Uganda: Will Agency Banking Propel the Financial Sector to New Heights?

Banks and other financial sector players in Uganda await the issuance of the Agency Banking regulations in growing anticipation. Their issuance will allow for the extension of the provision of basic financial transactions to your local super market, hardware shop or pharmacy. In this way, banks should offer more convenient, flexible and accessible account access for both new and existing customers.

Save for a handful of players, banks in Uganda have been going through difficult times. While largely driven by poor credit portfolio quality, it has also been due to the minimal growth in the number of customers being served through the banking halls.

It has also been driven by the relative ease of access to basic transactional capability - including transfers and utility payments - provided through the growing networks of mobile money services.

The adoption of Agency Banking by banks is likely to turn this around.

Changing clientele

The customers are changing and management teams in the banks realise this. They are younger, more technologically savvy and greatly time conscious. Walk into any banking hall during the upcoming school fees payment period and note the disgust and fatigue exhibited in the customer queues.

A faster, closer and easier way to make this payment will be preferred. And the banks most responsive to this be patronised accordingly.

Uganda's population is growing rapidly, and will need new ways of being served. The World Bank estimates that the population of Uganda - currently at around 38 million - will be more than 100 million by 2050. The opportunity to grow the customer base will best be taken by the players that can serve them with the least hassle.

Innovations

The technology to reduce risk and provide high levels of service through agents is now maturing enough to ensure the banks' risks are reduced. In providing service through agents, banks expose themselves to higher levels of risk and customer dissatisfaction through reduced quality of customer service.

Having been rolled out in many countries in Africa, Asia and Latin America, providing financial access through agents is not a new concept. As such, banks can avoid the challenges and minimise losses through fraud by adopting learnings from other countries and industries.

Through their agents, banks will get better, more relevant and real-time feedback from more customers. The reliability of, and broader range of payment services available through mobile money indicates that banks have been left behind by the telecom companies in product development.

Agency Banking should encourage more product development and better responsiveness and in turn keep customers happy - thus more business for the banks. All this points to two likely things - banks will get more customers, and these customers will be happier.

Traditional banking

Despite being in Uganda for more than 50 years, only 13 per cent of Ugandan adults have access to a bank account versus a very big number of Ugandans who have access to a mobile phone.

By leveraging the outreach of the telecom network to provide the much-needed financial services, more customers will want to have bank accounts in order to grow their savings and get access to credit. Banks will need to focus on ensuring the agents selected can be trusted by customers to provide a safe and secure location to transact.

Similar to their efforts to promote their banking through mobile phone (mobile banking) offerings, customers will also need to receive awareness messages on how to use their phones and cards to transact at agent locations.

By providing access at various agent locations, the cost of travel and information access must go down. With more time saved, better products and greater access to credit, customers will have greater incentive to use more services provided by banks. Greater satisfaction from banks will result in more business and better performance of the industry, and could well be the necessary aid to stimulate faster growth of the financial services sector.

The potential growth opportunity presented by Agency Banking must have the banks licking their lips. Equity Bank, the leading example in Kenya, adopted the model in 2009. At the time, Equity Bank had fewer than 500,000 customers.

Today, Equity Bank boasts of more than 10 million customers across Kenya. Indeed, the Agency model has been replicated in Rwanda and Tanzania, where the bank also has operations. It would be truly a surprise if the bank did not use its experienced internal capability to grow its presence in Uganda in a similar way.

For the opportunity to be fully beneficial, the banks must be willing to take on a certain level of risk - strategic, financial and operational - in order to learn, respond to customer needs and adapt to the new way of serving their customers.

By doing this, they can hope to gain the much needed experience and in-house expertise to develop better product offerings, get more agents and serve more customers efficiently.

Financial Sector Deepening Uganda (FSD Uganda) is supporting banks' preparation to provide more relevant, sustainable and efficient services through agents by providing the expertise to aid their planning and product development.

In March, FSD Uganda will publish research findings into the perceptions and expectations - including where, when and how customers want agent assisted service.

Tips on saving

Enjoying the innovation. In order to take advantage of Agency Banking, one should be good at saving.

What is saving? Putting aside part of the income earned for future use or investment in long-term assets such as land or income generating assets like stocks.

Why save? To cater for unforeseen future calamities such as sickness, pay bills and to buy property or invest in income generating activities so as to generate revenue even while you are sick.

How much should one save? Individuals can save according to their ability. However, generally speaking, about 30 per cent of the monthly income is recommended. This saving can as well be applied to people with informal income. Without proper planning, it is not easy to save. It requires commitment, discipline and determination.

How do I save? You are advised to save in the following order, in cash form or other assets and business: In livestock such as goats or pigs; in property such as land and real estate; in credit associations; in micro-finance institutions and SACCOS; in banks; and in stocks or bonds.

SOURCE:THE MONITOR