Firms line up for agency banking as CBK sets rules

Businesses with strong cashflows are set to benefit from the newly-introduced agency banking, which will see financial institutions use companies to reach potential customers in underserved regions.

The financial system regulator, the Central Bank, has issued guidelines for the agency banking model, paving the way for banks to start recruiting businesses with which they can partner to expand ordinary banking services to areas where they find it expensive to establish branches.

Bankers are likely to pay agents commissions for volumes transacted or on other considerations but the finer details are yet to emerge.

“The agreements in that (agent) business model will be reached by individual banks and their agents. It will be upon the parties to work out the fees payable to agents,” John Wanyela, the CEO of Kenya Bankers Association, said.

“But the agents will be appointed from ongoing businesses which are able to generate substantial cashflows, not new entities,” he said, adding that banks will absorb the cost of hiring and retaining agents, cushioning customers from additional charges from the agents’ side.

Analysts say Saccos, telecoms agents, and retail chains are some of the frontrunners for the agency business.

“Banks will be looking for agents and vice versa but agents with a strong platform and extensive network to deliver the banking services will emerge the winners,” said Eric Musau, a financial analyst.

Saccos, for instance, have several factors working for them.

The firms have a widespread presence both in urban and rural areas, drawing their membership from the working class who represent a substantial deposit base that banks can tap into to fund their lending business.

Saccos command over Sh180 billion or an equivalent of 16 per cent of Sh1.1 trillion of savings held in bank accounts.

The past two years have seen more Saccos launch front office services (FOSA).

It is estimated that close to 300 Saccos now offer deposit and withdrawal services, with more expected to join the fray with the introduction of agency banking.

Telecoms agents offering M-Pesa, Zap,and Yu Cash services, on the other hand, offer a strong grassroots presence ideal for reaching areas where banks have not set up brick and mortar branches. M-Pesa, for instance, has 18,000 agent outlets across the country.

“Our market leadership is hinged on the fact that we are always on the lookout for new strategic initiatives that add value to our business. We will evaluate the opportunities available in the new guidelines and see what we can exploit for the mutual benefit of ourselves and our agents,” Safaricom CEO, Michael Joseph, said.

Zain is also considering opportunities in the agency banking business.

“The banks can access our agents through us but there are some regulatory approval that have to be in place first,” Mr Michael Okwiri, the communications director at Zain Kenya, said.

The regulations allow agents to provide agent banking services to multiple institutions, provided that the agent has the required capacity and has signed separate contracts for the provision of such services.

The telecoms agents have a strong competitive edge in providing mobile phone banking services which are now the rage in the banking sector, riding on the massive uptake of mobile telephony-— half of the population has a mobile handset.

Other functions agents are allowed to undertake include cash deposit, withdrawals, payment of salaries, loan application and repayments, and transfer of funds.

But the telecoms agents will have to inject more capital to serve both the telecoms and bank customers.

Ordinary telecoms agents, who exclude banks acting as large or super agents, have been plagued by lack of float —the amount of money kept with an appointed bank as a prerequisite to facilitating transactions of similar amounts.

“Due regard shall be taken to the space, technological capacity and adequacy of funds or float of the agent,” reads part of the new agent banking regulations.

Analysts say retail chains are at a unique position, given their role as a consumer spend point.

Equity Bank has an arrangement with Nakumatt in which the bank’s customers can shop and withdraw money at the supermarket using their Visa-enabled cards.