justice and Constitutional Affairs (Solicitor General)," Alupo said.

The Financial Institutions Act amendments of 2016 give the Central Bank (Bank of Uganda) powers in consultation with the Minister of Finance to make regulations in respect of agents and agent banking.

Alupo says the biggest impact of agency banking will be in terms of increased access to banking services because agents will be located closer to the people, many of who still endure long distances to bank branches.

"So we believe it will enhance the level of financial inclusion in the country," she said.

She added that with agent banking, costs of distribution networks will come down and that this will eventually be reflected in charges for financial services.

The key advantage of this segment of banking is that it will work through existing retail outlets such as supermarkets and fuel stations and avoid the costs of setting up brick and mortar operations.

Alupo said bankers will still have to meet some key costs especially those related to technological platforms for extending their services but, she said, these are expected to be significantly lower than the costs of maintaining branches at the moment.

She said BoU strongly urges financial institutions to maximise the efficiencies of the agent banking model and offer cheaper financial services to Ugandans since they stand to benefit from the gains of a bigger banked population.

According to Alupo, the agent banking model makes a robust attempt to mitigate theft through the technological set up.

She explained that, in its normal operations, when one makes a deposit with an agent, their account with the bank is debited by that amount. Similarly when one withdraws from an agent, their account with the bank is credited.

"Essentially the transactions with customers make up the agent's cash flow for their own retail purposes," Alupo said.

Rural economy benefits

Introduction of agency banking will also have a huge impact on the economy, especially the rural economy, according to Joseph Lutwama, the Policy, Legal, and Regulatory specialist at Financial Services Deepening Uganda (FSDU).

Lutwama said Uganda needs to look at its trading partner, Kenya's success story to see the benefits of agency banking.

Data from the Central Bank of Kenya indicates that agent banking that was formerly started in 2010 with a main objective being improving financial inclusion witnessed a rise of 56 million transactions in the first-quarter of 2016 compared to 10 million transactions noted in the same period in 2015. The value of banking transactions undertaken through agents almost tripled from Ksh 65.0 billion to Ksh176.7 billion over the same period. The bank attributed the good jump in numbers to increased confidence and acceptability of the banking model by banks and the public as an economical, convenient delivery channel of financial services. As at the end of Q1 of 2016, there were 17 commercial banks that had contracted 40,224 agents which had facilitated over 170.5 million cumulative transactions valued at Ksh930.2 billion as compared to 16 commercial banks that had 34,381 agents that had facilitated 149.4 million transactions valued at Ksh817.7 billion in the same quarter the previous year.

Lutwama said rural people, who fear or shun formalised institutions due to low levels of literacy and the fact that bank branches are not evenly distributed across parts of the country, will finally enter the formal financial system.

Data from BoU indicates that by 2013, the country had 25 commercial banks, 658 bank branches and 835 ATMs serving approximately 4 to 5 million customers. These numbers could now go up sharply with agency banking.

To Lutwama, agent banking once embraced will boost rural economies that struggle to access financial services to invest in critical sectors of the economy.

He added that deeper financial inclusion in sectors like agriculture ideally means more money in the economy, more investments, more jobs created and more taxes for government - that ultimately means positive economic growth and development other factors constant.

He noted that the beauty with most rural economies in Uganda is that they are agricultural driven - a backbone sector that employs over 70% of the population and contributes a substantial 25% to national gross domestic products, according to the 2015 government figures.

Once, the rules of the game are made public, Lutwama says bankers should thoroughly train agents in areas of customer care and relationship management, information technology, loans application and repayment, marketing, finance and accounting and more so as to push the financial deepening agenda forward.

Only 52% of Uganda's adult population has access to financial services and 51% of adults prefer to keep their savings at home. It is also true that only about 8 million adult Ugandans have a bank account, according to the latest World Bank figures released early this month.

Meanwhile, only 16% of the 68% adult population saves through formal channels such as banks, deposit-taking microfinance institutions and Savings and Credit Cooperative Societies (SACCOs).

Saving being an ingredient for boosting growth of the financial sector and the economy in general, there is agreement that something must be done urgently to improve on financial inclusion.

Convenience for rural women

Annet Nakawunde Mulindwa, the managing director at Finance Trust Bank (FTB) told The Independent on Feb.16 that agency banking could remove one of the biggest impediments to financial inclusion - which is limited participation of women in the financial sector.

This, she said, would spearhead investments in sectors like agriculture where mothers are deeply involved.

"Women are busy, hardworking and special in nature," Nakawunde said, "They need services closer to them if they are to contribute more tangibly to economic growth," she said, "... we needed agency banking some years back.

"Agency banking is all about convenience to customers and financial inclusion for banks," she said.

Apart from women, Nakawunde said, rural households, and hard-to-reach populations, as well as informal micro and small firms would benefit from the agent banking model.

With 36 branches across the country, Nakawunde says, agency banking will give FTB more prominence in areas where they have not yet reached given that establishing a bank branch is costly and requires two years or more to break-even.

She said that banks together with the regulator will work to mitigate risks such as theft, liquidity shortages, technological challenges that would impede the successful implementation of the banking model in the country.

She added that FTB will identify agents to deal with for this banking model once the legal processes by government are concluded.

SOURCE:THE INDEPENDENT